PROPERTY INSIGHTS. Market Overview. Residential sales remain resilient amid uncertainty. Citigold Private Client. Singapore Quarter 1, 2016

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1 Citigold Private Client PROPERTY INSIGHTS Singapore Quarter 1, 216 Residential sales remain resilient amid uncertainty Market Overview Investment sales fell to $1.75bn in Q1 216 from $6.7bn in. The investment sale volume in Q1 216 is the lowest since Q3 29. The fall in investment sales was largely attributed to the uncertainty in the global economy and weaker real estate market. Average monthly gross office rents in the CBD declined for the third consecutive quarter by 3.9% to $9.9 per sq ft, with the largest decline in Marina Bay due to increased vacancy. Office rents are expected to face further downward pressure due to the large impending supply and weaker business sentiments. Average monthly rents of conventional factory space eased by 3.5% q-o-q to $1.8 per sq ft in Q1 216, the third consecutive quarter of decline. Similarly, average gross monthly rents of business parks and hi-tech industrial space fell by 2.% q-o-q to $4.88 and $3.19 per sq ft respectively in Q1. Notwithstanding, demand for business parks is likely to be supported by sectors such as the biomedical and information and communications technology. In Q1 216, average monthly first-storey retail rent across the island declined by 1.2% q-o-q to about $3.15 per sq ft, the fourth consecutive quarter of decline since Q This was largely due to weaker demand in 215, which saw islandwide occupancy rate Figure 1 Home Sales (excluding executive condominiums), units 12, 1, 8, 6, 4, 2, Q1 213 Q2 213 Q3 213 Q4 213 Sold directly by developers Units launched Q2 215 Q3 215 Sold in secondary market falling by 1.6 percentage points y-o-y to 91.9%. With more retailers anticipated to consolidate amid weaker sales and stiff competition from e-commerce, rental values in 216 will be suppressed as supply of retail spaces outweighs demand. On an annualized basis, total residential sales increased by 7% y-o-y to 2,833 units. Sales in the secondary market grew by 11% y-o-y to 1,414 units while uncompleted new units sold by developers rose by 8% y-o-y to 1,349 units. Notwithstanding, developers remained cautious, launching only 953 units in Q1 216 (Figure 1). Q1 216

2 Trends & Updates Economic Overview GDP grew by 1.8% y-o-y in Q1 216 Based on advanced estimates by the Ministry of Trade and Industry (MTI), Singapore s GDP expanded by 1.8% y-o-y in Q1 216 (Figure 2). On a quarterly basis, GDP growth was stagnant in Q1 216, in contrast to the 6.2% expansion in the previous quarter. Singapore s y-o-y economic expansion in Q1 was led by a boost in the construction sector, which grew by 6.2%. This was largely supported by construction activities in both the private and public sector. The overall GDP growth was, however, stunted by the manufacturing sector, which declined by 2.% y-o-y for the sixth consecutive quarter since. According to MTI, the decline was mainly due to smaller output in transport engineering, precision engineering and electronic clusters. NODX contracted by 15.6% y-o-y in March 216, the largest decline in more than three years According to IE Singapore, non-oil domestic exports (NODX) declined by 15.6% in March 216 due to softening in both the electronic and non-electronic markets. The decline in March was also the largest in more than three years. Apart from the 1.1% y-o-y decline in January 216, the last time NODX registered a double digit fall was in February 213, when NODX fell by about 3% y-o-y. Amongst Singapore s top 1 NODX markets, only two countries, Japan (5.6%) and Hong Kong (.2%), recorded y-o-y expansions in March 216. Although NODX to the European Union (EU) 28 (-39.1%), Indonesia (-2.2%) and China (-14.%) declined rather substantially in March, the three countries still remain as top contributors to Singapore s NODX market. Likewise, Singapore s Purchasing Managers Index (PMI) in March 216 was 49.4, indicating a contraction in the manufacturing sector. Nevertheless, there were signs that the decline in orders moderated. The index was.9 point higher from the previous month that Figure 2 GDP growth 1% 5% % -5% Source: MTI *Based on advanced estimates Figure 3 GDP growth (y-o-y) Singapore PMI and NODX Jan-215 Feb-215 Mar-215 Apr-215 May-215 PMI (LHS) Jun-215 Jul-215 Aug-215 Source: SIPMM, IE Singapore, DTZ Research Sep-215 Oct-215 Q2 215 Q3 215 GDP growth (q-o-q) Nov-215 Dec-215 Jan-216 Feb-216 Mar-216 NODX growth (y-o-y) (RHS) *Q % 2% % -2% -4% resulted from an increase in new orders. Similarly, electronics PMI improved by.8 point to 49. in March. CPI declined by.8% y-o-y in February while unemployment rate stayed low at 1.9% in 215 Singapore s Consumer Price Index (CPI) continued its downward trend in February 216, falling by.8% y-o-y. This was led by a fall in prices of housing and utilities (-4.1%) and transport (-2.9%). While the cost of living has stabilized, the labor market remained tight. According to the latest statistics by the Ministry of Manpower (MOM), overall unemployment rate in 215 largely remained unchanged since 211 at 1.9%. Notwithstanding, 15,58 workers were retrenched in 215, a 2%

