Friday, 14 January 2011

The Property Bubble & Investment Trap Part XIV - Opening Shock in 2011.

The following article "Revisiting Housing Supply" published in TODAY Jan 07,2011 contained data which I was anticipating for sometime and they were indeed an "opening shock" for me for 2011. No, the property market is not going to collapse immediately, so do not be unduly worried yet. But after I explain to you why it is shocking, you may want to decide whether or not to.

The caption said "Based on URA and HDB projections, there could be a deluge of homes in 2013 and 2014". When I am presented with a report with data, my usual reaction is always to look at the data first before reading any write-ups, notwithstanding that the statistics may be released officially by statutory boards. Note the obvious errors as follows :-

(a) Although there were minor typo errors in Tables 2 (Year 2007) and Table 3 (Year2013), these are still acceptable though the Tables are not complex at all.

(b) What I could not accept was the glaring errors of the annual totals given in Table 2 for (BTO+DBSS) units. The small error for 2008 : (7,793+1,711) = 9,504 against the given total of  "9565" might be excused. The typo error for 2009 : (8,893+1,563) = 10,456 against the given total of "10,6456" might again be excused. But how could one pardon the error for 2011* : (22,000+7,000) against the given total of "71,026"? Obviously a primary school kid would add these up as only 29,000 units.

As a precaution, I printed these out and checked with TODAY's website again to verify. I have "cut-and-paste" them below to show you how ridiculous it could be for our statutory boards to present you with simple yet misleading data. I wonder if this figure is linked to any other calculations in a speadsheet! And yet one of our Minster, Lee Yi Shyan, had boasted that PAP has "a system of xiang shang bao gao xiang xia fu zhe" or "reporting to the top and being responsible for the bottom". [PAP absent everywhere, present everywhere; Straits Times Dec 18, 2010]. I am indeed amazed by such misleading data.

Let's be very gracious and not question if there is  intention behind these errors. The "deluge of homes in 2013 and 2014", as argued by the analyst, is not going to there due to the above errors. Next, let me explain and focus on what seems more worrying to me after I had discovered these errors and make necessary reconciliation for analysis.

I like to focus my analysis on new HDB units first (BTO + DBSS) first with reference to Table 2 and 4 which were based on official figures released by HDB and URA.

(1)   "Physical" Supply vs Backlog

Firstly, I don't think there will be a "deluge", given that supply figures are not physically "real" as given in Table 2, 3 and 4 which are based on build-to-order system for both public and private properties. Now, that MBT had promised to complete BTO flats in about 2.5 years, down from the previous 3-year long lead time, let's still assume an average completion time of 3 years for all projects. E.g. units launched in 2008 will only be physically completed in 2011. In parallel, I do up the following comparison table which show a backblog of HDB units to be built.

From Table 2 (Source : HDB), we know the number of actual units launched from 2007 ~ 2010 based on actual walk-in bookings. Only the number of units (29,000) indicated for 2011 with an * is unsure "demand". The corresponding number of units of HDB (BTO+DBSS) estimated to be completed 3 years later from 2011~2014 as estimated by the analyst (IPA) could be taken from Table 4. Without looking into private residential units including EC, the backlog of HDB units can be worked out as shown in the last column of my table. There will be a total backlog of 14,263 units comes End 2014, assuming positively that there is no backlog for Year 2010.

Table : Backlog of HDB Units (BTO + DBSS) 2011 ~ 2014.

We all know BTO projects launched now are about 3 times oversubscribed, compared with a previous high of 6 times. Let's take the average number of HDB units launched per year from 2007 to 2011. [5,916 + 9,504+10,456+16,089] divide by 4 = 41,965/4 = 10,491 units. Let's take the minimum "demand" condition of 3 times the applications for new HDB flats = 3 x 10,491 = 31,473 units, not forgetting it can go up as high as 6 times. Say current demand of 31,437 units can be pared off with the 29,000 units launched in 2011, there will still be a backlog of at least 14,263 units  based on the analyst's (IPA) estimate. With  due respect, we have to take his projection of "physical" demand as accurate. But certainly, I could not agree that there would be a "deluge" in HDB (BTO + DBSS) units in 2013 ~ 2014.

