After the breakdown of the December 2021 cooling measures affecting end consumers, we change our sights to focus on something that does not affect the consumer directly but is important nonetheless.
Summary:
With the release of more GLS sites in 2022, there is an increased supply. Coupled with the 35% ABSD for developers, the risk has increased for developers and these are part of the measures to stem prices from increasing.
Supply increase through GLS
On the confirmed list for the GLS program, there is a 40% increase of units in the first half of 2022. There is also an increase to the reserve list. This increased supply is part of the greater scale of cooling measures this round, beyond those that affect the consumers directly.
So what will releasing land for development cause? The market will be affected since prices start from the bottom, from the land to the developers before being put for sale by buyers in the market.
Supply of BTO & Private units
With the latest update regarding the supply, 35% BTO flats will be launched in 2022 & 2023 respectively, which translates into 23000 units yearly. Whereas for private units, there will be 2800 units in 2022. Comparing the number of HDB units and private units, this is why Aaron would always pick a private property compared to a HDB as an investor.
Price of GLS vs En Bloc
The prices of GLS are always cheaper than En Bloc prices. In fact, GLS prices might be around 85% of the market valuation. En Bloc prices are also raised due to the expectations of homeowners to get ever higher prices for their units. Thus, there are hardly any successful En Bloc tenders due to this.
If En Bloc in 2022 do not do well, developers will go to GLS, and if GLS still do not do well, then perhaps we are in for a rough ride in the property market.
Prices in 2022
Looking at the developments in 2022 like Ang Mo Kio which will cost approximately 2000psf, these prices coupled with the 55% TDSR see buyers needing to be really rich to afford these units. We might see buyers needing at least 80 to 90k annual income in order to own a 2-bedder.
35% ABSD for developers
The secret missed out by most is this raise in ABSD for developers in the case that they do not sell their units within 5 years. The ABSD rate increased from 25% to 35% and this is a significant amount for developers to contend with.
35% represents a premium that is more than their profits and this increases their financial risk of not selling units, compared to before. Therefore, how developers act in accordance to this change of policy will set the course for the property market in the upcoming years.
Conclusion
The real issue in the real estate market is about the release of land. The big boys below the consumers are targeted in order to cool prices. Releasing land affect developers directly by making them think twice about their bids, whilst an increase of ABSD to 35% makes them rethink their risk. En Bloc is also being reduced and eliminated as an effect.
Thus, prices might get affected more by the release of land and increased supply rather than the measures affecting consumers directly.
Watch Aaron go through his arguments and evaluate what might happen with these cooling measures!