August 2008 Asian housing review 2008 ‘‘which have shaped ... · Singapore is a fully...

www.rics.orgRESEARCH

Asian housing review 2008August 2008

How have housing systems in Asia evolved against the widernational economic and socio-demographic trends? What have

been the key drivers of housing demand and government initiativeswhich have shaped delivery of homes over the last 50-60 years?‘‘

RICS Asia

RICS Asia, based in Hong Kong, is the regional headoffice of RICS in Asia Pacific and represents the nine AsiaPacific National Associations (RICS Brunei, RICS China,RICS Hong Kong, RICS Indonesia, RICS Japan, RICSMalaysia, RICS Singapore, RICS Sri Lanka and RICSThailand).

To find out more about membership in Asia Pacific, contact RICS Asia in Hong Kong:

RICS Asia Suite 2104, Central Plaza18 Harbour RoadWanchaiHong KongTel +852 2537 7117Email [email protected]

Copyright in all or part of this publication rests with RICSand save by prior consent of RICS no part or parts shallbe produced by any means electronic, mechanical,photocopying or otherwise, now known or to be devised.

While every effort has been made to ensure that the dataand other information in this report are accurate, someerrors may remain. In addition, it should be rememberedthat information in this field is variable in content andquality. The purpose of the Review is to provide information,analysis and background to Asia’s housing markets andhousing provision systems. It is not intended for usedirectly either in market forecasting or for investmentdecision purposes.

This report is for general informative purposes only anddoes not constitute a formal valuation, appraisal orrecommendation. No responsibility can be accepted toany third party for the whole or any part of its contents. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract,prospectus, agreement or other document without priorconsent, which will not be unreasonably withheld.

Our findings are based on the assumptions given. As iscustomary with market studies, our findings should beregarded as valid for a limited period of time and shouldbe subject to examination at regular intervals.

Whilst every effort has been made to ensure that the datacontained in it is correct, no responsibility can be takenfor omissions or erroneous data provided by a third partyor due to information being unavailable or inaccessibleduring the research period. The estimates and conclusionscontained in this report have been conscientiously preparedin the light of our experience in the property market andinformation that we were able to collect, but their accuracyis in no way guaranteed.

The full report is available at www.rics.org/ahr

© RICS – July 2008ISBN: 978-1-84219-422-5

The RICS ASIAN HOUSING REVIEW 2008 is commissioned and published by RICS (Royal Institution of Chartered Surveyors) which is the largest organisation for professionals in property, land, construction and related environmental issues worldwide. RICS is the leadingsource of property related knowledge, best practice and consumer protection.

Policy makers, from local authorities to governments and global bodies, listen to and valueRICS’ impartial advice on public affairs, economic analysis and policy research.

ASIAN HOUSING REVIEW

This report was produced for RICS by Savills,drawing on research staff from its London andHong Kong offices. The team that produced thereport was:

Jacqui Daly | LondonRebecca Gill | LondonSimon Smith | Hong KongLeon Wang | London

Savills Research & Consultancy, Hong Kong Savills (Hong Kong) Limited 23/F Two Exchange Square Central Hong Kong

Savills (L&P) Ltd Lansdowne House57 Berkeley SquareLondon W1J 6ERUnited Kingdom

Savills PlcEstablished in 1855, Savills Plc is aleading international property servicescompany with a full listing on the LondonStock Exchange and is in the FTSE250group of companies. The company, whichemploys around 15,500 staff worldwide,has offices and associates throughoutthe UK, Europe, Asia Pacific and Africa,giving a total distribution of 150 officesin 26 countries.


I am very pleased to welcome the first issue of the RICS ASIANHOUSING REVIEW, which provides a detailed overview of the recentperformance of housing markets across Asia. This highlights themajor achievements that have been made in countries across Asia todevelop their housing markets, to ensure that the housing needs ofthe population are met. While there have been different routes toachieving this, as outlined in the report, the common thread thatemerges is the considerable success that has been achieved in allcountries across Asia. This must rank as one of the most significantachievements in poverty alleviation worldwide.

Now, however, the housing markets across Asia face fresh challenges, withthe advent of the global credit crunch. The development and maturity ofthe housing and financial markets across Asia means that we are far betterplaced to weather this storm than would have been the case a few yearsago, and I am sure that in the longer term, the housing markets will continueto be able to meet the needs of all groups within society, contributing tothe stable and harmonious development of society across Asia.

I am grateful to Savills for having carried out this Review and do hope thatyou find this of interest and value.

