by Ku Swee Yong, Co-founder of HugProperty and Shannon Aw Qian Tong, undergraduate from the Department of Real Estate, National University of Singapore, a three part series on “The Big Singapore Market Upgrade of 2017?”.

Previously, in part one and part two of this series, we discussed how employment opportunities and population growth would form a more relevant correlation to housing demand. We also elaborated how our low population growth, and high home ownership rates had decreased the demand for housing in Singapore.

In this third and final part of the series, we would be discussing the increasing number of single-person households and how it affects housing demand.

Key Point 3 from the report:

“The increase in single-person households will drive up the demand for housing.”

The report stated that the “growing number of single person households ­– which comprised one in eight Singapore resident households in 2010 — has been a key contributor to housing demand. Given rising singlehood rates, we forecast that by 2030, one in five households will be occupied by just one person.”

The authors further estimated that the number of single-person households will increase from 139,800 (which makes up 12% of total households) in 2010, to 218,500 in 2020 (16% of total households) and 297,300 in 2030 (19% of total households). The rate of increase in resident households will outpace the slow population growth, becoming a key demand driver for small, shoebox-sized homes in Singapore.

Our questions:

What are the reasons behind the increase in single-person households? What is the proportion of single-person households that are young, economically active singles who chose to live alone, versus singles who may be widowed or divorced?

Fact 1

The increased number of single-person households, about 78,800 over the 10-year period of 2020 to 2030, may not translate into significant demand for private properties.

Firstly, a big contributor to the growing number of single-person households in the next 20 years will be widowed households. Our large ageing population of baby boomers will start to pass on in greater numbers in about 10–15 years’ time. The retired and surviving widower (for simplicity, let us assume that the word “widower” and “he” refer to both genders) would be classified under the household survey as an additional, single-person household. He would probably already have a home so there will be no nett increase in housing demand. On the contrary, if he wishes to cash out of his home and move in with his children and grandchildren, there will be a nett supply of one additional home on the market.

Secondly, looking at the young, say below 40, who chose singlehood, might the authors have considered that housing affordability may be halved for these single-person households? As compared to a couple buying a home, a single person will not have as much savings in cash and CPF for the down payment, and will be more limited in his ability to service loans. Therefore, if there is higher demand from people who chose singlehood, that demand would be skewed to the public housing segment rather than private homes.

Thirdly, a “resident household” is defined by SingStat and United Nations Statistics Division as: “a household headed by a Singapore citizen or permanent resident. A household refers to a group of two or more persons living together in the same house and sharing common food or other arrangements for essential living. It also includes a person living alone or a person living with others but having his own food arrangements. Although persons may be living in the same house, they may not be members of the same household.” This simply means that four persons living under one roof could be comprised of three households: the father and mother as a household, and two adult working children who have their own food arrangements.

The facts mentioned in the three-part series are not laid out to claim that there will not be additional demand for new private homes from single-person households. We are simply saying that within the report’s estimated increase of 78,800 single-person households between 2020 and 2030, some of the additional single-person households might be selling their homes (i.e. nett negative demand), some may purchase private residences with their limited budget and most of them may go for HDB flats.

On a related note to the single-person owner-occupiers, the report further argues that the increase in the minimum salaries of Employment Pass (EP) holders will lead to higher demand for housing and there will be higher IRR (Internal Rate or Return) for residential investments. We think that the increase in the minimum wage of EP holders from $3,300 to $3,600 in January 2017 may improve the rental demand but not the buying of private properties. An EP holder will have to be earning at least $8,000 a month to be able to purchase a private housing unit in Singapore provided he has sufficient savings to make the down payment and the stamp duties. A $700,000 shoebox unit will require most EP holders to fork out about $400,000 for down payment, normal stamp duty and Additional Buyer Stamp Duty. In today’s market, a $700,000 shoebox private residence in the outskirts of Singapore rents for about $1,800 per month. We believe that EP holders’ will do their sums and will opt to rent. The increase in EP holders’ minimum wage will NOT affect the private housing market.

There are many more points that we would like to highlight including:

Claim: Household balance sheets are strong.

We say: (a) The official data on household debt do not capture loans for cars and properties held under companies; (b) Mortgage rates have only one direction to go when the world exits from the long interest rates slumber.

Claim: Unsold inventory is at an all-time low.

We say: Official data on unsold inventory only reflects unsold apartments in projects which are still licensed by the Controller of Housing. Unsold stock in residential projects which have received the Certificate of Statutory Completion are dropped from the data set.

Claim: Exhibits 49 and 55 of the report showed a constant 2% annual rental yield where rentals increase 5% per year as well as a 5% price appreciation per year from 2017 to 2030.

Conclusion

We are not convinced by the justifications behind the forecast that the average private residential prices in Singapore will rise to $2,000 psf in 2030.

The current reality is that the private residential market continues to face tougher and tougher challenges such as ageing population, slower jobs growth and low birth rate. We are likely to see property prices dragging along on a protracted downturn for several more years before recovering.

We observe several dichotomies in the property market and these contradicting data-sets indicate that the recent exuberance and hype around new property launches, land sales and en bloc activities are not anchored on firm foundations.

Some of the opposing data-sets in the market are (as of writing this article in mid-July 2017):

1. GDP growth is being revised upwards after a strong 1Q17 but employment shrank by 6,800 positions in 1Q17. We ask: which is more important to housing — employment or GDP?
2. Exuberance in new property launches (mainly sales of 1 and 2 bedrooms imply investors) but rentals keep dropping. We ask: if investors cannot find tenants, how long can this situation last?
3. Researchers and analysts are calling market bottom now and upturn in 2017-2018, but yet these same companies’ valuations departments and en bloc sales departments are giving low valuation estimates to sellers. We ask: are the property consultants internally undecided about the market direction?
4. New sales are moving up but bank valuations of resale properties are not improving. We ask no questions about this.
5. Real estate transaction volumes increase in the past few months but both the price index and rental index drop. This happens a lot in the stock markets, such as on Black Monday, where the volume of transactions is very high but prices crashed. We ask: should we celebrate Black Monday?
6. The sharing economy will trend up over the next decade and home sharing may temper the demand for home ownership. We ask: should we promote new technologies for home sharing on one hand while investing in physical real estate on another?

Our purpose of writing this article is to highlight to our readers that while positive headlines on Singapore real estate is always welcomed, we often need to dive deeper into the figures to understand the full picture. Viewpoints will differ, and the wide range of opinions add to the colour and debate to make the Singapore real estate market a lively one. If the devil is in the details, then we ought to get to know the devil very well.

As market analysts and commentators, we seek to help readers understand and find more meaning and relevance about the real estate market.

Read:
Part 1 of “The Big Singapore Market Upgrade of 2017”: Downsized Properties
Part 2 of “The Big Singapore Market Upgrade of 2017?”: Income Growth and Housing Affordability