Hope for an improvement is fading.
According to CIMB, their expectations of rising vacancy rates remain unchanged. The firm believes that the government is now planning for some excess property supply, after the lessons of the past five years.
The upcoming 700k supply includes 200k units due for completion by 2016. CIMB's in-house model imputes 80k foreigner net add (vs. 61k) and 30k net add to residents per year (vs. 20k), and we still see vacancy rates rising to 8-10% by 2015.
Beyond 2016, the fairly muted new population growth targets will raise vacancy rates for private residential units further, after the first 200k units are completed.
Here's more from CIMB:
The subsequent 500k units added after 2016 will cater to an additional 1.6m population (based on current household size of 3.2). If the population grows at 86k a year, this means an additional 1.2m people to populate the 500k housing units i.e. supply will still exceed demand.
We present another perspective - we strip out demand for HDB and gauge how much household size has to shrink to absorb supply. The ratio of PRs to citizens stands at 16% in 2030, in line with 2011/12.
The percentage of residents staying in HDB flats was 83%. This implies 27k residents a year demanding HDB flats, or 8k units based on household a size of 3.2 and 116k units cumulative from 2017 onwards.
If the balance 380k units are private residential units, catering to non-residents and the balance 17% of residents totalling 61k population net add a year (860k in aggregate from 2017 onwards) implies a household size of 2.3 for private units vs. 3.4 on average.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)