Public Housing Measures

Singapore Developers UNDERWEIGHT
Housing policy implications from PM Lee's National Day Rally speech
Analysts: Vikrant Pandey/Vijay Natarajan        Tel: 6590 6623/ 6590 6626
Prime Minister Lee Hsien Loong during his national day rally speech yesterday announced  the raise in the income ceiling for HDB flats to S$10,000 (S$8,000 previously) and executive condominiums to S$12,000( S$10,000 previously). HDB will build 25,000 new Built To Order (BTO) flats in 2012 on top of 25,000 flats this year. He also announced the tightening of foreign worker inflows with more stringent entry requirements for professional and skilled middle-income foreign workers particularly.

Public housing measures to have a knock on effect on private housing. The move comes in as no surprise as the raise in income ceiling was widely expected by the market post recent watershed elections.The income ceiling increase would make eligible an additional 99,161 households (~9% of total 1.15m resident households) for BTO flats and an estimated 68,700 households for executive condominiums. We believe that the move is aimed at helping the so-called sandwiched class who are not allowed to buy HDB due to their higher income but are also financially strained to buy private housing. The bulk of the sandwiched class belong to the 25-35 age group representing 17% of the resident population. The measure is likely to result in a shift in demand for majority of these households from the private mass market segment to public housing segment. Also, the release of 25,000 units  in 2011 and 2012 is a more than two fold increase compared with the average annual number of units launched over the past 10 years. The softening of the private mass segment is likely to have a knock on effect on the mid to high end segment as well.

Tightening immigration policy could further slowdown demand. During last 10 years foreigner population has been growing at a CAGR growth of 5.6% much higher than a 1.5% CAGR growth for resident population. Based on our sensitivity analysis every 0.5% change in CAGR for foreign population growth impacts average five year housing demand by 6%(see sensitivity table next page).We currently forecast a take-up rate potential of 9,150 units/year on average over the next five years based on a five year CAGR population growth of 3%. This is 31% short of the supply of 12,000 units pa during the same period.

The government policy overhang amidst the increasingly uncertain global macro economic environment will continue to weigh in on the residential sector. We maintain our cautious stance on the residential developers with City Developments (Target S$9.80) as our top SELL.

Monthly Household income from work

	2000(%)	2010 (%)	ppt change
No Working Person	8.6	10.5	1.9
Below 1,000	3.9	3.7	(0.2)
1,000 -1,999	13.8	8.2	(5.6)
2,000 -2,999	14.7	9.3	(5.4)
3,000 -3,999	13.1	9.3	(3.8)
4,000 -4,999	10.3	8.6	(1.7)
5,000 -5,999	8.2	7.8	(0.4)
6,000 -6,999	6.3	6.6	0.3
7,000 -7,999	4.6	5.6	1.0
8,000 -8,999	3.5	4.8	1.3
9,000 -9,999	2.6	3.9	1.3
10,000 -10,999	2.1	3.4	1.3
11,000 -11,999	1.5	2.6	1.1
12,000 -12,999	1.2	2.2	1.0
13,000 -13,999	0.9	1.8	0.9
14,000 -14,999	0.7	1.5	0.8
15,000 & Over	4.1	10.4	6.3
Total households(2010)		1.15m

Source: Singstats, UOB Kay Hian


Demand for HDB flats

Financial Year*	Home ownership flats
FY01	12,711
FY02	9,396
FY03	13,846
FY04	10,333
FY05	8,849
FY06	7,884
FY07	8455
FY08	12499
FY09	9870
FY10	13200

* HDB financial year from Mar - Mar
Source: HDB.

Foreign Population growth vs takeup potential

5-yr CAGR	2011	2012	2013	2014	2015	Average Demand
5.00%	7,021	7,257	7,504	7,761	8,030	7,515
5.50%	7,393	7,669	7,958	8,261	8,579	7,972
6.00%	7,766	8,085	8,421	8,774	9,146	8,438
6.50%	8,139	8,504	8,891	9,300	9,733	8,914
6.74%	8,318	8,707	9,120	9,557	10,022	9,145
7.00%	8,512	8,928	9,370	9,840	10,340	9,398

Resident population by Age Group

Source: Singstat