(2)   Impact of Backlog on Price

Other things being equal and income elasticity permits, this backlog of 14,000 over units will certainly "cross over" to the  private condo + EC sector. Based on current private condo demand + EC of about 7,000 units plus 14,000 units = 21,000 units (private including EC) which more or less match URA's projection for 2014 in 2010 Q3 report. What is more important will be the take-up rate for the 7,000 units of DBSS to be released in 2011 by HDB land sales. If there is good take-up, I would expect a "deluge" of at least 7,000 units of EC + private condo. But the EC or private condo sales work like the BTO system, so at the end there will still be no "physical" supply if there are no purchasers. But if developers bid for land aggressively and are unable to sell them like "hot cakes" as it is now, I would expect price for EC and private mass market condo to fall drastically, when they are forced to go ahead with the development after a successful land bid, whether DBSS, EC or 99 yr LH condo. This will signify the start of bargaining power for buyers of such properties, which back up my view so far that there is no hurry to buy at the moment.

It is then a question of affordability for HDB upgraders and how expensive EC and private condo prices will be driven. I see the risk in EC prices because in 2010, there were supposed to be no DBSS launched as per Table 2. Say 7,000 units of EC launched in 2010 enter the market in 2013, the total demand of 30,700 units predicted by IPA will be absorbed. But for units to be launched in 2011*, HDB will push out 7,000 DBSS and hence the 20,500 predicted for private condo including EC will not be sustainable. But actually there are no physical units.

(3)   Caution With Data and News Reports

Without looking at data closely and presenting objectrively, how could MBT match demand and supply conditions with the BTO system? It will only push up prices higher and higher because there are no "physical" units when developers continue to bid for land excessively and price units expensively while pushing developement costs to the ignorant purchasers. I see a "catch" for buyers especially those who are earning marginally above $8,000 and upto $10,000/month combined household income. Some are forced into buying an EC especially if they marry late and does not have a cheaper HDB flat to leverage on.

The other factor which will aggravate a fall in price further as I had predicted before is a possible major correction due to external drivers, say a crash of the China Bubble in 2012~2013. When this takes place, there will certainly be  a major correction of close to 30%.

Currently, developers are still trying to push up the prices by a $200psf benchmark. The obvious being for EC launches where I see the greatest risks, since the DBSS and private 99 LH condo sub-markets are somehow marginalised. However, a recent report by Xin Ming Daily did show some "correction". Since it is a night paper, I would still "factor in" a 20% "discount" for the accuracy of their news. Readers should learn how to digest and interpret data objectively notwithstanding they are from "reliable" sources.

The Xin Ming Daily (6 Jan, 2011 ) reported prices are softening with another 4,000 EC units to be launched this year. 3 plots of EC land will be released in 2011 H1. For Esparina Residences, 90% of the 573 units launched are sold. For the Canopy and Prive, upto Dec 2010, only 52% and 40% are sold respectively. For Austville Residences prices have dropped to $620 psf, from $650 psf; and the developer is offering the DPS, "freebies" like a fridge, and 10 pairs of air-tickets for lucky draw. As I mentioned before, as long as a project is near to 50% sold, it is self-financing with the early buyers' fund. But if response to the remaining units are sluggish, the prices for the unsold units may become "negotiable" and this is what buyers should look forward to if there is still no "market-forced" correction in price. This Xin Ming Daily report seemed to dismiss the "favourable" picture painted of the EC market in a Straits Times article on Jan 1, 2011 New Year Day captioned "EC Living" by Tay Suan Chiang.  It demonstrates how distorted the market can be, just based on news reports, which are under the same SPH Group.

(4)   Population Growth

Table 1 shows the population growth for residents and non-residents for Singapore from 1995 ~ 2010. To be undoubtedly, I check it against the Singapore Department of Statistics website (Reference #04).