3 increase from the 12,93 workers in 214. The number of layoffs had increased since 21, reflecting the on-going business restructuring and weaker economic environment particularly in the past year. The bulk of the redundancies were from the services sector (55%), followed by the manufacturing (33%) and construction sector (11%). Residential Residential sales rose by 7% y-o-y to 2,833 units Seasonal festivities drove down private home sales in Q1 216 by 12.% q-o-q to 2,833 units (Figure 5). Nevertheless, after discounting the seasonal effects, there were signs market activity was picking up. On an annualized basis, total sales grew 7% y-o-y. Sales in the secondary rose by 11% y-o-y to 1,414 units while uncompleted new units sold by developers rose by 8% y-o-y to 1,349 units. Transaction volume was resilient amid subdued Singapore economic growth forecast and uncertain global economy. Notwithstanding, developers remained cautious as they launched only 953 units in Q The increase in sales mainly originated from developments that are accessible to amenities and those that offered smaller units at affordable quantum. This is reflected in the higher sales in districts 27 and 9 in Q1 (Table 1). Developers were also becoming more creative in marketing their projects. One developer successfully launched their projects in Indonesia to boost sales and more developers are expected to follow suit in other regional markets. Others employ games with attractive prizes to increase sales. A development in district 23 held events that involved games with attractive prizes, lucky draws and workshops to attract buyers. Its marketing efforts helped district 23 record 12 primary sales, placing it third in the list in Q1 216 (Table 1). Figure 4 CPI, unemployment rate and interbank overnight rate 3% 2% 1% % -1% -2% Source: MTI, SingStat, MOM, DTZ Research Note: CPI figures and Interbank Overnight Rates for Q1 216 are based on January and February. Unemployment figures for Q1 216 are not available at the time of publication. Figure 5 Q2 215 Q3 215 CPI change (y-o-y) Overall unemployment rate Interbank Overnight Rate Home Sales (excluding executive condominiums), units 12, 1, 8, 6, 4, 2, Q1 213 Q2 213 Q3 213 Q4 213 Source: URA, 19 Apr 215, DTZ Research Table 1 Q2 215 Sold directly by developers Sold in secondary market Units launched Q1 216 sales for non-landed homes in Top 5 Districts Development 27 (Yishun Sembawang) 9 (Orchard, Cairnhill, River Valley) 23( Hillview, Dairy Farm, Bukit Panjang, Chao Chu Kang) 19 (Serangoon Garden, Hougang, Punggol) 13( Macpherson, Braddell) Number of units Sold Source: URA Developers Survey, DTZ Research Launched in the Quarter Q3 215 Price range ($ per sq ft) 97-1,45 1,726-2, ,429 1,42-1, ,57 *Q1 216 Q1 216

