PROPERTY INSIGHTS. Market Overview. Investment sales rebounded amid uncertainty. Singapore Quarter 2, 2016

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1 PROPERTY INSIGHTS Singapore Quarter 2, 2016 Investment sales rebounded amid uncertainty Market Overview Although Singapore economy expanded 2.2 per cent y-o-y in Q2, non-oil domestic exports remained subdued. The impending exit of Britain from Euro further clouded Singapore economic growth prospects. Despite the uncertainty, Singapore s Straits Time Index was resilient due to defensive buying of S-REITs. Prices for private residential homes continued to ease, although the decline continued to moderate. Additionally, private home sales were stabilizing to a new equilibrium, albeit with seasonal fluctuations. Rents for non-landed homes, however, continued to decline by 2% to 2.5% in Q2 as uncertain global economic prospects continued to dampen rental demand. Retail rents declined for the fifth consecutive quarter since due to slower economy and a changing retail landscape. First storey retail rents in Orchard/Scotts Road fell by 1.2% q-o-q to $37.20 per sq ft per month in. Office rents in CBD fell by 4.2% to $9.45 per sq ft in. The office rents in Marina Bay decreased the most, by 5.3% q-o-q to $11.25 per sq ft per month. Mounting global risks further dampened demand for office space as key financial services sector faced risk aversion among retail investors and contraction in loan growth. Investment sales increased to $6.02bn in from $1.73bn in Q The growth in sales volume was boosted by the sale of Asia Square Tower 1, which was transacted at $3.4bn. More than 93% of investment sales originated from private sales in Q2, a reversal from Q1.

2 Trends & Updates Economic Overview The Singapore economy grew 2.2 per cent on a y-o-y basis in Q2. Singapore s non-oil domestic exports (NODX) fell 2.3 percent y-o-y in June. The Purchasing Managers Index (PMI) for June came in at Core inflation, which excludes costs of accommodation and private transport, hit a 14-month high of 1 percent in May. Housing loan rate for 15 years rose to 3.39% in May 2016 from 3.22% in Jan Singapore s Straits Times Index (STI) was resilient amid the fallout from Brexit. Figure 1 Singapore GDP growth 10% 5% 0% -5% Q Q Q Q Q Q Q Q Q Q GDP growth (y-o-y) GDP growth (q-o-q) Source: Singstat, Edmund Tie & Company Research Market Commentary Singapore s economy expanded in Q2, with the manufacturing sector growing by 0.8 per cent on a y-o-y basis, a reversal from the 0.5 percent dip in Q1 (Figure 1). Growth in the manufacturing sector was supported by an increase in output of the biomedical manufacturing and electronic sectors. The services-producing industries also grew by 1.7% y-o-y, supported by the wholesale trade and transportation and storage sector. Notwithstanding, Singapore s NODX fell 2.3% y-o-y in June due to weak global demand, with IE Singapore cutting its forecast for 2016 s full year NODX to between -5.0 and -3.0 per cent. The impending exit of Britain from Euro (Brexit) further raised the uncertainty of Singapore economic prospects, and will affect Singapore s trade and economy indirectly. An indirect consequence of Brexit was the increased demand for the Singapore dollar, as Singapore s top credit rating and current account surplus attracts capital into the country. This will strengthen the Singapore dollar to regional currencies, which will bring downside risks to export and inflation forecasts. Nevertheless, the stronger Figure 2 Housing Loan Rate Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2015 Jan 2015 Mar 2015 May 2015 Jul 2015 Sep 2015 Nov 2016 Jan 2016 Mar 2016 May Housing Loan Rate For 15 Years Source: Singstat, Edmund Tie & Company Research Singapore dollar and capital inflow will help moderate the increase in housing loan rate in 2H 2016, which has been growing since Jan 2015 (Figure 2). Despite the uncertainty, the performance of the STI remained stable, supported by defensive buying of S-Reits (Figure 3). With the US Fed delaying its rate hike and central banks strategizing to contain any fallout from Brexit, demand for S-REITs expanded given its comparatively attractive yields.