In Part IV of this series, I wrote "Coincidentally, the baby-boomers went through the ups and downs of the Singapore boom-and-bust cycles soon after they graduated from university. (1987 Black Monday, 1997 Asian Financial Crisis, 9/11 2001, SARs 2003, 2008 Black Monday, Sub-Prime/Mini-Bond 2009). Not coincidentally, this is also the period I had followed construction costs and property prices."

Now I want to super-impose our population and demographic trends on these dates and timeline to assess the impact of population growth. Table 1 looks consistent with the population data from the Singapore Department of Statistics website. Total population comprises Singapore residents and non-residents. Resident population comprises Singapore citizens and permanent residents. The majority of non-residents would include those working on work permits here and are unlikely to purchase properties. They only rent or live in quarters provided by the employers. We shall focus on the growth of residents for purchase of property.

Year 1998 - Post Asian Financial Crisis

(a) Non-residents = 747,200
(b) Residents = 3,180,000

Year 2003 - Post SARS crisis

(a) Non-residents = 747,900; Growth from 1998 = negligible (0)
(b) Residents = 3,366,900; Growth from 1998 = about 186,000

Year 2007 - Boom (Post Announcement of 2 IR projects in 2005)

(a) Non-residents = 1,005,500; Growth from 2003 = 257,600
(b) Residents = 3,583,100; Growth from 2003 = 216,200

Year 2010 - Census (Current Situation)

(a) Non-residents = 1,305,000; Growth from 2003 = 557,100
(b) Residents = 3,771,700; Growth from 2003 = 404,800

Popultation Growth 1998 ~ 2010
Total resident population growth from 1998 ~ 2010 (12 years) = 186,000 + 404,800 = about 590,000.
No of Births Below Estimated based on birth rates given in research paper in Reference #5
Birth ( Baby-Boomers ) 1961 ~1965 (5yrs)
1961  annual births = 60,000;   1965 annual births = 55,000     Avg =57,500
Avg 57,500 x 5 yrs = 287,500
Birth ( Baby-Boomers ) 1966 ~1970 (5yrs)

1966 annual births = 55,000; 1970 annual births = 50,000 Avg =52,500
Avg 52,500 x 5 yrs = 262,500

Total births 1961~1970 = 287,500 + 262,500 = 550,000
Total births 1971~1980 = Avg 45,000 x 10 = 450,000

In Part XIII which has now overtaken Part I as the most read posting on this topic in my blog, I wrote "It buys the PAP Govt 10 more years to react by the coming Election and at least another 2 more years in the following one, in one Chinese zodiac cycle. You may also recall that the baby boomers (Post 60s) were also badly hit by the PAP's policy of lowering CPF contribution rate and income ceiling cap following the SARs crisis and previous recession, notwithstanding current income stagnation, ever rising cost of living, current high inflation and imminent cut of CPF when baby boomers hit age 50.".

Now you can see from my analysis above, how in one zodiac cycle from 1998 to 2010, the PAP Govt had brought in some 590,000 residents + 557,100 non-residents to replace and cover-up the future "loss" of  550,000 baby-boomers of the post 1960s. There is always another 557,100 non-residents to "standby" or to cover the loss of 450,000 borned between 1971~1980.

Number of Deaths

Crude death rate of 4.3 per '000 Population x 3,771,700 Residents (2010) = about 16,200 per year.

Crude birth rate of 9.9 per '000 Population x 3,771,700 Residents (2010) = about 37,300 per year.

Although annual births more than replace deaths, the demand on housing by babies on housing is minimal, and so we can assume the replacement as almost equal. hence, the figures above for both residents and ono-residents may be used directly to gauge housing demand without adjustment for nett number of births.

And if all 557,100 non-residents are renting accomodation or provided with quarters, the additional demand for housing would be about  590,000 residents. Say there are 3 persons per household, the number of units required = 590,000 divide by 3 = 197,000 units totally or about 16,400 units per year. Considering some household may have 4 person, this bring us close to the backlog figure of 14,263.

