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.

Singapore Business Review - - CONTENTS -

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

Hottest lo­ca­tions

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.

Mar­ket sen­ti­ment

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.

No­table deals

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.

Out­look

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

Ex­pected com­ple­tions

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