The recently published and widely debated Singapore population white paper highlights the key demographic, infrastructure and economic challenges facing Singapore over the next 20-30 years. Specifically, it tries to balance Singapore’s tricky demographic and infrastructure equation, which is to balance Singapore’s persistent low birth rate and thus the need for immigration flows with recent public concerns about rising number of foreigners and overcrowding of Singapore’s public infrastructure. In order to achieve this balancing act, the government has plans to expand its public infrastructure to cater for population projections of 5.8-6.0mn and 6.5-6.9mn people by 2020 and 2030 respectively. On transport infrastructure, Singapore’s MRT network would be further expanded and its total length doubled to around 360 km by 2030. On the housing front, enough land has been side aside to build an additional 700,000 homes from today and more homes could be built in the longer term if the need arises.

 

While the population projection of 6.5-6.9mn people looks large compared to current population of 5.3mn, it nevertheless represents a slower population growth rate of 1.1-1.5% per annum from now till 2030, much slower than the average population growth rate of 2.5% per annum that we have experienced from 1980-2010. As a result of this slowdown in population growth, the Singapore government also expects Singapore economic growth rate to slow to an average of 3-4% per annum from now till 2020 and 2-3% per annum from 2020 to 2030.

 

We expect the implications of the population white paper on Singapore real estate sector to be most keenly felt in the industrial and residential property segments. For the industrial property segment, the expected slowdown in population growth rate likely means that current tight immigration and foreign labour policies would likely continue going forward. Labour cost inflation would thus likely remain heightened going forward, which would significantly hit the labour intensive manufacturing sector. In fact, many labour intensive manufacturing industries (such as the food manufacturing industry) have recently been voicing their concerns about the labour implications of the population white paper to the Singapore government.  

 

Tight labour conditions, coupled with the expected slowdown in economic growth and current high industrial property prices and rentals in Singapore, mean that the recent trend of manufacturing firms relocating to other lower cost locations such as Iskandar Malaysia would likely continue. In addition, given the shortage of land in Singapore and the white paper’s projection of potentially a larger population by 2030, it would seem logically to think that land in Singapore should increasingly be allocated towards higher value-added activities such as for commercial or residential purposes rather than for industrial purposes. Thus, such relocation of manufacturing and industrial firms to other low cost locations may be inevitable although it definitely does not bode well for industrial property demand in Singapore.

 

As for the implications of the white paper on Singapore residential property segment, if we use the mid point of the government’s 2030 population projection, Singapore’s population could potentially increase 26% from 5.3 million people currently to 6.7 million people by 2030. However, the government has also side aside enough land for an additional 700,000 homes, which means the total stock of Singapore housing could potentially increase 58% from 1.2 million units currently to 1.9 million units by 2030. Even if we factor in the demolition of an estimated 200,000 units of housing that would be older than 30 years by 2030, the potential net increase of an additional 500,000 homes would see Singapore housing stock increasing 42% by 2030.

 

Given that the potential increase in housing would likely outstrip potential population growth, the white paper has thus brought some concerns about potential oversupply of residential property in Singapore by 2030. While much has been highlighted about the expected near-term ramp up of residential property supply to over 30,000 units and 40,000 units in 2013 and 2014 respectively, the potential addition of 700,000 homes by 2030 would mean that average supply of residential property would likely remain heightened at around 40,000 units per year till 2030. Although this could result in some potential oversupply of residential property units by 2030 (if the total 700,000 additional homes are built), it could on the other hand prevent a repeat of inadequate housing supply that we witness over the last decade.

 

And lastly, the trends of rising housing supply and expansion of MRT network would also mean more homes been built around MRT stations going forward. Thus, with more homes near MRT stations in the future, residential units that are situated far away from MRT stations may find themselves at a pricing disadvantage.