Hence, I do not see a deluge especially in the HDB sub-market. At most I would only expect a "deluge" of about 7,000 units of (EC + private condo). But physically this is not going to happen and there will always be a shortage which will drive prices upwards if resident population continues to grow with foreigners imported. As such I tend to agree with Ng Ya Ken in his letter to TODAY [Reference #03].  As for the other letter writer, Christine Wong [Reference #03], it is a matter of bad HDB policies rather than a Demand vs Supply problem. My empathy goes to them as our policies are outdated. I also feel the old benchmark of $8,000 combined income to permit purchase of BTO is out-dated. As a result some maybe be forced into buying ECs which they can hardly afford at current high prices. Those with combined income of $10,000 is allowed to buy downwards into DBSS with policy relaxation announced last August but why not those who are marginally earning above $8,000 combined income? HDB should permit them to buy BTO too. The policy adversely affects singles who marry late and are trapped by ridiculous rising property prices. And the HDB and MND Minister are just watching and doing nothing for this group who are "caught-in-between" by our housing policies. And this group is expanding fast based on the latest Census.


I had wanted to put up this posting earlier but the new control measures were announced last night and the statistics also took me some time to verify. Let me just briefly mention something about this round of control measures.

The Govt had announced the latest set of control measures w.e.f. 14 Jan 2011. This must be the belated New Year present after China announced a rate hike as Christmas present in China. I believe both existing owners and new buyers, particularly short-term speculators; will be hit. Perhaps, now you will "appreciate" why SIBOR was lowered. As I said before, the Govt. was to open and then lock in foreign buyers and capital flow first. If they exit early, then pay a high punitive Seller's Stamp Duty (SSD) upto 4 years. A very punitive rate of eight per cent and above basically creams off all the profits that a short-term investor hopes to gain as remarked by an analyst. When interest rates eventually rise, it could strain purchasers who have over extended themselves financially. And when the prices do consolidate later, that is the time to buy.

Channel U also announced the latest sale figures for the following ECs as of 13 Jan 2011.
(1) Esparina - 92% sold
(2) Prive - 75% sold
(3) Canopy - 60% sold.
(4) Austville - No figures but price for Level 1 units with PES had dropped to $585 psf.
We can see how hard the Govt and private developers are pushing ECs. They must make money from the land sales.

Finally, I like to quote a few lines from what Collin Tan said in his commnetray in TODAY [Lay down the cooling measures to be taken upfront; TODAY 14 Jan, 2011]. I think he probably wrote this piece before the latest round of cooling measures w.e.f from today.

Quote :-

The finalised set of market numbers will determine whether a new round of cooling measures is forthcoming.

However, even if prices remain stable, if sales of new homes continue to be very high, then the concern is that a lot of it may not be owner-occupier demand. This has strong ramifications for the rental market. If the cost of borrowings should suddenly shoot up, a crash cannot be ruled out even if our track record shows that we have always managed a soft landing.

To outsiders who are not familiar with our housing market, all of our current market indicators, including those on the economic front, are gelling together to produce what can be considered to be the perfect property bull run if there is such a thing.
It is a sign of the anxious times, when single-property owners have mixed feelings even as many are made millionaires on paper.

Personally, I am not so sure the effects of the latest set of cooling measures will last. Our housing market must be among the most open and attractive to investors all over the world.

Is it time for some measures regulating the amount of liquidity flowing into Singapore and into the local housing market? Can there be more focused cooling measures without affecting genuine buyers and sellers? Is it time to pool together all the data of all the various government bodies to get to the bottom of the "problem" if it has not already been done yet?


On this note, particularly the last sentence above; you will know why I had started writting this piece even before the new measures were announced. Next, I will be watching for "rising" interest rate, and whether the present low rates will stay for another 2 years till 2013.

In the next posting I will be revisiting the issue of UNEMPLOYMENT and the $10,000 monthly salary issue.

Reference # 01 :-
TODAY Jan 07, 2011
Based on URA and HDB projections, there could be a deluge of homes in 2013 and 2014
by Ku Swee Yong

[Note : Read TODAY for full text, the following Tables are abstracted]

[Source : All tables abstracted from TODAY]

Reference #02 :-
TODAY  Jan 10, 2011
Letter from Christine Wong

I refer to the commentary by Mr Ku Swee Yong on revisiting housing supply and welcome the news that there could be a deluge of homes in 2013 and 2014.

