Is there sufficient demand to justify the recent Government Land Sales?

The recent Government Land Sales programme could yield up to 7,550 new homes and over 270,000sqm of commercial space, if all 4 Confirmed Sites and 11 Reserve Sites are successfully sold.
*Confirmed Sites refer to sites launched for sale at pre-determined dates and sold through tenders whereas Reserve List sites are put up for tender when a developer proposes an acceptable minimum price.

The 4 confirmed sites alone will yield an equivalent of 2,170 new residential units and 15,500sqm of commercial space, centred around suburban areas. We note that the government has opted to focus on suburban areas in the recent land sales as these are expected to be the preferred areas for most first-timers and upgraders. With these in mind, we note that at least two of these four sites are outside the Central Region – providing approximately 1,150 new homes in suburban areas.

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With the release of the new land sales, the Ministry of National Development has taken into consideration several factors. A lack of new homes typically results in shortage of homes and a spike in housing prices when demand picks up. On the flip side, excessive supply would instead accelerate a decline in housing prices. It is therefore important to find the right balance, between supply and demand for new homes.

 

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From a supply perspective, there are at least 15,000 new units expected to be completed by 2020 in District 19 (Fernvale Road Site), with District 5 trailing behind at approximately 3,000 new units. Notwithstanding the recent government land sales, District 19 represents the district with the highest upcoming supply. It is however worth noting that, 84% of these new supply (excl. the recent GLS) has been sold, a strong indication of the demand in the area.

By considering the population demographics in each subzone, we are able to estimate the appetite and demand for new homes in the four areas.

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While we would expect the Fernvale Road site to garner strong interest given the growth in the number of residents in the past 4 years, we note that most of the new residents in the subzone were residing in HDBs and ECs and we have instead seen limited growth in the number of residents residing in private condos over the past 4 years. In contrast, we are now expecting a large increase in the number of new condos in District 19 in the near term. Does this suggest a potential mismatch between demand and supply for private condos in the near term? That may not necessarily be true, given the proven demand for upcoming new condos in District 19 (16% still unsold) and the fact that there were no new developments in the Fernvale subzone between 2011 – 2015.

On the flip side, the 3 other sites are less populous but represents a much higher proportion of people living in condos. We would expect most of the demand from these sites to stem from HDB upgrading as there has been limited growth in terms of new residents in these areas over the past 4 years. That said, we do expect the Ministry of National Development to continue providing a steady supply of land for private housing in the near term, as they continue to monitor the market and find the right balance to ensure sustainable housing prices and a stable property market.

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