4 Beside more innovative marketing strategies, some looked at ways to help buyers manage their cash flow. One developer offered deferred payment schemes for their completed projects. Given that the projects have obtained the Certificate of Statutory Completion, the schemes are considered as a private arrangement between the buyer and seller. Under the arrangement, the buyer pays the seller an upfront fee for an option to purchase it later. If the cooling measures are lifted before the exercise date, the buyer can avoid paying additional buyers stamp duties. Capital Values for non-landed homes eased by 1% q-o-q Based on DTZ s basket of private homes, capital values for non-landed homes continued its downward trajectory in the secondary market. The DTZ resale index for luxurious apartments and freehold private homes in prime districts eased by 1% q-o-q in Q Likewise, freehold and 99-year leasehold homes in suburban districts also recorded a 1% q-o-q decline in prices. While sales activity picked up in Q1, more sellers were willing to absorb part of the additional buyers stamp duties, as they planned to release their equity to invest in other assets that command a higher yield. Figure 6 Resale Non-Landed Residential Prices (Q1 211=1) Q4 212 Q1 213 Q2 213 Q3 213 Source: URA, DTZ Research Q4 213 Q2 215 Q3 215 Q1 216 Luxury Prime freehold Suburban leasehold Decline in rents in suburban non-landed homes moderates Rents for non-landed suburban homes continued to decline in Q1 216, although the fall is moderated. Rents for suburban homes fell more by 1.1% to $2.7 per sq ft per month in Q In contrast, rents for luxury homes and apartments in prime districts remained unchanged at $4.55 and $4.5 per sq ft per month respectively. Rents for homes in choice developments with larger rooms and compounds were especially resistant to the downward pressure exerted by market forces and government policies. Investment Investment sales fell to $1.75bn from $6.7bn Investment sales fell to $1.75bn in Q1 216 from Figure 7 Investment sales (S$ m) $6.7bn in (Figure 7). The investment sale volume in Q1 216 is the lowest since Q3 29. During the Global Financial crisis, investment sales amounted to $192 m in Q1 29. Unlike the Global Financial Crisis, the decline in investment sales is partially attributed to the uncertainty in the global economy. Such uncertainty stemmed from mixed signals on China s economic growth, Britain s potential exit from the from the 45, 4, 35, 3, 25, 2, 15, 1, 5, Q1 Q2 Q3 Q European Union and volatile oil prices. The release of a series economic data in Singapore since 216 further weakened investors sentiments, widening the price gap between cautious buyers and forward-looking sellers. These news include falling trade volume, purchasing orders for manufacturing output and subdued economic forecast.

5 Weaker conditions in the local real estate markets also contributed to the fall in sales. The cooling measures continue to discourage investment sales of residential properties in the private market, while the huge supply of office space slated to come onboard in 216 and 217 exerted downward pressure on investment sales in the commercial market. Government Land Sales (GLS) contributed 7% of total sales GLS dominated real estate investment sales in Q1 216, contributing about 7% of total sales or $1.2bn. The largest sale recorded in Q1 216 was by the sale of a land parcel near East Coast Park (Table 2). The 19,39.6 sq m site was awarded to a joint venture by Frasers Centre Point, Sekisui House and KH Capital (a unit of Keong Hong Holdings), which placed a top bid of $624.2m ($858 per sq ft per plot ratio). Other GLS sites awarded in Q1 216 included the land parcel at New Upper Changi Road/Bedok South Avenue 3, and the EC site at Yio Chu Kang Road (183.8m, $331 per sq ft per plot ratio). Local investors continue to seek opportunities overseas While investment sales in the private market fell from $5.1bn to $521.9m in the first quarter of 216, the total amount invested in overseas real estate amounted to at least $2.5bn. One the largest deals reported was Mapletree s investment in student housing. Mapletree Investments bought Ardent portfolio of 25 buildings with more than 5,5 beds in cities including Manchester, Edinburgh, Birmingham and Liverpool. Five assets are in London. Interest remain keen but mismatch of expectations Although there are fewer transactions concluded in Q1 216, both local and foreign investors remain keen in Singapore properties and are on a constant lookout for interesting propositions. However, the negotiation process is longer due to a mismatch of expectations. Table 2 Selected GLS sites awarded in Q1 GLS Site Siglap Road New Upper Changi Road/ Bedok South Avenue 3 (Parcel B) Yio Chu Kang EC site Maximum development potential (GFA sq m) Winning Bid, $m ($ Per sq ft per plot ratio) 67, (858) 51, (76.5) 51, (331) Winner (Number of Bids) Frasers Centre Point, Sekisui House and KH Capital(8) Chip Eng Seng (8) Hoi Hup Realty Pte Ltd (1) GLS expected to drive investment sales for rest of 216 Looking forward, GLS is expected to continue to drive investment sales. The sites remaining in the confirmed list included a land parcel at Martin Place and a commercial and residential site at Bukit Batok West Avenue 6, where the latter was launched on 3 March. The proposed development of the site will attract potential upgraders in the Bukit Batok HDB town, and the catchment for the commercial component will comprise of new HDB precincts to be built. The site is also attractive to developers as it is expected to capture positive externalities from the development of Jurong Lake District.

