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Singapore Property - Room to Upgrade

Shared By Stock Fanatic on Wednesday, May 16, 2018 | 16.5.18

■ Demand for new private homes projected to remain above historical average

■ Foreigner purchases which average c.9% of annual demand, is the wild card to fuel a further rise in prices

■ Average property unit prices expected to be S$1.9m-S$2.5m, with smaller unit sizes exacerbating psf pricing

Demand for primary private homes to stay above historical average, supported by upgraders and new home formations. At our assumed population range of 6.3m-6.5m by 2030, we project annual demand for primary homes will come in at 13k-16k till 2023, before tapering off to an average of 12k-13.5k units. These forecasts are above the historical average of 12k units transacted over 2001-2017. We believe that the upgraders market will be a key driver with c.17,000 HDB households per year eligible to upgrade to the private sector after the 5-year minimum occupation period. A wild card will come from potential foreigner purchases, which are not factored in our numbers, and could be as high as an additional 10% of total transactions.

Average property prices to rise to S$1.9m-S$2.5m by 2030. This implies a CAGR of 1.5%-3.2% over 12 years. Supporting these forecasts is sustained income growth of 2.0%-2.5% p.a. and transaction velocity is expected to remain at/above historical average. The supply absorption rate is also projected to remain healthy at < 4.0years, underscoring the case for higher property prices. With our expectations that income growth will keep pace with projected rise in property prices, we believe that household affordability should remain close to the historical average in 2030. With developers cognisant that households are “quantum sensitive”, the average home size is projected to shrink by c.20% to 840 square feet. On a per square foot (psf) basis, this will translate to a range of c.S$2,300-S$2,900,psf from S$1500 currently.

Risks to our view. Demand and property prices are closely linked to economic prospects and any unexpected economic disruption resulting in higher unemployment rates or income growth could lead to fall/slower growth in prices. In addition, the sector is also susceptible to policy risk which could have an impact on demand for property.

Source : DBS Group Research
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Posted on Wednesday, May 16, 2018 | 16.5.18
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