Darren JensenDirector, RICS Asia

“


FOREWORD


SINGAPORE

7. Singapore7.1 The housing system

Singapore is a fully independent city state with a populationof 4.5 million covering an area of just 699 square kilometres.The country boasts one of Asia’s densest populationsowing to robust population growth and limited developablespace. As water catchment areas comprise 40% of theland area and some land is set aside for military use,available development land is highly restricted. This hassignificantly impacted the supply profile of the Singaporeanhousing market.

Government bodies play a fundamental role in theSingaporean housing sector. The Housing and DevelopmentBoard (HDB) was created in the mid 1960s in response toSingapore’s intense housing need. A department withinthe HDB was tasked with physical, social and economicredevelopment of Singapore’s Central Area andsubsequently became an independent body named theUrban Redevelopment Authority (URA) in 1974. Today, theURA has overall responsibility for land use and townplanning, compulsory purchase and resettlement,architectural and urban design, engineering work andbuilding material production, similar to the role of localgovernment bodies in the UK. The Housing andDevelopment Board (HDB) is Singapore’s public housingauthority and has been responsible for the provision ofpublic housing in Singapore. Private developers have begunto be involved in the design and construction of housingbut this is a recent phenomenon.

The HDB is supported by government finance and cantherefore avoid commercial lending institutions’ interestrates, which should mean that prices do not exceed theaffordability of a large part of the population. Historically,the public housing sector has therefore been heavilysubsidised in terms of construction, financing and landcosts. The Central Provident Fund (CPF) is a state-managedfund from a compulsory employee savings scheme. Sincethe late 1960s it has helped Singaporeans to finance thepurchase of HDB housing.

The HDB derives additional revenue from managing arange of land uses such as car parks, residential estates,commercial and industrial property. It also manages socialinfrastructure including recreational and religious facilitiesin communities. In the past, the HDB’s policy was toprovide social rental units but this was superseded by theintroduction of a ‘Home Ownership for the People Scheme’,

to assist residents to purchase flats. This is similar to theright-to-buy (RTB) scheme which led to the privatisationof large numbers of local authority housing in the UK.Housing units in Singapore were developed according tominimum space requirements and costs were kept low.The scheme provides security and flexibility for homeowners in that should home owners’ financial circumstanceschange, the owner does not lose their rights of occupation.Buyers in the HDB housing sector have to satisfy certaineligibility conditions, including income below a stipulatedthreshold. Today, 82% of the population own flats thathave been developed by the HDB.

Financial incentives have been widely used to encouragehome ownership in Singapore. As shown in Figure 56,high levels of loans were issued in the late 1990s duringthe privatisation period. The proportion of HDB rentalunits (social housing) has subsequently fallen from 100%in the early 1960s to 16% by 1989, and today, the HDBno longer build rental units. Today, home ownership isstrong in Singapore with over 90% of households owningtheir own home. Since 2003, the HDB has stopped grantingfavourable rate loans and now buyers who are not eligiblefor HDB’s concessionary rate loans can obtain marketrate loans from banks that are licensed to provide housingloans. Since 2003, there has been an average annualincrease in loan volume of 24%, totalling S$1,767.1million in 2007.

Demand for new homes is being driven by rising incomes,the creation of new households and strong economicfundamentals. Domestic demand is also being driven byresidents upgrading from older properties, and thedisplacement of tenants and owner-occupiers fromblocks withdrawn from the market for site redevelopmentand regeneration.

Low levels of supply are leading to price increases acrossall tiers of the market. Stock levels are dependent ongovernment land sales and new development by both theHDB and private developers. The strong propensity towardsowner occupation is driving capital value growth. In addition,non-residents are driving sales at the top end of the marketand have been fuelling strong price growth, especially inprime central areas of Singapore. In view of the turbulencein the global financial markets and the US economicslowdown, Singapore’s residential market turned cautiousin the first quarter of 2008 with lower levels of turnover.Savills forecast therefore that price growth will be modestin 2008, at between 0% and 5%.

7.2 Demographic profile

The population of Singapore increased by more than 4%between 2006 to 2007. People of ethnic Chinese origincomprise more than three quarters of the resident population.Non-residents (people without Singaporean citizenship ortemporary residents) have continued to play an importantpart in population growth in Singapore, accounting for 5%of the population in 1980 and representing 22% in 2007.Expatriates are drawn to Singapore because overseascompanies tend to locate their regional headquarters inSingapore which has resulted in its status as a leadingfinancial centre. Singapore also offers a favourable taxclimate, including the absence of capital gains tax (CGT).