3 Outlook Figure 3 While British voters decision to leave the EU weakened market sentiments, the impact on the global economy is expected to be contained. The US economy strengthens with private business and authorities generating 287,000 jobs in June, quelling any concerns of a broader economic slowdown. Singapore STI Index 4, , , , , Jan-15 1-Mar-15 1-May-15 1-Jul-15 1-Sep-15 1-Nov-15 1-Jan-16 1-Mar-16 1-May-16 1-Jul-16 Source: SGX, Edmund Tie and Company Research Residential Private home sales rose by 42.9% to 4,047 units in Q2. Developer sales rose to 2,571 homes in Q2 from 1,419 homes in Q1. The secondary market for private homes was also more active, with the number of homes sold increasing by 4.4% q-o-q to 1,476 homes. Capital values for luxury apartments and condominiums in prime districts eased by 1.0% q-o-q in Q2. Capital values for leasehold condominiums declined by 1.5% q-o-q in Q2. Capital values for detached homes in prime districts remained unchanged. The values of other types of landed homes declined by 1.0% to 1.5%. Rents for non-landed homes declined further by 2% to 2.5%. Market Commentary Based on Q2 sales, there were signs that the private home market is stabilizing to a new equilibrium, albeit with seasonal fluctuations (Figure 4). On a y-o-y basis, the number of private homes sold in was marginally higher than the 3,977 sales in. In Q2, most of the primary sales emanated from District 12 (Balestier, Toa Payoh, Serangoon), followed by District 19 (Serangoon Garden, Hougang and Punggol) and District 8 (Little India). Figure 4 Home Sales (excluding executive condominiums), units 12,000 10,000 8,000 6,000 4,000 2,000 0 Q Q Q Q Q Sold directly by developers Units launched Q Q Source: URA, 19 July 2016, Edmund Tie & Company Research Figure 5 Resale Non-Landed Residential Price Index (Q1 2011=100) Q Q Q Q Q Source: Edmund Tie & Company Research Q Q Q Q Q Sold in secondary market Q Q Q Q Luxury Prime freehold Suburban leasehold Despite readings of higher sales volume, capital values of both non-landed and landed homes eased further (Figure 5). The values of leasehold condominium softened the most, given that the bulk of potential launches originated from the Outside Central Region.

4 Rents for non-landed homes also declined by 2% to 2.5% across various sub segments in the market (Figure 6). Uncertain global economic prospects continued to dampen rental demand, as firms and expats were more cost conscious under current economic conditions. Outlook Prices are expected to ease further despite stronger sales. Notwithstanding, the rate of decline should moderate further as prices are reaching the new equilibrium state. With Brexit, we may see more foreign purchases in Q3 as Singapore residential properties may be deemed attractive assets to foreign buyers flushed with cash. Separately, we anticipate more developers to promote the deferred payment schemes. Currently, there are at least seven projects with such schemes. Investment Investment sales rebounded to $6.02bn from $1.73bn. Figure 6 Rents for Non-landed homes in prime districts 20,000 15,000 10,000 5,000 0 Q Q Q Q Q Q Q bedroom 3-bedroom Luxury Source: Edmund Tie & Company Research Figure 7 Investment sales (S$ m) 50,000 More than 93% ($5.6bn) of investment sales originated from private sales. The largest sale recorded in was the sale of Asia Square Tower 1 for $3.4bn. Market Commentary Despite the slower economy, investment sales rose q-o-q (Figure 7). The level of interest for investment properties remained strong, especially among foreign-based investors. Among the six largest deals completed in Q2, five of the buyers were from overseas investors and developers (Table 1). Investment sales volume in Q2 was boosted by the sale of Asia Square Tower 1 to Qatar Investment Authority (QIA). The sale of the 1.29 million sq ft LEED platinum office property was one of the largest single-tower real estate transactions in Asia Pacific to date. Nevertheless, the final transacted price is somewhat $600m less than the asking price ($4bn) set when the property was put up in the market in June ,000 30,000 20,000 10, Q1 Q2 Q3 Q4 Source: Edmund Tie and Company Research Excluding the Asia Square Tower 1 deal, the investment market remained subdued, with overall sales volume of $7.7bn in 1H 2016 lesser than the 9.8bn of sales in 2H Fewer land parcels offered via Government Land Sales Programme (GLS) in Q2 also contributed to the lower investment sale volume in 1H Public investment sales contracted to $396m in Q2 from $1.2bn in Q1. Barring a trigger on one of the reserve sites, we anticipate sales from GLS to remain stable, with the total supply of 7,550 units in 2H 2016 GLS marginally higher than 1H 2016 GLS.

