Prolonged Inflation and elevated interest rates continue to dampen sentiments, says NUS Real Estate

/ EdgeProp Singapore |
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SINGAPORE (EDGEPROP) - The 4Q2022 Real Estate Sentiment Index (RESI) showed sentiment staying muted at 5.1, after sliding in 3Q2022 under macroeconomic pressures and property cooling measures last September, according to a Feb 9 report published by National University of Singapore (NUS) Real Estate. NUS Real Estate collectively represents the Department of Real Estate (DRE) and Institute of Real Estate and Urban Studies (IREUS) at NUS.
The Current Sentiment Index slipped 0.1 points to 5.3 points, while the Future Sentiment Index inched up 0.1 points to 4.9 points, says the report. RESI scores range from 0 to 10, reflecting the extent of pessimism or optimism of the survey respondents. A “net balance percentage” approach is adopted to derive the scores for key determinants of the real estate market sentiment.

Real Estate Sentiment Index (1Q2010-4Q2022)

Source: NUS Real Estate
Current net balances for prime residential and suburban residential dropped from 30% and 35% to 19% and 22% respectively.
For the second straight quarter in 4Q2022, all the respondents surveyed highlighted rising inflation and interest rates as the biggest potential market risk over the next six months.
For the first time in over two years, home prices in 4Q2022 grew at the slowest pace, with the URA private residential property index up just 0.4% q-o-q.

Potential risks

Source: NUS Real Estate
With higher mortgage rates setting in, "homebuyers appeared to have turned a tad conservative”, says the report.
The proportion of respondents who expected prices of new residential project launches to rise over the next six months shrank to 29%, down from 57% in 3Q2022. The proportion who anticipated prices to remain stagnant rose to 71%, up from 33% in 3Q2022.
“Home prices are still on an upward trajectory,” said NUS Institute of Real Estate and Urban Studies (IREUS) director, Professor Qian Wenlan. “However, concerns over long-term affordability will become more salient as home buyers recalibrate trade-offs between housing expenditure and consumption in other areas.”

Residential launches and prices

Source: NUS Real Estate
Sentiment in the hotel/serviced apartment sector was buoyed by the lifting of border restrictions last August, and China’s reopening late last year. Hotel/serviced apartment enjoyed a strong current net balance of 84% and a robust future net balance of 69% in 4Q2022, up from the preceding quarter at 86% and 68% respectively.
Prime retail saw both current and future net balances increasing respectively to 47% and 22%.
The industrial/logistics sector saw a 46-point plunge to 0% for the current net balance, followed closely by business park/hi-tech space with a 35-point drop, also to 0% for the current net balance. Overall, the industrywide average current net balance fell by 20%, reflecting the widespread softening of sentiment.

Real estate market performance

Source: NUS Real Estate
“The rising cost of inflation and the credit crunch induced by high interest rates may have put many expansionary plans on hold and at the same time raised caution in firms,” Qian said.
Advanced estimates by the Ministry of Trade and Industry showed that Singapore’s GDP for 4Q2022 had moderated to a 2.2% year-on-year growth, down from 4.2% for the preceding quarter.
“After announcing an interest rate hike of 25 basis points on Feb 1, the US Federal Reserve cautioned that it would be premature to declare victory over inflation,” added Qian. “Conditions are still skewed to the downside, and sentiments may not pick up anytime soon until we see more stability in financial markets and loosening credit availability.”

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