Should you Invest?
By Shaun Hoon
As a casual observer of Brunei’s property market, I can’t help but notice the number of apartment buildings that have currently been sprouting up at an unprecedented rate in metropolitan areas compared to five years ago. Within 10 minutes walk from my home in Menglait alone, there is a new block of apartments being completed and another two more are being constructed.
A few questions that come to mind whenever I see this type of construction: What are the developers thinking? Aren’t they aware that Brunei’s economy is entering into a recession? Don’t they realise that we Bruneians love our space, and like our houses big?
Then, I met Mr Ken Dodds, the Managing Partner of Resimax Australia who explained to me the rationale from the developer’s perspective. With the click of a few buttons on Google, Ken was able to demonstrate to me the supply and demand projection for our property market based on Brunei’s population growth.
In 1970, our population was 127,554. Today, the number has more than tripled – to 429,646. The average density of 24.22 persons per square kilometre (1970) has since multiplied three-folds to 81.6 pax per square kilometre. Brunei’s population is projected to reach 638,157 by 2050. That’s 121.2 persons per square kilometre according to C.I.A. World Fact Book (July 2011).
Looking at it on a year by year basis, our growth rate sits at 1.71% per year, which is another 7,355 people added to our little kingdom every year.
Given our recent statistic of 5.8 persons per household in 2011, we would need an additional 1,225 new houses per year in order to accommodate these 7,355 new ‘people’ every year. If an average apartment can hold 20 units, we will need approximately 60 new apartment buildings per year in order to meet the demand.
According to JPKE’s report, the number of households grew from 55,696 in 2001 to 68,208 in 2011. In other words, 12,512 houses were built during the past decade, which is an average of 1,251 new houses being built per year; a very healthy rate that is on par with the required demand.
What do the numbers mean?
Based the limited data I could obtain, here are a few quick conclusions:
• The number of people occupying per square kilometre will increase by another 50% in the next 35 years. Property prices in Brunei, like everywhere else will only head north in the long term, regardless of the short-term economic conditions.
• The only way to meet the demand of metropolitan living is by building high-density apartments. As such, we will continue to see the increase in new apartments especially in the town areas. If we want to live near metropolitan areas in the next 10 years, Bruneians will have to get used to the concept of vertical living.
In the context of the current economic climate:
• The current drop in the property prices that we are experiencing today may be due to a combination of factors, the most prevalent being the implementation of TDSR (Total Debt Service Ratio) set at 60% for those earning a net salary of BND1,750 per month, which pulls the break on demand.
• Despite the downturn, there is no sign of an oversupply of properties in the market place against the population growth.
• As the TDSR was implemented well over a year ago, the market should have adjusted itself during the last 12 months. As such, we should not expect a further drop in house prices.
• The number of home rentals will supersede home purchases if buyers are unable to borrow money to finance their home loans.
• The number of persons per household is expected to increase if more people cannot afford to move out on their own.
• There will be an increase in demand in medium priced property, as the lower priced housing is being serviced by the public housing provided by the government.
• Given that we know property prices are going to increase in the long-term, this period of economic downturn may well be an ideal opportunity for you to grab the best property deal.