5 Another notable transaction was the enbloc sale of Shunfu Ville to Qingjian Realty. Only one enbloc sale was transacted last year (Thong Sia Building at Orchard) while there were none in Although the sale may pique interest in other potential enbloc sites, investors and developers have to factor in the downside risks in the market, regulatory constraints and other additional related costs in their bids, giving them little room to maneuver during negotiation. Outlook The level of interest in Singapore s property has always been keen, even before Brexit. However, the negotiation process tends to be drawn out due to a mismatch of price expectations. With Brexit and a slower economy, the price gap may be narrowed, as sellers are more willing to negotiate on their asking prices. Table 1 Notable transactions in Q 2 Site Area (Maximum Permissible Area unless stated otherwise) Asia Square Tower 1 Shunfu Ville Straits Trading Building CapitaGreen Bukit Batok West Ave 6 9 Cuscaden More than 1.2m sqft office and nearly 40,000 sq ft of retail space* 1.14m sq ft 158,897 sq ft* 60% stake of 703,000 sq ft* 158, 195 sq ft 108,112 sq ft Price $ ($ Per sq ft per plot ratio) $3.4bn($2,667.5 per sq ft of NLA) $638m( $747 including DC payable) $560m ($3,520 per sq ft of NLA) $393m ($2,276 per sq ft of NLA) $301 ($ per sq ft) $145m ($2,145 including DC payable) Buyer QIA Qingjian Realty Dr Tahir, founder of Mayapada Group CapitaLand Commercial Trust Qingjian Realty Shun Tak (Real Estate Singapore) Source: Edmund Tie & Company Research, * refers to NLA Retail First-storey retail rents in Orchard/Scotts Road fell by 1.2% q-o-q to $37.20 per sq ft per month in Q Table 2 Selected retail developments in pipeline Name of Development Area Est NLA (sq ft) Est TOP Rents of first-storey retail space in other city areas A/A to Compass One Suburban area 282,000* 2016 fell by 3.0% q-o-q to $20.70 per sq ft per month. OUE Downtown Gallery Other city area 160, Average monthly rents for first-storey retail space in suburban areas also eased by 1.0% q-o-q to $31.10 per sq ft. Tanjong Pagar Centre Singapore Post Centre Changi Airport Terminal 4 Other city area Suburban area Suburban area 100, ,000* 183,000* Market Commentary The Heart at Marina One Other city area 140, Rents for retail space declined for the fifth consecutive quarter since, as they come Source: URA, Edmund Tie & Company Research *Note: based on 70% efficiency factor under pressure from the slower economy and a changing retail landscape due to e-commerce. Weaker tourist spending contributed to the decline in retail rents in Orchard/Scotts Road. According to the Singapore Tourism Board (STB), although visitor arrival numbers rose by 0.9% to 15.2 million in 2015, total tourism receipts on shopping fell by 5% to $3.9 billion. Nevertheless, Orchard/Scotts Road continued to attract established brands who took the opportunity of the lower rents to reinforce their market presence in Singapore through flagship stores. Upcoming flagship stores along the prime shopping belt include Michael Kors at Mandarin Gallery and Uniqlo at Orchard Central.

