PROPERTY INSIGHTS Singapore Quarter 1, 2018 2018 Q1 Snapshot Residential market on the upturn Prices of private residential properties rose significantly in. How do the other market segments fare? Singapore s economy grew 3.6 per cent in 2017, led by growth in the semiconductor sector. The service sector expanded by 3.0 per cent year-on-year (y-o-y) in Q4 2017, supported by growth in the finance and insurance, wholesale and retail trade, as well as transportation and storage sectors. Business confidence remained positive, and Singapore s economy is forecasted to expand by about 3.2 per cent in 2018. Private home sales declined by 21.7 per cent q-o-q to 4,752 units, due to fewer new launches and seasonal festivities. Prices for luxury apartments rose by 7.0 per cent q-o-q in. Rents for non-landed homes in non-prime districts improved by 0.3 per cent q-o-q in. The retail sector showed signs of bottoming out in, with gross rents of first-storey space in Orchard/Scotts Road and suburban areas increasing by 0.5 per cent q-o-q to $37.40 and $30.60 psf per month respectively. However, gross monthly rents of first-storey retail space in the other city areas remained flat for the fourth consecutive quarter at around $19.75 psf. Average monthly rents in the CBD increased by 1.1 per cent quarter-on-quarter (q-o-q) to around $8.90 per sq ft (psf) per month in. Monthly gross rents of offices in Marina Bay increased by 1.5 per cent q-o-q to around $10.70 psf. Monthly rents in Raffles Place (Grade A) also increased by 1.0 per cent q-o-q to $9.70 psf in. Residential investment sales constituted 85.1 per cent of total investment sales in, with the collective sale of Pacific Mansions at $980m being the largest residential investment sale.
Trends & Updates Economic Overview In Q4 2017 1, Singapore s economy expanded by 3.6 per cent y-o-y. The economy is expected to grow by 3.2 per cent in 2018. Growth of the manufacturing sector is likely to moderate, signalled by the fall in non-oil domestic exports (NODX) in February 2018. Figure 1 GDP growth 5% 4% 3% 2% 1% 0% -1% Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 S$b 110 108 106 104 102 100 98 96 The finance and insurance sector has a positive outlook for H1 2018. GDP growth (y-o-y) (LHS) GDP growth (q-o-q) (LHS) GDP at 2010 prices (SA) (RHS) * Source: MTI, Edmund Tie & Company Research Singapore s economy grew by 3.6 per cent y-o-y in Q4 2017 (Figure 1), driven primarily by the electronics and precision engineering clusters. These clusters benefitted from the improving global demand for semiconductors, semiconductor equipment and optical products. Notwithstanding, the Purchasing Managers Index (PMI) came in at 52.7 points in February 2018, lower than January s figure (Figure 2) due to a slower growth in orders for the electronics segment. In the same month, the NODX also contracted by 5.9 per cent y-o-y. However, the decrease could just be a blip, as the NODX rose by 16.5 per cent y-o-y in March. Business confidence in the services sector for H1 2018 remained positive (Figure 3). The most optimistic industries are financial and insurance, wholesale trade and recreation, community and personal services. Accommodation, transportation and storage, and food and beverage (F&B) services are the most pessimistic. According to the poll by the Monetary Authority of Singapore, private sector economists expect the economy to grow by 3.2 per cent. The upsides for Singapore s economy are the electronics sector and the strong property market performance. Notwithstanding, downside risks have emanated from trade protectionism and geopolitical tensions. 1 GDP statistics were not released as at time of publication Figure 2 PMI and NODX 54 52 50 48 46 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 PMI (LHS) NODX growth (y-o-y) (RHS) 40% 20% 0% -20% -40% Note: PMI and NODX for March 2018 were not released as at time of publication Source: IE Singapore, SIPMM, Edmund Tie & Company Research Figure 3 Sentiments of Service Sectors January June 2018 Recreation, Community & Personal Services Business Services (Excluding Real Estate) Real Estate Financial & Insurance Information & Communications Food & Beverage Services Accommodation Transport & Storage Retail Trade Wholesale Trade -23 Source: Singapore Department of Statistics, Edmund Tie & Company Research -11-6 -5-1 -2 +1 +4 +6 +18-30 -20-10 0 10 20 30
