Government Ramps Up Housing Supply by 26%; What Will This Mean For Investors?
On 7 June 2022, the Government announced the Government Land Sales (GLS) Programme for the second half of 2022 which comprises 6 Confirmed List sites and 8 Reserved List sites. These sites can yield approximately 7,310 private residential units, 94,750 sqm gross floor area (GFA) of commercial space and 530 hotel rooms.
The Confirmed List comprises 5 residential sites (including 1 Executive Condominium (EC) site) and 1 commercial & residential site which can potentially yield around 3,505 private residential units (including 495 EC units) and 14,750 sqm GFA of commercial space
The Reserve List comprises 6 private residential sites (including 2 EC sites), 1 White site and 1 hotel site. These Reserve List sites can yield an additional 3,805 private residential units (including 1,000 EC units), 80,000 sqm GFA of commercial space and 530 hotel rooms.
Will Property Prices Dip with the Upcoming Injection of Private Residential Units?
Amidst a consistently strong demand for private housing, the Ministry of National Development (MND) is increasing the supply of private housing on the confirmed list to 3,505 units in H2, up 25.9% from 2,785 units in H1, to ensure sufficient supply and to maintain market stability.
It seems that URA has finally recognised the low inventory of unsold private housing and increased land supply in the H2 2022 GLS programme to address the shortage. Fundamentally, we need to understand that this calibrated increase in housing supply aims to cool the residential property market. However, given average annual sales from 2004 -2020 to be 11,233 units, the increase in supply may not be sufficient.
As of 5 June 2022, there is a total of 5103 unsold private units. Totaling up all unsold units in the current market as well as in the Confirmed and Reserve List, we have 12,413 units which will barely sustain the demand through to next year.
While the increase in residential units introduced will help to provide a much-needed boost for developers to shore up their land inventory, it is important to note that the effect would not be immediate because it takes time for the units to actually be injected into the market. This measured increase is merely a means to moderate rising land bid prices which will ultimately control future new launch prices.
Furthermore, if we were to combine both the Confirmed and Reserve Lists, the number of possible new private residential units decreased by 5.2% from 6,860 units in 2H2021 to 6,500 units in 1H2022. So if you are thinking that we may end up with an oversupply of private residential units in the near future, you may want to reconsider that thought.
New Sites in Marina South, Tampines and Tengah
Of the sites on the Confirmed List, Marina Gardens Lane, Tampines Avenue 11 and Tengah Plantation Loop (EC) are new sites. The other 3 sites — Bukit Timah Link, Hillview Rise and Lentor Gardens are transferred from the Reserve List in the previous programme.
The site at Marina Gardens Lane is the first time the government is launching a site in the Marina South neighbourhood. It is one of five sites in the area with residential and commercial at the first storey, among other white sites, and is expected to kickstart development in the area where it will be a sustainable, car-lite estate comprising a mix of residential, commercial and hotel uses. Located near the CBD, it is also in line with the authority’s vision of turning the CBD into a more vibrant area for work live play. Chances are this site will be highly contested.
The commercial & residential site at Tampines Ave 11 is the largest site on the list which can yield around 1,190 residential units as well as 150,695 sqft of commercial space. Given the plot size of 5.07ha, the cost for the site is expected to reach $1billion which could be a deterrent to potential bidders. This comes as the recent tender closing for the GLS site at Dunman Road, which breached the $1billion mark, drew only 2 bidders.
What Will This Mean for Investors? Can I still earn from Resale Properties?
The fact is that even with the Confirmed and Reserve List for 2H2022, the number of private residential units injected into the inventory is inadequate if demand persists. Over the next 6 months, developers are increasingly likely to trigger smaller sized sites on the Reserve List, especially ones where 600 units or less can be built because larger sites pose higher risks given the increase in Additional Buyer’s Stamp Duty to 35% for housing developers.
Developers tend to favour land sold through GLS programme over a collective sale. This timely injection of vacant plots of land may see developers deferring their attempts at a collective sale depending on the how well-received the sites on the Confirmed and Reserve List are.
However, this also creates another opportunity for investors to consider undervalued resale/new properties around the sites on the Confirmed and Reserve List that will appreciate upon the launch of these new sites.
New launches set the benchmark for resale properties in the vicinity to appreciate in value. But the question is — how much do they appreciate? To put simply, if we were to analyse a 1km radius of a new launch in the area, older freehold and leasehold properties will pop up. By identifying older leasehold properties that are undervalued and still has the potential for capital appreciation, we can enter the market at a lower entry price and ride the waves of capital appreciation before exiting in 3–5 years time.
How Much do Older Properties Appreciate from Nearby New Launches?
I did a comparison between Jadescape and Seasons View (299m away) for transactions involving unit sizes below 1200sqft from Oct 2018 onwards. Seasons View is a 99-years leasehold project from 1996 and has a remaining lease of 73 years as of 2022.
Data revealed that buyers of Seasons View who bought at the launch date of Jadescape actually made more. If this is the case, why then would investors consider new launch projects for investment?
Firstly, undervalued resale opportunities aren’t as readily available as a developer releasing all units for sale from a new project. Chances are, if you have first-mover advantage in a reasonably priced new launch project, you will be guaranteed a sizable profit margin. Secondly, resale properties do not offer a progressive payment scheme. Hence, your capital outlay for resale properties tend to be higher. Lastly, new launch projects come with a fresh 99-year lease and lease decay would be the least of your concern.
But don’t get me wrong, I am not trying to create an ultimatum that new launch is better than resale or vice versa. Who cares what you’re buying if at the end of the day, you make an annual Return on Investments of 7% (average annual return of the S&P500) or greater.
2H2022 will be an exciting period as more new launch projects are introduced into the market. With proper analysis, undervalued resale properties can yield higher returns than new launches.
If you are interested in capitalising on the first-mover advantage before details are finalised for the sites under the Confirmed and Reserve List, feel free to reach out and I will be happy to tailor an investment plan suited to your needs and timeline.
I hope this article serves purposeful in helping you make a more well-informed decision, regardless of whether you’re purchasing a property for own-stay or investment. As always, feel free to share your opinion in the comment section and I will take time to address them when I can. Till next time!