A snapshot of Singapore’s property market in 2H2020

By Valerie Kor

/ EdgeProp Singapore |

July 16, 2020 6:00 AM SGT

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Singapore is a month into Phase Two reopening after the “circuit breaker” period. With general elections over on July 10 where Singapore’s ruling party still gained the majority share of votes, real estate consultants and listed property developer GuocoLand weighed in on what the property market could look like in 2H2020 at EdgeProp’s Virtual Forum on Real Estate Investment on July 11.

Alan Cheong, head of research and consultancy at Savills Singapore, says the residential market has been resilient despite travel restrictions and external challenges. In 1Q2020, residential transactions still increased 16.9% y-o-y.

From April to June, new home sales increased from just below 280 units to over 980 units, notes Cheong. For Phase Two reopening, transaction volume is expected to continue rising. “Buying numbers are likely to settle at pre-Covid levels,” says Cheong. And with buying momentum in new and resale markets picking up, he expects to see prices increase only after Phase Three of reopening.

Cheong reckons it does not matter whether one buys a property in the Core Central Region (CCR), Rest of Central Region (RCR) or Outside Central Region (OCR), as the different market segments are highly correlated. “Beyond the URA Master Plan, you have to look at the macroeconomic trends,” he says.

Low interest rates, expected gains may prompt switch to residential

The residential market’s resilience could be attributed to the low interest rates, says Cheong, which have prompted some of those sitting on the sidelines to commit to a purchase. The low interest rates will also help lower interest costs for homeowners and businesses, reducing the risks of foreclosure, he adds.

Cheong attributes the health of the residential market to past macroprudential policies too, such as the Total Debt Servicing Ratio (TDSR) loan framework introduced at the end of June 2013. “Prior to TDSR, one could take out a loan on the increased equity value
of your home to speculate in stocks,” he says. “When the stock market went down, you ended up having to sell your home. But TDSR has minimised the likelihood of that happening, so when stock prices came down significantly, real estate prices remained relatively resilient.”

There is also a socially-ingrained expectation that residential properties in Singapore will increase in value over time. “Since 1975 until now, we have seen extraordinary gains in the residential market,” observes Cheong. “There may have been short-term bounces in between, but from generation to generation, values have increased over time. That’s why people were still entering the residential market despite the circuit breaker. The equity market does not have the same expectation.”

Singapore’s property market recovery could even mirror that of China, where residential sales across various cities have bounced back to pre-Covid levels and home prices have moved up steadily, especially in China’s Tier 2 cities, reckons Cheong.

He therefore believes that the residential sector will remain more resilient compared to other sectors such as office, commercial or industrial. “People still need a roof over their heads,” he says. He foresees people switching part of their investment portfolio from equities, bonds, REITs and other financial instruments and putting it into residential property.

Commercial: Lower office demand but bright spots in industrial market

Covid-19 and the current recession has brought three issues to the forefront in the office sector, says Christine Li, head of research for Singapore & Southeast Asia at Cushman & Wakefield (C&W). First, there will be an overall decline in leasing demand as people adopt different collaborative settings such as co-working, use technology and reconfigure office space to accommodate more meeting rooms and remote working.

Cushman and Wakefield’s Li says that there will be an overall decline in leasing demand as people adopt different collaborative settings such as co-working, use technology and reconfigure office space to accommodate more meeting rooms, and reorganise workspaces to accommodate remote working (Albert Chua/The Edge Singapore)

“The premium attached to Marina Bay and the city centre is likely to diminish as people adopt flexible work arrangements,” observes Li. Even prior to the Covid-19 outbreak, the economic slowdown towards the second half of the year had resulted in overall rental growth of just 2.8% for the full year. The rental growth was concentrated mainly in 1Q2019.

In 1Q2020, office rents weakened 0.8% q-o-q, based on URA data, and is expected to decline by another 2.5% in 2Q2020, Li estimates. With a negative take-up rate in office space, she expects CBD office rents to drop by 10% for the full year, and 5% in the city fringe and suburban areas. However, as new supply remains low until 2022, she expects vacancy to remain low — at about 2% for Grade-A office space in the CBD and 6% outside the CBD.

Meanwhile, rents in the industrial sector are also expected to decline, except for the logistics segment. This means that overall rental declines are likely to be more muted, at about 1% to 4%, estimates Li.

In addition to Covid-19, the ongoing trade war between US and China is also affecting global supply and demand. With weakened global demand, industrial tenants are looking to reduce their space requirements and negotiate for lower rents.