As low-income singles, my brother and I are priced out of the market and have to each rent a room at exorbitant rates. At our age, we really hope to have a place to call our own, so I disagree with the measures proposed by Mr Ku to dampen supply.

I am sure Mr Ku's high-net-worth clients will have no problem buying two to three properties but spare a thought for us low-income earners!

Reference #03:-
TODAY Jan 10, 2011

Forecast of housing supply should include immigrant impact
Letter from Ng Ya Ken

MR KU Swee Yong predicted that there would be a deluge of homes in 2013 and 2014 in his article "Revisiting housing supply" (Jan 7). He derived his view based on the projection that 106,745 homes (50,786 public and 55,959 private) would be completed between 2011 and 2014, or 26,686 per year on the average, compared with the average of 22,543 in 1996-2010 and the average of 12,620 in 2001-2010.

Public and private houses constitute two quite distinct markets. It is inappropriate to combine the supply of the two and draw such a conclusion .....

The current market imbalance, especially in resale public flats and in rental flats, was contributed to by an unexpectedly large influx of immigrants in recent years - when new citizens and PRs increased by over 70,000 yearly, though the number has eased now.

We need to consider the strong demand for houses by immigrants in our study. To forecast better, we need more detailed data - especially of the cumulative impact of those who had arrived here earlier and are ready to buy homes now or in the next few years. The snowballing effect may be huge.
In the public flats market alone, a deluge of supply is unlikely especially if our economy grows at 5 per cent or higher in the next few years.

Reference #04:-
Singapore Department of Statistics

Reference #05:-

Reference #06:-
Commentary by Collin Tan

Reference #07:-
TODAY Jan 14, 2011
Commentary by Collin Tan


  1. I'm guessing that property prices will show marginal increases from here on, but will not decline. These new cooling measures will eliminate speculators who buy direct from developers and hope to resell before TOP. It will also stop those speculators who thinks the property cycle still has legs to run, and hope to buy now and resell within the next 1-2 years.

    The measures only affect new transactions after 14-Jan. Alot of condos have already been built during these recent 1-2 years. Hence selling those are still ok, but will be harder to find buyers. However, I believe that relatively few residents are leveraged to the max. Hence most should still have holding power. Hence, I think there might be at most several small firesales, but nothing across the board.

    I bet that the Fed will not raise interest rates this year, due to the still sluggish US economy, high jobless rates, and the still existing property mess in US.

    Now, 4 years to hold a private property is a long time (in order not to suffer from the SSD). What if you buy now, and during these 4 years the economy gets better and interest rates rise (hence your monthly mortgage rise as well), and then we go into another economic crisis before the 4 years are up? You'll be selling at a potential loss and still need to pay the SSD. Hence would-be buyers should really think hard. My opinion is that for now, park our money somewhere else (e.g. stocks), and revisit SG property market when the next crisis comes along.


  2. "Hence would-be buyers should really think hard. My opinion is that for now, park our money somewhere else (e.g. stocks), and revisit SG property market when the next crisis comes along.'

  3. Hi Mr Yak, interesting analysis but i want to ask some question. can i ask is the 590,000 residents couples or if there are children then the actual number of housing it can cover might not cover the "loss" of 550,000 baby-boomers of the post 1960s( since these are couples).

    For the non-residents, it would not be surprising if 4 to 6 person can share one flat
    unless all of them are bankers with lost of money then this standby will also not cover fully the loss of 450,000 borned between 1971~1980.

    Anyway why did you not include those born before 1960? I will suspect that in the coming decade many of the baby boomers maybe forced by the high inflation of food and energy to sell their flat and either try to downgrade or just move with their children since most of them have little savings.