6 In light of the slower economy, rents of retail space in the other city areas continued to soften. Retail rents also faced greater pressure from upcoming completions in 2016 and 2017 (Table 2). Nevertheless, we anticipate rents to improve when the resident population increases in near future. Retail rents in suburban areas also declined, even though suburban malls were usually considered as assets that provided counter-cyclical returns. While food and beverage stores and super markets were more resilient than other sectors, the fashion and apparels sector continued to face falling sales as they lose their market share to online retailers. Figure 8 Retail development pipeline including projects on awarded GLS sites, sq ft (million) Q2-Q Orchard/Scotts Road Other City Areas Suburban Areas Source: URA, Edmund Tie & Company Research Outlook From to 2020, close to 4.5 million sq ft of leasable spaces are expected to come on board (Figure 8). For the rest of 2016, about 1.2 million sq ft of new retail space is slated to complete. In light of weaker Figure 9 Retail Rental Index (Q1 2011=100) consumer sentiments, rents are anticipated to face 100 downward pressure for the rest of 2016 (Figure 9) Q Q Q Q Q Q Source : URA, Edmund Tie & Company Research Office Gross rents of Grade A offices in Raffles Place declined by 2.4% q-o-q to $10.25 per sq ft per month. Occupancy remained high in Raffles Place at 97.7%. Figure 10 Office rental indices Office rents for Marina Bay decreased by 5.3% q-o-q to $11.25 per sq ft per month. Rents for Grade B offices in the Shenton Way/ Robinson Road / Cecil Street / Anson Road / Tanjong Pagar subzone fell by 5.2% q-o-q to $6.90 per sq ft. Source : Edmund Tie & Company Research Office rents in Orchard Road stayed at $9.25 per sq ft while rents of offices in Novena dipped slightly by 1.9% q-o-q to $7.75 per sq ft.

7 Market Commentary Mounting global risks, including Brexit, further dampened demand for office space from the financial services sector. Office rents were correspondingly lower as a result (Figure 10). Key financial services faced risk aversion among retail investors, contraction in loan growth and volatility in the global financial markets. This resulted net absorption of office space falling into the negative zone of 4,000 sq ft in Q There is also a lack of visibility from firms that are expanding or coming to Singapore for the first time to establish a presence in the region. Most of the demand for office space in Q2 originated from relocating firms that seek better value for their space needs. A case in point was the anticipated relocation of Bank Of Tokyo-Mitsubishi UF J. It was reported that the bank, which occupies 150,000 sq ft in Republic Plaza, would move to Marina One, taking up 140,000 sq ft. Figure 11 Office development pipeline including projects on awarded GLS sites, sq ft (million) H Termination CBD City Fringe Decentralised areas Source : URA, Edmund Tie & Company Research Table 3 Future vacant space as at Name of Development Marina Bay Stock (sq ft) 6,325,000 Estimated future vacant space (sq ft) 206,000 Separately, office rents in Novena and Orchard Road remained resilient amid the uncertainty. Their rents were supported by a lack of pipeline supply and high occupancy rates, which is a shade above 95.0%. Additionally, the demand for office space in both subzones is supported by niche clusters, namely the advertising cluster in Orchard and medical cluster in Novena. Outlook Given the uncertain business outlook, firms are likely to exercise caution. We anticipate the demand for office space to come mainly from lease renewals and firms seeking more value from their space needs. Office rents will continue to face downward pressure from the upcoming supply. Close to 3 million sq ft of office space will complete in the CBD for the rest of 2016 and 2017 (Figure 11). Additionally, more vacant space in the CBD will come into the market (Table 3) due to the consolidation and relocation of firms. Raffles Place Shenton Way/Robinson Road/ Cecil Street/Anson Road/ Tanjong Pagar Source: URA, Edmund Tie & Company Research 12,227,000 11,962, ,000 79,000

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