Residential Private home sales fell by 21.7 per cent q-o-q to 4,725 units. Prices for luxury non-landed residential properties rose by 7.0 per cent q-o-q and private residential prices in the prime districts rose by 6.0 per cent. Non-landed home prices in non-prime districts went up by 4.0 per cent. Figure 4 Home sales (excluding executive condominiums) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Non-landed home rents in prime districts rose by 1.0 per cent, and rents in non-prime districts also 0 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 improved by 0.3 per cent q-o-q. New Sales Secondary Sales Source: URA REALIS as at 6 April 2018, Edmund Tie & Company Research The number of private residential properties sold in declined by 21.7 per cent q-o-q (Figure 4) despite a more optimistic outlook of the market. Notwithstanding the seasonal effects, the lower sales volume was due to fewer units being launched in the primary market in. The secondary market in was active, with sales rising to 3,212 units from 2,345 units in. The demand for homes was partly supported by buyers who sold their homes through collective sales and were seeking replacement homes. There were also more foreign buyers purchasing homes in the prime districts. Together with limited options in both primary and secondary market, the stronger demand led to the increase in prices for private residential properties in (Figure 5). The average unit price for non-landed luxury homes rose by 7.0 per cent q-o-q, while the average unit price for freehold properties in prime districts rose by 6.0 per cent q-o-q. The increase for leasehold non-landed homes at non-prime areas was smaller at about 4.0 per cent. The prices of landed homes also increased significantly in Q1, led by the price appreciation for freehold semi-detached and terrace homes. The average price of freehold terrace homes in prime districts went up the most, by about 4.9 per cent q-o-q. Figure 5 Resale Non-Landed Residential Price Index (=100) 120 110 100 90 80 70 Suburban leasehold Prime freehold Luxury Source: Edmund Tie & Company Research Separately, the rental market also showed signs of improving (Figure 6). With new supply slowing and the recalibrated market, average rents for non-landed residential properties in suburban districts improved by 0.3 per cent. However, it is slightly premature to conclude that the market has bottomed out as vacancies are still high.
We anticipate prices for private homes to continue growing, barring any external shocks. We have also revised our forecast for home prices upwards, and the price index for all private residential properties (excluding Executive Condominiums) to rise between 8.0 and 12.0 per cent Figure 6 Monthly rents for Non-landed homes in non-prime districts ($) $ per month 4,500 3,500 2,500 1,500 2-bedroom 3-bedroom Source: Edmund Tie & Company Research Investment Investment sales declined by 9.0 per cent q-o-q to $7.9bn in. Figure 7 Investment sales (S$ m) 35,000 30,000 The q-o-q decrease in investment sales was largely 25,000 due to the decline of Government Land Sales 20,000 (GLS), dropping from $1.5bn in Q4 2017 to $728.5m. Residential investment sales continued to constitute the bulk of total sales, recording about $6.7bn (85.1 per cent) in. 15,000 10,000 5,000 0 2009 2010 2011 2012 2013 2014 2015 Q1 Q2 Q3 Q4 2016 2017 2018 Source: Edmund Tie & Company Research Investment sales in fell by 9.0 per cent q-o-q to $7.9bn (Figure 7), due to slower investment sales through the GLS programme. Investment sales from public tenders declined from $1.5bn in Q4 2017 to $728.5m in. The collective sales market for residential sites remained active, contributing to a 6.0 per cent q-o-q increase from $6.3bn to nearly $6.7bn in. In, 19 sites were sold en bloc, with the largest transaction being Pacific Mansions. GuocoLand and Hong Leong Holdings acquired the freehold site for $980m, which worked out to about $1,806 per sq ft per plot ratio (psf ppr) after including a 10.0 per cent bonus GFA for balconies. Sales activity for the hotel segment also picked up in. The investment sales of hotel properties increased from $67m in Q4 2017 to $392.8m. The sale of Oasia Hotel Downtown to Far East Hospitality Trust for $210m contributed to the increase in sales. The collective sales market is likely to maintain its momentum. We also expect the collective sales of commercial buildings to pick up significantly in H2 2018. Notwithstanding, more developers have replenished their land banks and they are becoming increasingly selective. More private tenders were closed without the conclusion of the sale. Land rates have also stabilised.
