Had an interesting discussion with an investor last night and learn some different views which I would like to share. An investor's view are always valuable as they usually have a better feel of the economy than an ordinary folk.
From recent news, the Singapore Government had halt some construction projects worth some S$2billion in the fiscal year (or next couple of years). Reasons for the postpone are due to:
- Lack of construction force as most companies have their hands full of projects for the next few years.
- High construction cost due to lack of construction materials.
- Competing with other on-going or upcoming development projects could be bad
In recent year or so, a lot of new projects have arisen. With two Integrated Resort (IR) projects, development companies are badly stretched with manpower, high development budget, deadline, etc. Other residential development projects are moving slowly too.
A lot of en-bloc exercise was seen in the last two years, ranging from East Coast to Central/Prime Districts. Many condominiums that underwent en-bloc had been vacant, but have yet to be torn down and these will be in the developers' pipeline for years to come.
A lot of home owners had to seek new homes after their properties had been acquired. The new found wealth of these owners caused an upswing in property prices as they are now armed with large funds.
As homes were acquired and no newly completed properties available, it leaves Singapore with lesser homes in the last one year. To make matter worst, Singapore faces an average of 100,000 migrants a year. These migrants needs to be housed too.
Some properties that underwent redevelopment, will start to fill the market in the coming two years. Does this ensure an adequate supply of homes? Singapore has an estimate of 1.2million homes (being more than 800,000 public housing, more than 300,000 private housing) occupied by the current 4.55million population. With influx of 100,000 migrants per year, we will need at least 10,000 new properties (assuming, half of these are construction workers housed in dormitories).
With the IR scheduled to open in Year 2009, rental demands will increase. Some redevelopment projects will be completed next year (2008) but this may not be able to fill the new demands.
With this, shouldn't the demand and supply cause property prices to continue growing? However, property prices has soften recently due to turbulence in global economy (especially US) and market talk had it that, next year (2008) will see a slight downward pressure on property prices due to the worrying signs of global economy.
Property prices had climbed fast in the last one year, but demand had started to slow down in the last three months. Based on current property prices, it leaves many average being unable to afford to purchase a home.
The government stepped in this week, announcing new public housing projects in the pipeline, plus two Executive Condominium projects also in the pipeline. This can help provide new housing for the average and public housing owners to upgrade.
What will really happen in the next two years? How will the economy be like? Property? Will the US' credit crunch affect Singapore drastically? Let's hope US is able to prevent their recession (I shall provide more info from Mr Ben Bernanke's comments in another post).
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