Saturday 30 March 2013

Properties, the Population White Paper and the Land Use Plan

In an earlier post on Properties, I mentioned that it was not ideal to hold properties in Singapore in the long run, mainly because of the rapidly ageing population demographics. In that analysis, I had omitted the effects of migration and new housing supply, which could not be forecast with any certainty then. With the release of the Population White Paper and the Land Use Plan, we now have greater clarity in the migration numbers and new housing supply. How would the analysis change when these factors are included? Let us recap these numbers first.

Migration
In the Population White Paper, it was mentioned that the number of new citizens would increase by between 15,000 and 25,000 a year. As for the Permanent Resident (PR) population, it will remain stable at between 0.5 and 0.6 million and forms a pool for potential new citizens. Hence, any increase in the PR population will eventually show up as an increase in the citizen population and can be omitted. The annual increase in the resident (citizen + PR) population will therefore be between 15,000 and 25,000. For simplicity, let us assume an average figure of 20,000 new residents per year. As for the non-resident population (e.g. employment pass and work permit holders), they can be excluded as they are more likely to rent than buy properties.

New Housing Supply
In the Land Use Plan, it was mentioned that there will be another 700,000 new houses, increasing the total number of houses from 1.2 million to 1.9 million by 2030. Of these, 200,000 new houses will be ready by 2016. From 2017 till 2030, it is assumed that the new housing supply will be evenly distributed, i.e. 35,700 per year. Based on past trends, each house will be able to accommodate 3 persons.

Analysis: Base Population Only
To recap, Figure 1 below shows the population projections excluding migration and new housing supply based on the population figures in Jun 2011. (Please see the earlier post on Properties for how the population projections are derived). Based on these figures, the ratio of potential buyers/ upgraders to potential sellers/ downgraders (i.e. all buyers/ sellers) will cross parity in 2025.

Figure 1: Population Projections Based on Base Population


Analysis: Base Population + Migration
If we include migration at 20,000 per year (or 100,000 per 5-year period) and distribute them in proportion of 40%, 40% and 20% in the age groups of 25 - 29, 30 - 34 and 35 - 39 respectively, the population projections can be seen in Figure 2 below. The year that the ratio of all buyers to sellers will cross parity will increase from 2025 to 2029.

Figure 2: Population Projections Based on Base Population + Migration


Analysis: Base Population + Migration + New Housing Supply
If we now include new housing supply in the analysis, the population projections are shown in Figure 3 below. The year that the ratio will cross parity will change from 2025 (base population) to 2029 (base population + migration) to 2020 (base population + migration + new housing).

Figure 3: Population Projections Based on Base Population + Migration + New Housing Supply


Overall Analysis
If we compare the ratio of all buyers to sellers for the 3 scenarios mentioned above, the effects of migration and new housing supply can be seen in the figure below.

Figure 4: Ratio of All Buyers/ Sellers for the 3 Scenarios

As shown in Figure 4, migration will increase the ratio of all buyers to sellers and delay the year the ratio crosses parity. On the other hand, new housing supply will decrease the ratio and bring forward the year the ratio crosses parity.

It should be noted that the sharp drop in the ratio due to new housing supply in 2016 and 2021 should not cause too much alarm, as any housing demand has to be met by the existing housing stock and/or new housing supply.

In conclusion, regardless of which scenario we look at, the general trend is clear: sellers will eventually outnumber buyers even if we consider migration. Property investors are facing a significant headwind from demographics in the long run.


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