By Mr. Propwise

There’s been so much talk (and hype) about the Government’s recently released Population White Paper and Land Use Plan to support up to a 6.9 million population in 2030, but I think at the end of the day most people are still confused about one key question – is the long term growth plan for Singapore’s population and the related land use plans good or bad for property prices?

A quick recap of the population growth plan

Singapore had 3.29 million citizens and 0.53 million Permanent Residents (PRs) as at June 2012, which together make up the resident population. We also had a non-resident population (including domestic workers, foreign talent, students etc) of 1.49 million, giving a total population of 5.31 million.

Singapore’s total population in 2020 is projected to be between 5.8 and 6 million, while by 2030, the total population could range between 6.5 and 6.9 million.

Singapore needs immigrants to grow, but…

Due to our extremely low birth rates (as measured by the Total Fertility Rate), Singaporeans will age rapidly and the number of citizens will decline from 2025 if there is no immigration.

To prevent this from happening, Singapore needs to bring in 15,000 to 25,000 new citizens each year. And in order to do that, the Government will have to grant around 30,000 PRs each year, maintaining the PR population to between 0.5 and 0.6 million as a potential pool that will to convert to new citizens.

But due mainly to political pressures, the Government has reduced the number of PRs granted, from a high of 79,000 new PRs in 2008 to about 30,000 each year currently. Going forward, this pace will be maintained to keep the total PR population stable. In other words, immigration will not be a big driver of the property market anymore.

Population growth to slow over the next two decades

The bottomline is that total population growth will slow from the annualized rate of 2.5% from 2000 to 2010, to 1.3% to 1.6% from 2010 to 2020, and further slow to 1.1% to 1.4% from 2020 to 2030.

This deceleration of the growth rate is clearly not supportive of the future demand growth for residential property. But to figure out the impact on prices, we’ll have to take a look at the other side of the equation – the supply of property.

Housing supply to be ramped up

The huge number of 700,000 new homes that could be built by 2030 has been thrown around a lot – what does it actually mean?

If we look at the current total stock of housing in Singapore, this comprises around 1.2 million units, of which 0.9 million are HDB flats. An additional 700,000 units is a 58% increase in the total stock, whereas the population increase from 5.31 million to 6.9 million (the upper end of the 2030 range) is a 30% increase. In other words, additional new supply is potentially going to be growing twice as fast as population growth – not a good sign for the market.

Of these 700,000 new homes, 90,000 private units (including Executive Condominiums) and 110,000 public units will be completed by 2016. This means that in the next three years, the total stock of housing will increase by 17%, while the population will likely grow by 5% or less over the same time period. Suffice to say, this “flood” of new supply will pose a threat to property prices.

Also due to political pressure, the Government will ramp up the Build-to-Order (BTO) supply of public housing from 8,800 units in 2009 to 16,000 units in 2010, 25,000 units in 2011 and 27,000 units in 2012. These are not small numbers – the total number of units launched in 2011 and 2012 is larger than the number of existing units in the whole of Ang Mo Kio. On top of this, HDB will launch at least 20,000 BTO units in 2013.

Changes to the land use plan

The 6.5 to 6.9 million population by 2030 and 700,000 new housing units will require 76,600 hectares (ha) of land, an increase from the current supply of 71,000 ha.

This increased supply of land will come from reclaiming more land, using up the land reserve, intensifying land use, and converting some old industrial areas and golf courses for residential use.

The rail network will be expanded significantly, and there will also be the development of new towns and estates, such as in Bidadari, Tampines North and Tengah.

Thus while the big picture in terms of housing demand and supply do not look good, there could be some area-specific opportunities from the expansion of the rail network, opening up of new growth corridors, and decentralization of the business and commercial districts.

The Golden Years are over

I’ll put it bluntly – the record home sales we’ve seen in recent years are clearly not sustainable. They are the result of a confluence of rapid non-citizen population growth and sustained low interest rates post the Global Financial Crisis.

Going forward, immigration will be controlled and will not be a driver of home sales. Total population growth will slow and will grow at much slower rate than housing supply. There is a large amount of housing supply coming up in the next three years. Interest rates will not stay low forever. Do you really need me to join the dots?

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