6 Retail Average monthly islandwide prime first-storey rents declined by 1.2% q-o-q in Q1 216 In Q1 216, average monthly first-storey rent across the island declined by 1.2% q-o-q to about $3.15 per sq ft, the fourth consecutive quarter of decline since Q This was largely due to weaker demand in 215, which saw islandwide occupancy rate falling by 1.6 percentage points y-o-y to 91.9%. Orchard/Scotts Road In Q1 216, average monthly first-storey rent fell by 1.% q-o-q to about $37.65 per sq ft. According to the latest URA statistics, occupancy rate fell by 2.1 percentage points y-o-y to 92.3% in 215, the lowest since Retailers in Orchard/Scotts Road are expected to face some pressure, especially due to regional competition from countries such as Bangkok, South Korea and Taiwan, which possess distinctive cultures and offer affordable shopping. Cheaper air fares leading to higher mobility throughout the region, in conjunction with a relatively strong Singapore dollar that made shopping here more expensive, also contributed to weaker retail sales as visitors deter travel plans to the city-state. Other city areas Occupancy rate in the other city areas declined by 1.6 percentage points y-o-y to 91.6% in 215. Weaker business sentiments, coupled with the relatively large impending supply in 216, led to a fall in average monthly first-storey rent of 2.% q-o-q to $21.35 per sq ft in Q Suburban areas Occupancy rate in the suburban areas also fell by 1.4 percentage points y-o-y to 92.% in 215. Likewise, average monthly first-storey rent fell by 1.% q-o-q to about $31.4 per sq ft in Q According to the Department of Statistics, retail sales in January 216 rose by 1.4% y-o-y, the first increase since August 215. Much of the increase was, however, due to the Chinese New Year (CNY) festive Figure 8 Retail development pipeline including projects on awarded GLS sites, sq ft (million) Figure 9 Retail Rental Index (Q1 211=1) Q4 26 period. Unlike in 215 when CNY fell on 19 February, CNY in 216 fell on the early days of the month, 8 February, which therefore led to a corresponding early demand for retail goods in late January. Hence, the y-o-y retail uptick in January is unlikely to be sustainable, especially in light of the slower economy. Outlook Orchard/Scotts Road Other City Areas Suburban Areas Source: URA, DTZ Research Q4 27 Q4 28 Q4 29 Q4 21 In 216, approximately 1. million sq ft of NLA is expected to complete islandwide. About 51% (521, sq ft) of the upcoming supply is located in other city areas, while the remaining 49% (51, sq ft) is situated in the suburban areas (Figure 8). No new completions are expected in Orchard/Scotts Road in 216. Q4 211 Q4 212 Q4 213 Q4 216