The United Nations lists Singapore among the ‘high humandevelopment’ countries, based on education access,health, life expectancy and standard of living. By comparisonto western households, the Singapore average householdsize is high at 4.3 people, down from 4.5 people ten yearsago. This is driven by the propensity for multi-generationalhouseholds in Singapore, rather than large family sizes.We anticipate that increasing wealth, particularly amongyounger cohorts, will lead to a reduction in household sizewhich will lead to an increase in the number of households.

Singapore’s low fertility rate, which has reduced from 1.4births per woman on average in 2001 to 1.26 in 2006, hasled to an ageing population. As shown in Figure 58, overthe past ten years the proportion of residents aged between15 and 44 years has reduced from 56% to 46% of theresident population. The impact of an ageing workforceis, however, being somewhat compensated by the highlevels of in-migration and high number of expatriatesresiding in the country.

Singapore loans, advances and housing loans volume (Singapore $millions)

Singapore 15 year housing loan rate (December %)

Sin

gap

ore

($

mill

ion

s)

%

Figure 56: Home loans, Singapore

Source: Singapore Monetary Authority, Singapore Government Statistic, Savills Research

Non-resident population (millions) LHS

Households (millions) LHS

Mill

ion

s

Resident population (millions) LHS

Household size RHS

Figure 57: Singapore population and household composition

Source: Singapore Statistics, CEIC, EIU and Savills Research

%

Figure 58: Singapore resident age structure

Source: Singapore Government Statistics and Savills Research


SINGAPORE


SINGAPORE

7.3 Macro economic influences

The electronics manufacturing sector is the biggestcontributor to GDP, followed by transport andcommunication, and business and financial services. As shown in Figure 59, the Asian financial and economiccrisis in the late 1990s saw a sharp downturn in GDPgrowth of -1.4% in 1998. Nonetheless, the economysubsequently witnessed a strong rebound with more than10% GDP growth in 2000. Since 2004 GDP growth hasbeen consistently very strong at between 6.6% and 8.9%per annum. The IMF has revised its GDP growth forecastdown to 3.9% in 2008, owing to slowing global demand.Simultaneously, consumer price inflation forecasts havebeen revised upwards to 4.7% in 2008.

To increase economic efficiency, the financial servicesindustry is undergoing further liberalisation. Bilateral free-trade agreements with Singapore’s principal tradingpartners are underway in order to improve market accessand attract foreign investment. As shown in Figure 60,Foreign Direct Investment (FDI) has increased significantlysince the early 1980s, totalling US$21,089 million in 2006.The Singapore dollar is forecast to appreciate furtheragainst the US dollar into 2008 and 2009 which will leverfurther levels of FDI.

Unemployment peaked in 2003 at 4% following a periodof economic downturn in 2001, and has declined in thelast 4 years to 2.1% in 2007. This level is low in comparisonwith western European levels, as well as other emergingand developed countries in Asia. This trend was alsomirrored in household incomes which declined by morethan 5% in 2003 and, as illustrated in Figure 61, have beengradually recovering over the past four years. Real averagemonthly household income peaked in 2007 at S$6,280,an increase of 9.6% on the previous year. A combinationof factors including positive economic growth and risingaffluence among Singaporeans are driving demand forhousing provision in Singapore.

7.4 Housing supply

The private Singapore housing sector is categorised into‘landed’ (detached, semi-detached and terraced) housingand ‘non-landed’ (apartments and condominiums)properties. In planning terms, low-density developmentincludes not only ‘landed’ housing but also buildings offive and fewer storeys. Medium density developmentcomprises development of up to 24 storeys.

GDP/capita US$ LHS

Annual GDP growth % RHS

Annual inflation (CPI) % RHS

US

$/c

ap

ita

Figure 59: Key economic indicators, Singapore

Source: IMF and Savills Research

Total FDI Stock (US$ million)

US

$ m

illio

n

Figure 60: Foreign Direct Investment, Singapore

Source: UNCTAD

Real average monthly household income (Singapore $)

Real average annual household income growth %

Sin

gap

ore

$

Figure 61: Household income, Singapore

Source: UNCTAD

As discussed earlier, the HDB have been the mainproviders of public housing in Singapore. In 2006, thegovernment estimated that there were more than 982,000HDB housing units. Today, their market comprises threeareas: the publicly funded new housing sector; the HDBresale market; and, the HDB executive apartment market.

The latter was established in the mid-1990s and seeks toprovide high-quality condominium housing for the upperand middle income households. This segment of the marketreceives little subsidy, although there are fewer restrictionsimposed on resale of the stock. The HDB also operatesan affordable rental system but this segment is small giventhe high ratio of home owners.

