REIDIN, February 26, 2019
Over the last few quarters there has been a litany of new research suggesting that the ‘avalanche’ of supply coming up will lead to a further correction of prices and rents. However, an in-depth analysis of completions reveals that in the first cycle there were more than twice the number of units were completed compared to the second (238k vs 115k). Moreover, having a low inverse correlation between house prices and completed supply (-0.28) suggests that other factors dominate the landscape such as dollar strength, sentiment and geo political issues.
Change in Housing Supply vs Change in Prices
A bi-variate analysis of housing supply and prices reveals a low inverse correlation of -0.28 between both variables over a 12-year horizon. This infers the current price slump is more to do with other factors such as the dollar strength, sentiment and geo political issues compared to the ‘avalanche’ of supply. Recent data from the Lands Department indicates that there has been an uptick in demand for new launches, and although it is too soon to infer a trend, it is indicative of the fact that demand is starting to accelerate after a subdued 2017-18.
The real estate market has shown a remarkable ability to absorb units, as evidenced by the fact that prices remain 35% higher than the trough seen in the 2009-11 down market phase. Despite rapid urbanization, the demand curve continues to remain firm (partly as a result of the post-handover payment plan schemes that have been offered).
Demand has shifted towards the primary market where such offerings are common place, and early data for 2019 reveals an uptick that, if sustained, could augur for the beginning of a recovery in prices.
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