Things are looking up once again for singapore’s property market
Singapore’s property market is bucking the declining trend of the past few years with figures and prospects for both residential and commercial spaces all looking positive for the rest of the year.
One of the biggest reasons why things are on the rise once again for Singapore’s property market is the improving market sentiments and the country’s still relatively low interest rates, buoyed further by the government’s implementation of zealous cooling measures to ease the downward trend that started following the peak reached in the third quarter of 2013. This decline, according to Value Penguin’s senior vice president Duckju Kang, represents the longest decline in real estate prices in Singapore, with landed and non- landed property values down 10% and 8%, respectively, over the last 13 consecutive quarters. This relatively slight upturn has been a welcome reprieve for various stakeholders in the sector. Xian Yang Wong, Orange Tee’s head of research & consultancy, said that buyers who were previously window shopping are now coming into the market to buy. This is echoed by Ismail Gafoor, Propnex Realty’s CEO, saying that Singapore’s real estate market is currently abuzz with activities and we are witnessing a rebound in consumer confidence. “Buyers who were once waiting on the sidelines to see signs of recovery seemed to be making the move,” he said.
In the first half of 2017, sales of private residential units reached a total of 6,039 as compared to only 3,675 units sold in the same period last year, representing a 64% year-onyear increase
High end properties in Core Central Region (CCR) are now underpriced at around $2,500-$3,000 psf while Sentosa properties have dropped 30-35% over the last four years, driven down by various cooling measures in the last five years, which makes purchasing in these areas especially attractive for investors, said Gafoor.
For Alice Tan, head of research and consultancy at Knight Frank, investors should consider snapping up properties in locations with “strong development growth stories” such as the Jurong Lake District and Paya Lebar
Grade A CBD rents, for instance, bottomed in the first quarter of 2017 and edged up 0.6% quarteron-quarter in the first half of 2017.
Central, where prices and rents could spike within the next 5 to 10 years as they transform.
Local property buyers continue to value proximity to schools, work places and amenities, said Winston Lee, head of regional projects at Propertyguru Group. This was reflected in the top five preferred districts to buy property in Singapore based on Propertyguru’s Consumer Sentiment Survey in the first half of 2017: District 9 (Orchard / River Valley), District 15 (East Coast/marine Parade), District 19 (Hougang/punggol/sengkang), District 10 (Tanglin/holland), District 11 (Newton/novena).
When deciding between buying a landed property or an apartment, the former can appear more attractive and a more urgent purchase due to their being relatively underpriced, limited supply, and higher appreciation potential, said Ong Teck Hui, national director, research & consultancy at JLL Singapore. “Landed home prices have corrected much more than non-landed homes,” he said. “The consequence of the scarcity is that landed price appreciation tend to be higher. Over the longer term, it is likely that landed homes will enjoy superior capital appreciation.”
For those who are looking into investing in commercial or residential spaces, Eugene Lim, KEO of ERA Realty notes that either of the two can be a good deal, depending on the investment objectives and the buyer’s risk appetite. Since buyers of commercial properties are not subject to the Additional Buyer’s Stamp Duty, and are instead required to pay GST, this can lead to lower prices for investors who own a company and purchases a commercial property through it by applying to claim back the GST amount, subject to tax guidelines. On the other hand, “purchasing a residential property may be more straightforward and familiar to investors, with only the relevant stamp duties payable,” said Lim. “However, investors should take note that commercial properties are generally more attuned to economic cycles than residential properties, as the tenants are companies which are subject to business cycles, and hence riskier.”
Data from Orange Tee reveals a sharp jump in transaction volumes in 2017 compared to 2016 despite the declining trend in property prices. In the first half of 2017, sales of private residential units reached a total of 6,039 as compared to only 3,675 units sold in the same period last year, representing a 64% year-on-year increase. “Rising volumes should ultimately support prices and the private residential market could bottom by the end of 2017,” according to Wong.
The improved market sentiment and movement have also contributed to the increase in the number of transactions at 6,095 units as depicted in the recently released Urban Redevelopment Authority statistics, with private residential prices falling by just 0.1% in the first half of 2017 — one of the lowest drops in the past 15 quarters. This is the highest number since the peak period in the second quarter of 2013 when the number of transactions reached 6,945.
Tay Huey Ying, JLL Singapore’s head of research, shared the same sentiment, noting that sales volume in the country’s residential property market have rebounded although leasing demand remained lacklustre in light of continued tight immigration policy. “JLL’S research showed that rents of prime apartments remained soft as of 2Q17, easing 1.4%in 1H2017, bringing the total rental correction to 21.6% since the downtrend started in 3Q13,” she elaborated.
