Citi: No property glut

Citigroup thinks that the increase in the supply of new HDB flats and private apartments over the next few years will not lead to a housing glut in 2013 and 2014. A stand contrary to that held by most other brokers e.g. Morgan Stanley and CIMB.

The current “severe shortage”‘ of HDB flats is also likely to provide support for mass-market prices and demand. Most other brokers argue that a step-up in HDB supply will dampen demand for mass-market private homes and hit prices

“We estimate that the deficit in housing units is in excess of 50,000 currently and this undersupply situation will likely take several years to clear, just like the oversupply situation in the early 2000s. With a severe shortage, we are not overly concerned about the rise in supply in both HDB and private residential units.”

The coming HDB supply and the potential increase in the income ceiling for new HDB flats will reduce HDB resale transactions by 7-15% at most. The impact on the private property market would be even smaller. The shortfall in the HDB market will support demand for and prices of mass-market homes.

“rate for mass-market properties are at an all-time high of 97.5 per cent. With yields averaging at around 4.2 per cent versus mortgage rates of just between 1.2-1.6 per cent, investment demand for small units and mass-market units could remain strong.”

However any further price increase or spike in volume in the mass-market segment risks more property measures as the government is monitoring the market closely.

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