Oversupply: How to tackle the issue in 2020

Updated: Nov 18, 2020

Tackling the issue on oversupply and understanding the property cycle.

I believe, as buyers, many of you are sitting on the fence waiting and wondering when are prices going to drop, are developers going to reduce prices or give discounts? The answer is, most probably not.

The chart below shows the supply pipeline of new properties estimated to be launched for Year 2019-2020, more than 50 new developments in just two years! The enbloc fever in 2016-2018 contributed partly to the current oversupply situation that the market is experiencing now. This en bloc cycle has achieved 65 deals worth $19.1 billion so far, compared to the all-time record of $21.8 billion in the 2005-2007 cycle, according to Colliers International's data.

Source: Edgeprop

Source: Edgeprop

1. Cooling measures

Cooling measures introduced in 5th July 2018 by the government include an increased Additional Buyer Stamp Duty (ABSD) and a revised Total Debt Servicing Ratio (TDSR), where the max loan is reduced to 75%.

As shown in the graph below there was a decrease in the number of new homes sold in 2018 from 2017. However, it also shows an increase in the number of new homes sold in Year 2019 from 2018. It shows that the market is resilient and the buyers are confidence in the market. After all, it is considered an asset to own a property here in Singapore, a stable country.

However, the issue on oversupply now does not necessarily mean that the market is bad and "I shouldn't buy now, I should wait".

In fact, statistics have shown that the real estate market is picking back up in year 2019 as compared to 2018 (shown in graph above). This shows that the public has become more receptive to the probable fact that the government will not be removing the cooling measures. Hence, people start buying again.

2. Understand the real estate cycle

The real estate market works in cycles. Understanding how the real estate cycle works is key to how much profit you will make at the end of the day. In the real estate cycle, when the market is up, buyers are rushing in to to buy, resulting in high demand low supply. This period of limited availability is cause for an increase in price due to low supply. When the market is down, most buyers are fearful, thinking "the market is bad, I don't want to buy".  This scenario results in low demand high supply. Like we have mentioned, it's a cycle. What goes down must come up.

The market no doubt has slowed down as compared to 2017, but it is definitely picking back up. So, is it the right time to buy now?

Some may debate that with the current issues contributing to an uncertain economy such as the CoVid-19, Hong Kong protests and even trade wars between US and China, that now is not the right time to buy a property. But wait. Consider this.

Below shows the graph of the number of units that will be launching over the next few years and when there will be an increase and decrease in supply.

Source: Propnex

Buy when the supply is up or when supply in the market is going down?

3. Leverage on this opportunity

Think about this. There are approx. 60 new launches in the market in 2020, if you as a buyer whether buying for your own stay or for investment, continue waiting for prices to drop, is that really a feasible option?

Buying when the supply is up would mean there are plenty of units for you to choose from, there is no lack of supply and no one is fighting with you. However, buying a property when there is limited supply in the market, well think the opposite. Two or more buyers could be eyeing the same unit as you are, prices could increase due to limited availability.

No doubt at times developers do give good deals, however the cost of land has increased in recent years and some developers have even paid a premium for it. 

So, would developers willing to reduce the price when the show flat is packed like sardines OR would developers be more willing to give discount when the show flat is empty?

In conclusion, yes there is in fact an oversupply in 2020 but understanding the real estate cycle and how it works and using it to your advantage will determine your profit margin in the next few years. 

#weeproperty #realestate #oversupply #newlaunch #condo #propnex #singapore 

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