7 Looking forward, more outlet consolidations are anticipated due to weaker islandwide demand. Brands that are withdrawing from Singapore include iwannagohome, Smoothie King, New Look and Celio. In 216, rental values will be suppressed (Figure 9) as supply of retail spaces outweighs the demand. With fierce competition from e-commerce, retailers are placing greater emphasis on providing highly personalised services via face-to-face interactions. Examples include the newly opened Tiffany & Co. and newly renovated Dior outlet at ION Orchard. To provide a sense of exclusivity, the stores are furnished with elegant interior designs, as well as private viewing spaces and lounge areas to encourage physical patronage. Moving forward, brick-and-mortar retailers will gravitate towards a consumer-focused and experiential-based model to encourage in-store purchases. Office Rents in the CBD fell by 3.9% q-o-q in Q1 216 Amid concerns over a slowing global economy, average monthly office rents in the CBD declined for the third consecutive quarter, by 3.9% to $9.9 per sq ft in Q Within the CBD, monthly gross rents of Grade A offices in Raffles Place remained the most resilient, with a decrease of 2.3% q-o-q to $1.5 per sq ft in Q1. This was a result of high occupancy rates, which rose to 97.4% from 97.% in, and lack of significant potential supply in the area. Rents in Marina Bay contracted the most in Q1 216, by 5.% to $11.9 per sq ft per month, due to the large potential supply of Marina One and relocation of tenants from the area. In the Shenton Way/Robinson Road/Cecil Street/Anson Road/Tanjong Pagar subzone, monthly rents of Grade B offices fell by 4.% q-o-q to $7.3 per sq ft in Q1 (Figure 1). Landlords were more flexible in stemming the outflow of occupiers to better alternatives in a softening market. Muted outlook of economic growth and demand for office space The decline in office rents resulted from a subdued growth outlook for Singapore, which was affected by the slowdown in the Chinese economy, Britain s potential exit from Europe and volatile commodity prices. As such, firms were less willing to expand, reducing the demand for offices by the business services sector and financial services sector, which were the main office space occupiers. Moreover, the Figure 1 Office rental indices (Q1 211=1) Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Raffles Place (Grade A) Q4 211 Q4 212 Q4 213 Q4 216 Shenton Way/Robinson Rd/Cecil St/Anson Road/Tanjong Pagar (Grade B) number of workers made redundant in the financial services sector increased by 33% y-o-y to 1,71 in 215. Additionally, the volatile oil prices also exerted further downward pressure on office demand from financial institutions, given their considerable loan-book exposure to the energy and offshore marine industries. Rents expected to trend downwards due to large potential supply and further fall in office demand Although oil prices rallied towards the end of Q1 216 and China s Purchasing Managers Index came in slightly above the threshold reading of 5 (indicating an expansion of the manufacturing economy) in March, business sentiments remained weak. While there are signs of recovery in the global economy, most firms remained cautious as the respite may be

8 temporary. Many sectors may also study ways to automate their processes so that they can expand their operations without increasing their footprints. On the supply side, some 3.1 million sq ft of office space will be completed in the CBD in 216 and 217 (Figure 7). Based on the ten-year annual average demand from 26 to 215 of 727, sq ft, the upcoming supply will take over four years to be absorbed by the market. This is notwithstanding the current shadow space of 158, sq ft and future shadow space of 249, sq ft in the CBD. Moreover, the problem will be compounded by the addition of around 1.7 million sq ft of new office space in the CBD fringe in 216. Figure 11 Office development pipeline including projects on awarded GLS sites, sq ft (million) Termination CBD CBD fringe Decentralised areas Source: URA, DTZ Research Co-working space may drive demand for office space With the proliferation of technology and support from the Government, more start-ups will be formed. These companies may prefer to locate in the CBD or established business clusters to attract and retain talent, and also remain near to clients. Hence, co-working space may be viable as it provides the flexibility in structuring service agreements catered to clients business needs. With this increase in demand, serviced office providers such as JustGroup and Regus are expanding their footprints in Singapore to provide more of such spaces.

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