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Time to look west for opportunities

A correction in home prices can be an opportunity as basically long-term fundamentals remain intact.

SINGAPORE'S economy is headed for its worst recession since independence, with GDP growth expected to shrink by 7 to 4 per cent in 2020, based on forecasts by the Ministry of Trade and Industry.

Given heightened uncertainty, the Singapore property market will face a demand shock in 2020, and prices would come under some pressure despite relief measures implemented by the government.

Nonetheless, a correction in prices can offer an opportunity as long-term fundamentals remain intact.

This is especially so for the West Region of Singapore which will see two new MRT lines, a commercial hub, a high-tech industrial hub and a mega port in the future.

West Region prices outperform

West Region non-landed private home prices have been on a general uptrend since Q3 2018, boosted by several new launches.

Over the past four quarters (Q2 2019 to Q1 2020), private property prices in this region rose by 14.9 per cent, compared with overall suburban prices which rose only 2.8 per cent over the same period.

West Region prices have also outperformed the overall suburban prices over the past 10 years, growing at a compound annual growth rate (CAGR) of 7.1 per cent, compared with 4.4 per cent for the suburban market.

Currently, the median prices for the West Region have reached S$1,368 per square foot (psf) as of Q1 2020, a 39.5 per cent premium to median suburban prices of S$980.50 psf.

The outperformance of West Region prices could be attributed to optimism about the Jurong Lake District, which was first announced in 2008.

Clementi saw bustling sales activity in recent quarters, with 1,160 transactions recorded from Q1 2019 to Q1 2020.

This was mainly driven by the launch of two projects, namely Parc Clematis and Whistler Grand, in Q3 2019 and Q4 2018 respectively.

Bukit Batok came in a distant second, with 567 units sold.

Given that there were no new launches in Jurong East, after J Gateway in 2013, demand gravitated to surrounding areas.

The top seller was Parc Clematis, which sold 605 units at a median price of S$1,614 psf.

As of the end of Q1 2020, the project was 41 per cent sold.

The second highest seller was Whistler Grand, which sold 274 units at a median price of S$1,406 psf.

Notably, both projects are near each other and a short drive away from the Jurong Lake District, Singapore's upcoming second central business district (CBD).

The top seller for the resale market was Blossom Residences, an executive condominium (EC) which completed its five-year minimum occupation period (MOP) in 2019 and can now be sold in the open market to Singaporeans and permanent residents.

Going forward, only four new launches are expected in the West Region in the foreseeable pipeline.

They are: Clavon along Clementi Avenue 1, Ki Residences at Brookvale in the Sunset Way locale, Phoenix Residences along Phoenix Avenue and a project on a site in Phoenix Road.

These four projects are expected to contribute about 1,450 units to the launch pipeline.

Excluding the above projects, unsold inventory in the west stood at around 2,188 units as of Q1 2020.

Rents steadily picking up

Rents in the West Region bottomed out at the end of 2018 and started picking up in 2019 amidst limited new supply.

Currently, median rents have reached S$2.77 psf per month in Q1 2020.

Additionally, rental transaction volumes have steadily increased as more projects are completed in the area.

The rise of both rents and transactions points to a strong rental market in the region.

Based on the Q1 2020 median resale price of S$1,062 psf in the West Region, the average gross rental yield is around 3.1 per cent.

Long-term drivers for the west

  • Prices and rents underpinned by employment growth in the west

Over the longer term, employment growth will likely be driven by new and upcoming growth precincts in Singapore, such as Woodlands Regional Centre, Punggol Digital District, Jurong Lake District and Jurong Innovation District.

These precincts are still in the early stages of development and can be designed to adapt to a fast-changing economy and provide the next-generation of workspaces.

Notably, two out of four of the aforementioned growth precincts are in the west.

The Jurong Lake District is envisioned to be the second CBD of Singapore and a hub for infrastructure development.

The precinct is slowly gaining traction and several government agencies and companies have already moved or have plans to move there. These include the Building and Construction Authority, Singapore Food Agency, the Land Transport Authority, CPG Corporation, Beca, Daimler, and Great Eastern.

All work and no play makes Jack a dull boy.

The Jurong Lake District will also incorporate play elements such as the Jurong Lake Gardens, a new science centre and a 7-hectare integrated tourism development.

These new developments can leverage on the Jurong Lake to create a unique waterfront environment attractive to both tourists and locals.

Further west, the Jurong Innovation District is poised to be an industrial park of the future and will champion industry 4.0 systems.

Companies such as Siemens, Flowserve and Bosch Rexroth, ISDN have already committed to set up office there.

And they will be joined by A*STAR institutes, the Singapore Institute of Manufacturing Technology and the National Metrology Centre.

The Tuas Mega Port, which will eventually consolidate all of Singapore's port operations in the west, will be another growth driver for the region.

As the new port becomes fully operational, and together with the new employment generated at Jurong Innovation District and Jurong Lake District, we estimate that more than 300,000 new jobs may be created or be moved to the west, which is substantial, given that there were only around 3.5 million persons that were in employment in Singapore (excluding foreign domestic workers) as of end-2019.

The surge of new jobs in the west will be a catalyst for housing prices and rents in the area.

  • Boost in accessibility

Accessibility in the region has improved in recent years.

This started with the opening of Downtown Line (DTL) phase 2 in 2015, which cut down travelling times to the city centre by 30 per cent for residents in Bukit Panjang.

The west will be the only region which will have a dedicated MRT line to serve the region.

The Jurong Region Line (JRL) is Singapore's seventh MRT line and will serve as the backbone which will connect the activity nodes in the west.

Finally, the Cross-Island Line (CRL) will complete the picture and connect the east to the west.

The CRL should bode well for the development of the Jurong Innovation District and the Jurong Lake District by providing easy access to talent from the rest of the island.

In sum, the West Region will be served by five MRT Lines, improving its connectivity within and to the rest of the island.

The boost in public transport accessibility bodes well for housing prices and rents as Singapore slowly embraces a car-lite vision.

  • Too big to fail?

Given the size of on-going developments and infrastructure improvements, the west will become a very important economic hub for Singapore.

The fate of the Kuala-Lumpur Singapore High Speed Rail remains unclear, but it will not derail on-going developments.

Nonetheless, it remains a potential catalyst for housing prices.

In sum, housing prices in the west may see some pressure over the short term due to the impending recession. But over the longer term, housing price growth will be underpinned by several mega developments, which may arguably be too big to fail.

Investors or owner occupiers who are on a sound financial footing, should watch out for the rising sun in the west.

  • The writer is the associate director of research, Singapore and South-east Asia at Cushman & Wakefield.

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