The View | Why a soft landing for Singapore property might be no landing at all

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 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.