In addition, the supply of privately developed propertiestotalled more than 233,000 units in 2006, representing 19%of all housing stock. The majority of this stock comprisesapartments and condominiums and is sold on 99 yearleasehold terms.

As illustrated in Figure 62 high volumes of land sales todevelopers in the early 1990s contributed to growth inprivate residential supply from the mid-1990s onwards.Strong demand has arisen from residents seeking toupgrade from their homes, rising prosperity and wideraccess to mortgage funding. According to SingaporeStatistics Department, between 1995 and 2005, aroundhalf of households changed residence. Of these, morethan 60% upgraded to larger properties. This trend hasbeen most prevalent amongst younger households withabove average income levels that have previously occupiedsmaller properties. Households that formerly owned largeHDB residences have also been more likely to upgrade toprivate houses.

Large scale regeneration has also played its part inincreasing the demand for housing in the mid and highend markets. In 2006 and 2007, a number of residentialblocks were withdrawn from the market and replaced,leading to the displacement of tenants and owneroccupiers. As shown in Figure 63, high levels of newsupply are forecast to be delivered over the forthcomingfive years, the vast majority of which will be clustered,high-density development.

Houses

Apartment and condominiums

Un

its

Figure 62: Private residential stock, Singapore

Source: URA, Savills Research

Houses

Apartments and condominiums

New

su

pp

ly

Figure 63: New residential supply, Singapore

Source: Savills Research


SINGAPORE

7.5 Recent market performance

Residential transactions grew by 52% in 2007 on a year onyear basis. The majority of transactions occurred in the firstthree quarters of the year ahead of changes to the DeferredPayment Scheme which allowed purchasers to deferpayments on uncompleted properties to a later stage.The lower volume of transactions in the final quarter of2007 is also attributed to the impact of the US sub-primecredit crisis which has lead to a weakening in marketsentiment and fewer launches of new residential schemes.

Residential price increases mirror Singapore’s economicgrowth, with stronger values in the mid to late 1990s asGDP grew and Singapore received heightened levels ofFDI. As shown in Figure 65, following a period of robustprice growth, peaking at 42% per annum in 1994, houseprices were strongly impacted by the Asian financial crisiswhich commenced in the summer of 1997. Whilst pricesdid subsequently grow, they have not returned to the highpre-1997 values, which also reflects higher levels of newsupply in the market. Growth has also been more mutedin the early 2000s, although rising sharply in 2007 at 28%on average across all property types.

Analysis of price growth according to location shows thatapartments and condominium prices in the Central regionhave recorded both the strongest values and the highestgrowth rates in the last three years. As shown in Figure 66,prices reached S$14,900/square metre in the core centralarea, representing a 33% increase on a year on year basis.

Demand for clustered products in these locations derivesfrom not only emerging affluent residents but mostsignificantly from overseas buyers, for whom homeownership is restricted to apartments and condominiums.Non-resident buyers, predominantly from Indonesia,Malaysia and India, accounted for almost 26% (9,224) ofresidential transactions in 2007. Recent property investordemand has also been fuelled by the anticipation ofSingapore hosting the Formula 1 Grand Prix in 2008, andthe Youth Olympics in 2010. Rising construction costs havealso impacted on the price of residential assets. Since 2002,the gross floor area (GFA) costs of constructing a luxurycondominium have increased by 69% per annum toS$3,750/square metre.


SINGAPORE

Overseas buyers (LHS)

Companies and Singaporean buyers (LHS)

Total transactions

No

of

tran

sactio

ns

Figure 64: Residential transactions, Singapore

Source: URA and Savills Research

Apartments and condominius LHS

Houses (detached, semi-detached and terraced) LHS

Average annual price growth (all property) RHS

Sin

gap

ore

$/s

qm

Q4

Figure 65: Average house and apartment prices, Singapore


Sin

gap

ore

$/s

qm

Core central region

Rest of central region

Outside Central region

Figure 66: Average apartment and condominium prices, Singapore


The fact that average property values are rising above thegrowth in household income are also contributing to highoccupancy rates in the rental market. Most significantly,sales of large housing blocks for redevelopment continueto lead to the displacement of a high number of households.This situation is anticipated to intensify with the withdrawalof an estimated 6,000 existing housing units in 2008.

Further, buyers who have been priced out of the primeCentral area of the market are driving demand for rentalproperty in peripheral areas of the city. Some suburbandistricts have therefore seen very strong rental growth inthe last year, by as much as 73%, although rental valuesare growing from a relatively low base.

