Can Singapore fill up its empty homes?

The vacancy rate surpassed 8.4%, the historical average, amidst increasing supply.

Around 10,000 private homes are likely to be completed in 2018, but analysts wonder whether Singapore can absorb the surge of new property supply, PropertyGuru revealed.

According to its Property Market Outlook for next year, the property supply will increase following the revival of the collective sales market in 2017, which has seen around 20 residential projects sold to developers amounting to over $6b. This is the highest figure in a decade and is expected to rise further as more en bloc tenders were launched recently.

However, the supply expected to hit the market in 2018 might be more than what can be reasonably absorbed.

The high number of en bloc sales in the past year will add another 20,000 new units, which is more than double the number of unsold units currently in the pipeline.

Given that Singapore’s population growth has slowed down from 3% between 2007 and 2012 to 1.1% in 2012 to 2017, there is much uncertainty about whether the housing supply can be fully absorbed by the market.

Moreover, the new supply is expected to add to the vacancy rate.

The Core Central Region (CCR) had the highest vacancy rate of 10.9% in the third quarter of 2017.

"This will put further pressure on rental prices in the city area," the report said.

This was followed by the Rest of Central Region (RCR) and Outside Central Region (OCR) with vacancy rates of 8.3% and 7.3%, respectively.

Moreover, there could be as many 16 to 22 new project launches next year.

Given the higher land prices and anticipated market recovery, new private home prices will likely be higher in 2018.

"Rental prices will remain under pressure from elevated vacancy rates as more completed private homes enter the market," PropertyGuru said.

In the Monetary Authority of Singapore's (MAS) 2017 Financial Stability Review (FSR), it said that the vacancy level has reached 8.4%, with over 30,000 private homes left unoccupied. This is higher than the historical average of about 6.5% in the past decade.

On the upside, rental transactions have been rising in the last two years. The biggest increase has been in the OCR, with 8,691 units rented out in the third quarter of 2017, up significantly since the first quarter of 2015.

"This seems to indicate a ‘flight to price’ as more renters are seeking lower cost rentals as their belts tighten. Still, transactions in the RCR and CCR are up significantly since the start of 2015," the report said.

There were also over 2,200 fewer HDB flats sublet in the first three quarters of 2017 compared to the same period last year, showing that renters are looking at private home rentals instead of the HDB market.

"However, the upcoming supply of new units in the private housing market will mean that renters will have more options. At the same time, the government is unlikely to increase the number of foreign workers coming in, which will negatively impact rental demand," PropertyGuru said.