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REAL ESTATE

Hype & hustle beckon in 2018

As economy and sentiment improve, interest in property investment is primed to rise this year

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THE hype surrounding property investment in Singapore has clearly ratcheted up in the past eight months, particularly since the first two collective sales deals brokered by Knight Frank within a month in May 2017 – One Tree Hill Gardens at S$65 million and Rio Casa at S$575 million. These deals were observed to be the catalysts for the flurry of collective sales that subsequently unfolded, totalling an astounding 30 collective sales deals (and counting) with a total transaction price of S$7.6 billion from 2017 to Jan 15, 2018. Many deals were closed at prices between an estimated 0.5 per cent and 30.9 per cent higher than the quoted reserve price. Land-hungry developers are also vying for fresh land from the Government Land Sales (GLS) programme, with 12 land sites sold totalling S$9.5 billion last year.

With record land prices achieved from both collective sales and the GLS programme, talk of higher future selling prices, fresh demand for replacement property from owners of collective sale sites and the “fear of missing the boat” have intensified among homebuyers and sellers. Hence, more property investors make plans to take positions before the potential price spike ensues. Will the hype continue throughout 2018, and will higher residential property sales and prices be achieved as market watchers predict?

OWING to the land sales bonanza induced by developers, improving economic sentiments and the near four-year hiatus of home price declines since the imposition of the Total Debt Servicing Ratio (TDSR) ruling, more homebuyers are securing private residential property. The fear of anticipated higher future home prices, prompted by new highs in past-year land prices, has started to emanate across the private residential market last year. This is clearly evidenced from the stellar 74 per cent increase in total transaction volume from 13,703 records in 2015 to 32,851 records in 2017, based on total caveats lodged data as at Jan 12, 2018. On a year-on-year (y-o-y) basis, transactions rose by 43 per cent in Q3 2017 to hit 6,471 records. Hyped by stronger demand, price growth is gaining momentum. As shown from the Urban Redevelopment Authority’s (URA) Non-Landed Private Residential Price Indices, private home prices rose for two consecutive quarters in the second half of 2017, a reprieve since the 15-quarter continuous decline from Q3 2013. Island-wide private home prices rose 0.7 per cent quarter-on-quarter (q-o-q) in Q4 2017, extending its upward trajectory from the 0.7 per cent q-o-q increase in Q3 2017. The market’s appetite for properties that are still at attractive price levels has translated to an overall uptick in median prices for landed and non-landed residential segments. Median prices of overall non-landed property rose by 1.8 per cent and 5.6 per cent y-o-y in Q3 and Q4 2017 respectively, while landed property saw an increase of 5.5 per cent and 13.7 per cent y-o-y for the same periods (Exhibit 1). Among the three market segments, residential properties in the Core Central Region (CCR) posted the strongest price recovery, with an overall 5.9 per cent escalation in Q4 2017 y-o-y (Exhibit 2).

IN MY previous column, we postulated Singapore’s safe haven attributes, prestige and limited future supply of prime residential property as key upside factors for anticipated stronger demand of high-end homes. This prediction is increasingly evident in the significant 72.4 per cent increase in transaction volume of private homes in the CCR in H2 2017 from H2 2016, based on caveats lodged data. URA’s Non-Landed Property Price Index for the CCR posted an uptick of 1.6 per cent q-o-q in Q4 2017, the highest price increase compared with price movements in the Rest of Central Region (RCR) and Outside Central Region (OCR).

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The outperformance of the high-end segment is also manifested at the top-end of the residential non-landed segment. Based on Knight Frank Research’s analysis of the Prime Global Cities Index of key cities around the world, ultra-luxury non-landed homes in Singapore have shown a continuous annual price growth over eight quarters since Q1 2016, rising 3.7 per cent y-o-y in Q4 2017.

Are foreign homebuyers returning to the Singapore residential market? From URA’s record of homebuyer profiles, the proportion of foreigners decreased to 20.6 per cent in Q3 2017 island-wide, with the CCR showing the largest decrease of foreign homebuyers to 23.9 per cent from 29.7 per cent in the previous quarter. Mainly deterred by the 15 per cent Additional Buyer’s Stamp Duty, foreigners have yet to return in force, while still keeping Singapore on their radar as one of their choice investment destinations for ‘safe and stable’ havens. There has been an increasing number of enquiries both from local and foreign potential homebuyers for prime residential property since the hype stirred in H2 2017.

WOULD 2018 be a year of opportunity for the Singapore residential market? Overall, sentiment is looking up for Singapore for the first half of 2018, with expectations of better economic performance as the manufacturing industry continues to power ahead on the back of robust global demand. On the broader horizon, Singapore’s proactive efforts to strengthen herself in the areas of advanced manufacturing and smart factories on the global stage would better prepare the ground for the manufacturing industry in a new era of the fourth industrial revolution. The favourable prospects of the manufacturing sector could contribute positively to the overall economic and business outlook for Singapore. Against the backdrop of continuing geopolitical risks, the stability and strength of Singapore’s fundamentals remain important for institutional investors, supporting the conditions for higher inbound investment into Singapore property in the immediate horizon. The government’s initiative to attract foreign investment through the Global Investor Programme (GIP) is gaining traction, generating a total of S$1.8 billion in business expenditure from 2011 to 2016. Under the programme, foreigners can apply for permanent residency in Singapore if they invest at least S$2.5 million into starting or expanding a business here, or into a GIP fund that invests in Singapore-based companies. The inflow of foreign investments bodes well for the prospects of Singapore residential market.

ON THE other hand, property investors need to monitor the key risks that loom on the horizon and weigh their financing options with prudence. Interest rates have been climbing over the past year and should the US economy perform better, the possibility of interest rate hikes could dampen the ability of both retail and institutional investors to leverage property investment (Exhibit 3). The rising gearing levels of some developers from land acquisitions through collective sales and the GLS programme has also prompted the Monetary Authority of Singapore to take a closer look at the way banks are financing development projects.

Despite the overarching stronger economic performance, employment levels declined slightly, with a 700 net decrease in overall headcount in Singapore in Q3 2017. Homebuyers’ business and job prospects need to be closely watched, as the affordability of private homes could be adversely impacted should income growth fail to keep pace with inflation, in the event of slower-than-expected economic growth due to a rise in global trade protectionism and fluctuations in consumer demand for goods and services.

Balancing the opportunities and risks and barring any ‘black swan events’ and potential changes to property-related policies, we envisage overall private home prices to rise by 3 to 7 per cent and rentals to recover by 1 to 3 per cent y-o-y, by Q4 2018.

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