Tay Kah Poh, head of residential services at Knight Frank Singapore, said in a report that industry experts and observers like him share the current feeling that the market has already bottomed, paving the path to recovery and rise. Apart from residential and private individual properties, office and commercial spaces are also experiencing a brighter year. JLL Singapore’s research showed that rents and capital values of central business district (CBD) office and island-wide business park spaces bottomed and posted increases in the first half of the year. Grade A CBD rents, for instance, bottomed in the first quarter of 2017 and edged up 0.6% quarter-onquarter in the first half of 2017 — putting an end to two years of decline in rents amounting to 20.1% in total.
Leasing activity — both residential and commercial — has also been part of the positive tide of the whole sector. Ying shared that capital values of Grade A CBD office space bottomed in the first quarter of 2017 and 2.2% quarter-on-quarter in the first half of this year, underpinned by buoyant demand by investors looking to ride on the office rental upturn.
“On the office front, leasing demand is gravitating towards the newer and better schemes in the CBD, and this is stressing the older and poorer grade stock,
In the next 6 to 9 months, the market will continue to be bullish.
and putting pressure on their landlords to lower rental expectations to maintain occupancy,” Ying noted, further adding that this is the case because demand is still largely made up of relocation instead of new setups and expansions.
Despite Wong’s suggestions that the rental market is expected to remain weak as incoming supply continues to outweigh current demand this year, he expects that this segment of the sector will recover by 2018 as the number of incoming completions tapers off sharply. This is echoed by JLL Singapore’s Ying, adding that given some occupiers’ commitment to space ahead of lease expiry, the staggered return of space to the market has also softened the anticipated impact of the large influx of supply on rents.
Data from Orange Tee revealed that there will be lesser supply of property units in 2018, which could narrow the gap between the sector’s supply and demand. There are 8,417 private residential units expected to be completed in 2018, which is a 49% fall from 2017 completions of 16,544 units. Completions next year is also 37% below the average annual completions of 13,319 units in the last decade from 2007 to 2016.
“Island-wide occupancy rates have remained above
90%, despite the record high volumes of completions in prior years,” Wong said, suggesting that rental demand for Singapore residential real estate remains relatively resilient.
Some of the biggest and most notable deals for 2017 so far in the Singapore property market include the SG$2.2B sale of Jurong Point suburban mall, considered the largest investment deal in 2017 year-to-date in terms of absolute quantum and the largest retail transaction in the history of the city-state.
“It underscores investors’ confidence in good quality retail assets even in the face of challenges currently facing the sector,” Ying said.
Propnex Realty’s Gafoor also noted the evidently increasing collective deals — or en bloc deals — in the market with seven deals completed so far in 2017, valued at $2.5b and surpassing the three deals worth $1b for the whole of 2016. An example of this would be the tender for Tampines Court which was recently closed, receiving a top bid of $970m — $10m more than its original asking price. If this deal is awarded, we can expect total value of en bloc deals so far for the year at slightly more than $3b.
Orang Tee’s Wong reckoned that this rekindled interest in the collective sales market is evidence of developers’ hunger for land, on the back of dwindling unsold inventories and good performances of new launches.
For Gafoor, more demand is also expected to awash in the market as former en bloc owners with cash proceeds will now look into purchasing resale or new launch properties as their new homes or even invest in properties to expand their property portfolios. “This trend has indeed added further excitement for consumers in the market in 2017,” he added.
On specific segments of the sector, Gafoor noted that confidence is high for the private residential side to experience a 25% increment, with total volume of transactions for new launches and resale crossing the 21,000 mark by 2017. This optimism is shared by JLL Singapore’s Ying, saying that sale of new private residential units could reach a four-year high of about 11,000-12,500 units by the end of the year — barring any adverse external events derailing buying momentum — if the 1,021 units per month on average of the last seven months of 2017 is by any indication.
Robust sales volume will also lend a hand to prices, which are already showing signs of bottoming. The URA’S all-private residential price index receded by 0.1% q-o-q in the second quarter of 2017 — a notable improvement over the previous estimate reading of about -0.3%, and hinting at some price strengthening over the later period. “With demand for private homes having made a sustained return, prices are on track to bottom in the next quarter or two and post moderate increases thereafter,” she said.
A brighter economic outlook also cloaks the commercial property market in Singapore which is expected to lift business confidence and support leasing activity. Coupled with the tapering of pipeline supply in 2018 and 2019,
CBD Grade A office rents are poised to continue to firm over the next 12 months. Ying shared that investors are expected to continue to favour Singapore’s CBD Grade A office assets given the opportunity to ride the rental upturn. “This will bode well for capital values, which we expect to outperform rents in growth in the near term,” she added. For Orange Tee’s Wong, these recent developments put Singapore’s property market on a bright perspective.
Source: URA, Orangetee Research Private Residential Property Sales(based on caveats), breakdown by residential status
The sale of Jurong Point suburban malll at G$ 2.2b is considered the largest investment deal in 2017
Source: URA, MTI, Orangetee Research Key indicators
Expected completions, by market segments