    My view is that singapore might have even larger structural unemployment in the coming decade (which will devastate those working in the manufacturing sector) since the MAS is willing to sacrifice our exports to maintain the strong appreciation of the sing dollar to try to combat inflation. Many of our jobs created in the recent years are from either the service(casino and tourism)and financial sectors. If oil shocks does arise in the coming decade, I foresee the service sector especially those in the tourism and casino sectors will be devastated. The growth in the financial sectors have been due to the securitization of debts and proliferation of derivaties and i believe there will be a reckoning from 2013 onwards when these financial devices self destruct causing huge job losses in these sectors. This is why i think that after the corrections in 2013-5, the market will either be still depressed for a longer time or will unfortunately continue to drop yearly until 2020. What do you think?

  4. Hi James

    (a) @ "can i ask is the 590,000 residents couples or if there are children then the actual number of housing it can cover might not cover the "loss" of 550,000 baby-boomers of the post 1960s( since these are couples)."

    Table 1 follows the Dept of Statitics definition of "Residents" - meaning Singapore Citizens + PRs. So if only EP or WP are issued then it is non-residents. Hence they cannot buy but rent. Both 590K and 550K would be nett addition /loss to population. I believe 590K should be inclusive of children. I have no info but it does not matter because in my final analysis when I converted to number of "family" units and housing demand I made the re-conciliation which was as follow; since 3 or 4 per household will include children :-

    "Say there are 3 persons per household, the number of units required = 590,000 divide by 3 = 197,000 units totally or about 16,400 units per year. Considering some household may have 4 person, this bring us close to the backlog figure of 14,263.".

    It does not even matter if some of the nett 590K nett addition may be SC (as number of births does not equal deaths), ultimately it will generate demand. We also know annual birth rates were falling year after year.

  5. Hi James

    (b) @"Anyway why did you not include those born before 1960?"

    Well, I believe you had read some of my earlier posts. To explain,I reiterate "In Part IV of this series, I wrote "Coincidentally, the baby-boomers went through the ups and downs of the Singapore boom-and-bust cycles soon after they graduated from university."...

    Next let's go back to history. If you look at Fig 1 in Reference 5 (Birth Rates 1945~85), you will note that the birth rate peaked close to 1960 and then started to decline thereafter. In US the term baby boomers refers to those borned post WW2 or 1945. In S'pore we refer to those borned late 50s + early 60s.

    I also belong to early 60s boomers...the "elites" who had changed citizenship 3 times without being a "FT". I was borned a British subject, became Malaysian and then SC. This group lost out to their older Singaporean parents only because we did not went thru Japanese Occupation.LOL.

    Hence, when S'pore gained independence I believe this age group is always the "guinea pigs of policies" - 5 or 10 year plans - you can name it. They will hit 55 by end of next term of Parliament and so SM GCT has to "mock-up" for the olds at Marine Parade and retirement age must be favour economic policies...LOL.

  6. Hi James

    (c) @ "singapore might have even larger structural unemployment in the coming decade".

    I would certainly agree with you. Singapore's economic solutions so far are reactionary and short terms. To say it nicely, you can call it incremental; maybe because we are too small. I do no see any concrete long-term economic strategies. Basically the culture does not support "innovation" in business which is necessary to support long-term strategies. There are only long-term strategies on how to "control" Singapore more, too overwhelming and restrictive to "innovation".

    You see we need Parliament to debate about improving "productivity". When I first stepped into the job market, I work for a HK MNC in S'pore which was actually a subsidiary of an US company. We were already talking about zero defects and productivity engineering those days. Every month at least we see a "productivity" incentive reflected in our payslip. That was soon after 1987 Black Monday. Singapore Govt and NTUC is debating and implementing it now and it is not really going to affect my pay. You see the difference?

    @"Many of our jobs created in the recent years are from either the service(casino and tourism)and financial sectors."...precisely we are taking the "easier and softer" option to make fast money. Same with MBT and his land sales and our GLC's foray into properties.

    A strong S$ and appreciation will favour the "financial" sector but not "exports".

    @"This is why I think that after the corrections in 2013-5,the market will either be still depressed for a longer time or will unfortunately continue to drop yearly until 2020. What do you think?"

    Let's see if things go on as I also predicted. I see S'pore might follow Japan's footsteps. Japan exports its industries overseas too and make its home economy more expensive.

  7. A damn good read... Thanxs...