At the same time, factories are not able to operate at maximum capacity due to safe-distancing measures and a shortage of workers, adds Li.

In a post-Covid world, the use of artificial intelligence and automation is likely to become more prevalent as companies seek to increase demand for their products without increasing human interaction, notes Li. This could lead to an increase in demand for warehouses, cold storage facilities and data centres, she reckons.

How WFH has changed the concept of home

One of the issues raised during the forum was how working from home (WFH) could change the way people view their homes. Ong Choon Fah was the moderator for the forum.

Working from home could spur the need for ergonomic furniture, and architects to rethink the layout of homes to increase space efficiency, observes Savills’ Cheong (Roberto Nickson via Unsplash)

“Perhaps, working from home may spur the upgrader market — people who want more comfort and space at home to work and live in,” says Alan Cheong, head of research at Savills Singapore. “It could also spur the need for ergonomic furniture. Architects will also have to rethink the layout of apartments, and how to increase the use of efficient space.”

More important than size is flexibility, says Dora Chng, general manager (residential) of Guocoland. “A larger home does not mean that it is more flexible,” she adds. “To be able to transform a living area where one can entertain, to a place for relaxation, and then to a place of work, will be something that people want.”

With WFH, more people are shopping online and having food and shopping delivered to their homes. More developments in the future will have to cater for contactless delivery, such as parcel locker systems, adds Chng.

Frequent cleaning and sanitation of common areas, especially in lifts and condominium facilities, will also become the norm. Developers are therefore, also exploring the possibility of introducing cleaning robots, installing UV lights in the lifts to kill bacteria and other features, as health and wellness becomes more important to residents, notes Chng.

With working from home becoming the norm, people want flexibility in their home rather than having a larger one, according to GuocoLand’s Chng (Photo: Samuel Isaac Chua/The Edge Singapore)

As WFH becomes more commonplace, businesses that promote the sharing economy such as “cloud kitchens” as well as online gaming and entertainment companies will boom, says Christine Li, head of research for Singapore and Southeast Asia at Cushman & Wakefield (C&W). “As real estate agility increases, a lot of buildings will not be relevant to today’s workforce,” she adds.

Li believes that “cloud kitchens” will be here to stay. Such kitchens offer shared kitchen spaces for delivery-only restaurants. Savills’ Cheong agrees, adding that F&B outlets and restaurants are likely to “go underground” — either operating from home or a central kitchen. “These kitchens could dilute the demand for F&B shopfronts in malls or commercial shops,” he adds.

The long-term impact of Covid-19 on the sharing economy remains uncertain. “It’s a mixed bag at the moment as some businesses in the sharing economy will not even survive the current downturn, especially if they are in the business of human interaction,” says C&W’s Li.

Another concern was whether the election results could have an impact on the residential market. “Foreigners will still see our political system as very stable,” says Savills’ Cheong. “They will look at Singapore very favourably — given the quality of the civil service sector and transparency of business policies. Even the loss of one more GRC [group representation constituency] to the opposition party will not affect that perception.”

C&W’s Li agrees: “Investors don’t look at how many seats PAP [People’s Action Party] have won because many come from democratic societies where coalition governments are common.”

In fact, Li says Covid-19 and the unrest in Hong Kong have led to an increase in real estate enquiries from both investors and multinational companies. She also points to the “spillover effect” from the trade war last year and the ongoing conflict between US and China. “Singapore will continue to be a key financial hub in Southeast Asia due to its transparent and sound infrastructure,” says Li.

Another perennial question was whether the government would lift some of the property cooling measures. “Housing is a socio-economic and political tool,” says Wong Yew Kiang, CLSA head of research for Singapore. “It must be kept in line with income growth, which is now 3% to 4% annually. My gauge is that when prices grow by more than 1% to 1.5% per quarter, or an annualised rate of 5% to 6%, the government gets a bit worried, which was exactly what happened before the latest cooling measures in July 2018.”

C&W’s Li agrees. She reckons the government will only tweak some of the measures if residential property prices plunge by at least 5% within a short period of time. “In fact, during Covid-19, the government deferred mortgage repayments for homebuyers and also gave a six-month extension on the ABSD [additional buyer’s stamp duty] remission for couples buying their second home, as well as for developers. Even commercial landlords had deferment on their mortgage repayments.”

In case you missed it, watch the recording here:

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