Retail Signs of improvement in rents were observed for Orchard/Scotts Road and suburban areas in Q1 2018. For Orchard/Scotts Road, monthly gross rents of first-storey space rose marginally by 0.5 per cent q-o-q to $37.40 psf. Similarly, monthly rents of first-storey retail space in the suburban areas grew slightly by 0.5 per cent q-o-q to $30.60 psf. However, gross rents of first-storey space in the other city areas remained unchanged at around $19.75 psf per month. Retail rents inched upwards in, with gross monthly rents of island wide first-storey retail spaces increasing by 0.4 per cent q-o-q. The improvement in rents came on the back of two consecutive quarters of growing occupancy rates, to 91.9 per cent in Q4 2017. The increase was led by growth of retail rents in Orchard/Scotts Road and suburban areas. Gross monthly rents of first-storey retail space in Orchard/Scotts Road rose slightly by 0.5 per cent q-o-q to $37.40 psf, after staying firm for six consecutive quarters (Figure 8). Higher footfall due to more visitor arrivals and the lack of significant pipeline supply in the area attributed to higher rents. Additionally, international retailers keen on establishing their brand presences are drawn to Singapore s prime shopping belt. Likewise, retail rents of first-storey space in the suburban areas grew by 0.5 per cent q-o-q to $30.60 psf per month. This was the first q-o-q increase since Q2 2012, when gross rents inched up slightly by 0.1 per cent q-o-q. Suburban malls at choice locations in populous residential estates continued to perform well. On the other hand, gross monthly rents of first-storey retail space in the other city areas stayed firm at around $19.75 psf for the fourth consecutive quarter in. Figure 8 Retail rental indices of prime first-storey space (=100) 110 100 90 80 Source : Edmund Tie & Company Research Orchard/Scotts Road Other City Areas Suburban Areas Figure 9 Retail development pipeline including projects on awarded GLS sites, sq ft (million) 1.2 0.8 0.4 0.0 2018 2019 2020 2021 Orchard/Scotts Road Other City Areas Suburban Areas Source: URA, Edmund Tie & Company Research Despite the positive sentiments, the retail environment remains challenging especially for fashion retailers. The demand for retail space is expected to come from the thriving F&B sector. In 2017, there was an increase in formation of F&B businesses to 3,298 from 2,968 in 2016, while the cessation declined from 2,780 in 2016 to 2,117 in 2017. On the supply side, about 1.1m sq ft of retail space will be slated for completion in 2018 and 2019 respectively, with the bulk of this supply in the suburban areas (Figure 9). Despite the large amount of supply, these new developments have reportedly recorded healthy pre-commitment rates.
Office Average office rents in the CBD increased by 1.1 per cent q-o-q to around $8.90 psf per month in Q1 2018. Monthly office rents in Marina Bay improved by 1.5 per cent q-o-q to around $10.70 psf in. Gross monthly rents of Grade A buildings in Raffles Place and Grade B offices in the Shenton Way/Robinson Road/Cecil Street/Anson Road/Tanjong Pagar subzone also rose by 1.0 per cent and 0.5 per cent q-o-q to around $9.70 psf and $6.20 psf in respectively Figure 10 Office rental indices (=100) 170 130 90 50 Raffles Place (Grade A) Source : Edmund Tie & Company Research Shenton Way/Robinson Rd/Cecil St/Anson Road/Tanjong Pagar (Grade B) In, average office rents in the CBD rose by 1.1 per cent q-o-q to around $8.90 psf per month, the second consecutive q-o-q increase. Overall office occupancy in the CBD also improved from 87.9 per cent in Q4 2017 to 90.3 per cent in. The average net absorption in the CBD was positive at around 624,000 sq ft. The growth of wealth management and the information and communications technology sectors continued to support demand for office space. Demand also came from co-working space operators that were increasing their footprint. Gross monthly rents of Grade A offices in Raffles Place rose by 1.0 per cent q-o-q to $9.70 psf in (Figure 10), supported by strong occupancy levels as vacant spaces in Grade A buildings at Raffles Place backfilled. Figure 11 Retail development pipeline including projects on awarded GLS sites, sq ft (million) 2.5 2.0 1.5 1.0 0.5 0.0 2018 2019 2020 2021 CBD City Fringe Decentralised Areas Source : URA, Edmund Tie & Company Research Monthly office rents in the CBD are anticipated to improve in 2018, with tenants likely to have fewer options in the CBD in 2019. The bulk of supply in 2019 emanates from the city fringe (Figure 11). Additionally, the upcoming completions in 2018 have reported healthy pre-commitment rates. Notwithstanding, the net absorption rate will decline in the future. As more companies adopt the fast-fail mindset, more flexibility is required in their operations. As a result, demand will be diverted to co-working spaces to meet short term needs.
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