Suburban detached, semi-detached and terraced housesare also witnessing growing rental values owing to limitedsupply of larger units within the city centre. The inflow ofexpatriates, and particularly those employed in thefinancial sector, are driving demand in the high endresidential leasing market, most significantly in the coreCentral locations where there is limited housing supply.

7.6 Fact file

Singapore

Background 2003 2004 2005 2006

Population (m) 4.17 4.27 4.40 4.59

Annual population growth % 1.3% 2.4% 3.2% 4.3%

Fertility rate (births/woman) 1.25 1.25 1.26 n/a

Life expectancy (years) 81.62 81.62 81.71 81.8

Economics

GDP per capita US$ 26,199 28,081 31,028 35,163

GDP growth % 9.0% 7.3% 8.2% 7.7%

Inflation - consumer price % 1.7% 0.5% 1.0% 1.7%

Labour participation rate % 63.3% 63.0% 65.0% 65.1%

Unemployment rate % 3.4% 3.1% 2.7% 2.2%

Household income growth % 0.3% 2.8% 4.6% 9.6%

Housing market

Annual landed house price growth % 0.5% 2.2% 6.1% 22.6%

Annual non landed house price growth % n/a 3% 10% 31%


SINGAPORE


THAILAND

8. Thailand8.1 The housing system

Thailand boasts a high level of home ownership at 83%(1996). In rural areas, there is a stronger propensity towardshome ownership at 90%, compared to 53% in urban areaswhere there is more publicly owned housing (41%). Squattersaccount for almost 4% of all households in Thailand.

The Thai government has played an active role in thehousing sector and has encouraged home ownershipsince the 1950s, most significantly with the establishmentof the Government Housing Bank (GHB) in 1953. TheGHB is a specialised housing finance institution, whollyowned by Thailand’s Ministry of Finance. Initially, it actedas a developer and housing finance institution for 20 yearsuntil the National Housing Authority (NHA) was formed in1973. The GHB (latterly the NHA) initiative allows low-income groups with no prior credit history to purchasepublicly developed housing. Potential buyers are grantedhire-purchase contracts whereby the NHA holds title onthe properties for three to five year periods, whileprospective buyers make loan payments to demonstratetheir ability to purchase a property. A title is then transferredto the buyer and the GHB issues the buyer a mortgage.Typically, it specialises in financing for lower and middleincome groups who are seeking to purchase a house,whilst the commercial banking sector provides loans toupper-middle, and higher-income buyers. As shown inFigure 67, Government Housing Bank interest rates tendsto be marginally lower than commercial lending rates.

Today, a number of financial institutions provide housingloans in Thailand. In 2006, the GHB share of the mortgagemarket was 44% compared to commercial banks share of47% of all new mortgages, demonstrating GHB’s key rolein Thailand’s housing sector. In order to finance growingdemand, the GHB has begun to develop overseasfunding sources.

Bangkok’s housing boom commenced in 1986, and hassubsequently been interrupted by a number of world anddomestic events, such as political unrest in Thailand in1991. Whilst growth in the sector resumed in 1994 andpeaked in 1995, economic recession in 1997 heavilyimpacted on the housing market.

Demand for housing has not only been driven byBangkok’s growing urban population, but also as buyershave sought better quality housing. Expatriates working inthe capital, and wealthy locals are fuelling demand forhomes at the top end of the market. Similarly, rising averagehousehold income and Thailand’s economic performanceare contributing to demand for homes among middle-income groups.

Figure 67 shows that whilst mortgage take-up levels haveincreased since the late 1980s, take-up trends tends toreflect the country’s economic performance. Interest ratesrose to over 15% in 1998 after the Asian financial crisis in1997. Similarly, between 1996 and 1999, mortgagesdropped by 73% from Baht 241,172 million to Baht 64,301million. Whilst interest rates have fallen on average, 2006saw interest rates come back up to 7.75%, negativelyimpacting housing demand. At the same time, mortgagetake-up has decreased by 10.5% on the previous year.

The trend for low density housing development is likely to slow as land prices increase and as affordability in theconsumer market reduces. Whilst export growth ismaintaining Thailand’s GDP growth, factors such as politicalinstability and the cost of living will continue to influencedomestic consumption, and subsequently, the housingmarket. There is ongoing demand for homes to house thehigh number of urban low-income families in Bangkok, andmigration to the city will continue to be a strain on Bangkok’ssocial and physical infrastructure.

New loans to retail clients (LHS)

Government housing bank floating interest rate (RHS)

Commercial banks MLR (RHS)

Mill

ion

bah

t

Figure 67: Housing loans and housing loan interest rates, Thailand

Source: Government Housing Bank

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