Sunday, 11 March 2018

Why Singapore actually has a housing oversupply

At the start of 2015, I posted an observation on a forum that Singapore has a ratio of 4.14 people to housing units based on 2014's population numbers. These numbers included foreign workers, students, maids etc.

So how then did it fare now based on 2017's stats? Here are the figures now
^HDB 2017 figure were based as of end March 2017, hence there is a slight underestimate
*Data from HDB, URA and Singstats 2017 data  

As of 2017, this ratio has fallen to below 4. It shows housing supply in Singapore has increased (7.0%) at a much faster rate than our population (2.5%). I find this number ridiculous because it means for every housing unit, there are 3.96 people staying in it; the 296,700 foreign construction workers in Singapore will be heartened to know that four of them can comfortably stay in a 4 room HDB flat instead of having to squeeze in a dormitory room. 

If you look at it objectively, it means a lot of housing units only has 2-3 people staying in them. So to a certain Minister, do not worry, Singaporeans in fact have a lot of "space to do XXX things".

Is there a cause for concern?

HDB's resale and private property prices have remained flat from 2014 to 2017 with a slight decline in experienced. 

However, should Singapore persist with its slow growth of population, there is a high likelihood that we will see a drastic fall in property prices. HDB is likely to maintain its trajectory of building 17,000 flats each year to help young couples, while URA is projecting a 42,000 private housing growth in the next 5 years. This means until 2022, we can expect about 127,000 more housing supply. Based on a 4 to 1 ratio, we need to grow our population by 508,000 to maintain the wretched housing market we have now. This means a 6.1 million population in 2022.

Can we hit 6.1 million in 2022? 

To hit 6.1 million, we will need to grow our population by 10%, or 200,000 more people annually. Singapore's population only grew by 130,000 for the entire past 3 years. This means we may have to return to the less stringent immigration policy we had in the early part of this decade.

In addition, it is important to realize that Singapore's has an ageing population with a significant proportion being the baby boomer generation (age range 50-70). There are about 1.2 million people in this group. Hence 20-30 years down, this generation will age and die; eventually leaving their houses to their descendants. As HDB does not allow owners to have more than 1 HDB unit, it means more resale units will be released into the market. Furthermore, the passing of a person also means a fall in demand for housing. 

To replace this 1.2 million people, we will need 1.2 million people. However, based on our current population demographics, there are only about 800,000 people in the age range of 0-20 years old. It points to a shortfall of 400,000 people.

To summarize, based on our current slow population growth; in the short run (until 2022),expect property prices to decline because housing supply will outstrip housing demand. Conversely, if we are to look into the long term (say 2050), the ageing and eventual death of our baby boomers is likely to cause a drastic fall in housing demand and create a housing oversupply.

The only way forward is perhaps for the government to buy back housing units when the aged passes on. However, this will be a huge budget expenditure which will be a severe strain on government's finances.


  1. Interesting post. I agree that there is an oversupply in the housing market, as supply is increasing with no corresponding increase in demand (unless ABSD is removed). This is evident from the weak rental market.

    What are your thoughts then, on the current uptick in residential property prices? My own take is that it could be short/medium term in nature, due to the en bloc craze that arose from developers replenishing their land bank. But I could be wrong, and would love to hear your thoughts.


    1. Hi Kevin,

      In my view, it is only a small uptick. At the end of the day, the property market has to be supported by rentals if one is owning it as a second property. The rental market is very weak now because of fewer E pass and S Pass holders; this means a lot of buyers are buying in at a low yield or even none, hoping to get an upturn or government relaxing its immigration policy.

      To me, I would prefer the government to hold firm on its current policies and not give in to relaxing the ABSD or turning on the foreign immigration tap; just because ppty owners are not getting by