People walk through Singapore’s central business district on August 31, 2023. The city state has become a hub for both Western and Chinese investment. Photo: Bloomberg
Opinion
The View
by Nicholas Spiro
The View
by Nicholas Spiro
Why a soft landing for Singapore property might be no landing at all
Given high borrowing costs, cooling measures and a surge in private home completions, it would be astonishing if Singapore did not see a slowdown
While the property sector is losing momentum, it is the kind of slowdown landlords and investors in most other markets would envy
When it comes to the outlook for the global economy, aeroplane metaphors are all the rage. Most investors expect a soft landing, whereby inflation is brought down without causing a recession. A more painful hard landing is increasingly seen as unlikely, mainly because of the relatively strong performance of the US economy.
In the property industry, views differ more sharply because of the sensitivity of the sector to the steep rise in interest rates and the pandemic-induced shift to hybrid working that has curbed demand for office space. The findings of Bank of America’s monthly global fund manager survey show that US commercial property – in particular the vulnerable office sector – remains one of the most likely sources of a systemic credit event.
The Asia-Pacific region, on the other hand, with the glaring exception of China’s crisis-ridden housing market, has proved more resilient because of less uncertainty over the future of the office sector and less pressure on valuations. Nowhere has the resilience of the region been more apparent than in Singapore, whose status as a relative safe haven, business-friendly regulatory regime and neutral position in international affairs has allowed the city state to become a hub for both Western and Chinese investment.
Yet even Singapore’s real estate industry has experienced a marked slowdown during the past year. The deceleration in activity is most evident in the residential market. Sales of new private homes last year fell to their lowest level since the 2008 financial crash, while overall sales volumes – which include resale transactions – dropped to a seven-year low, according to data from the Urban Redevelopment Authority.
In the rental market, where values increased by a staggering 30 per cent in 2022, prices contracted in the final quarter of last year for the first time in over three years. Sales prices for 2023 as a whole grew 6.8 per cent, compared with rates of 10.6 and 8.6 per cent in 2021 and 2022 respectively.
In the commercial sector, rents for grade A offices in Singapore’s central business district (CBD) declined last quarter, on a quarter-on-quarter basis, for the second straight quarter following nine consecutive quarters of growth, according to data from JLL. Meanwhile, investment transaction volumes for the sector as a whole fell almost 30 per cent on an annualised basis, the steepest quarterly fall among the leading markets in Asia, according to JLL.
However, the slowdown needs to be put into perspective. Given the triple whammy of high borrowing costs, successive rounds of cooling measures, and the surge in private home completions last year, it would be astonishing if Singapore’s housing market had not lost momentum.
Yet, while the sharpest slowdown in prices last year was in the core central region where foreigners – who bore the brunt of the latest round of cooling measures announced in April 2023 – are more active, home values outside the central region rose 13.7 per cent, the fastest rate since 2010.
Christine Sun, chief researcher & strategist at OrangeTee Group, said that while the slowdown is starting to percolate through the residential market, sentiment is “cautious rather than pessimistic”. Even this might be an overstatement. The number of resale flats in the public housing system changing hands for more than S$1 million (US$744,000) hit an all-time high last year.
People walk past public housing apartments in Singapore, in August 2022. The number of resale flats in the public housing system changing hands for more than S$1 million hit an all-time high last year. Photo: Reuters
The office sector, moreover, is still very much a landlord’s market despite softer demand. The vacancy rate for grade A offices in Singapore’s core CBD stood at just 3.5 per cent last quarter while net take-up of space for the year as a whole remained in positive territory for the fourth straight year, according to data from CBRE.
Unlike Hong Kong, where an ill-timed supply boom has contributed to a dramatic rise in the vacancy rate to a record high, Singapore’s office market is tight enough and resilient enough to absorb a burst of new supply in the coming year without any major dislocation.
Tellingly, private and institutional investors continue to purchase prime office buildings in Singapore, underscoring the appeal of its position as a financial centre offering office investors attractive freehold acquisition opportunities.
Yet, the strongest indication of the underlying strength of Singapore’s property industry is the enduring role of its investors as Asia’s dominant source of cross-border capital. Although Singaporean buyers were less active overseas last year than in 2022, they purchased more assets across the region and in North America and Europe than the rest of Asian investors combined, according to data from MSCI.
High-rise buildings in Singapore on June 5, 2023. The vacancy rate for grade A offices in Singapore’s core central business district stood at just 3.5 per cent last quarter. Photo: Bloomberg
Furthermore, Singaporean buyers have become more creative and innovative to unlock value in challenging real estate markets. In addition to investing directly in properties, they are buying stakes in companies and building platforms.
Last November, Singapore-based conglomerate Keppel Corporation announced it had reached an agreement to buy European fund manager Aermont Capital to establish a strong presence in Europe and position itself as a global asset manager.
In addition to other big institutional investors such as state funds GIC and Temasek, Singapore-based private capital is playing a key role in cross-border investment. “There’s a broad capital base. Singapore has become a conduit through which private wealth invests globally,” said Tim Graham, head of international capital, Asia-Pacific, at JLL.
While Singapore’s property sector is slowing, it is the kind of slowdown that landlords and investors in most other markets would envy. As far as soft landings go, this is the softest, so much so that it is not even clear if the plane will land.
