Even since the Singapore government tightened lending rules last June to curb property speculation, home prices in the city-state have begun to soften. However, the Monetary Authority of Singapore (MAS) believes it is still too early to relax the so-called cooling measures, adding that global interest rates are still at historic lows while debt levels among highly leveraged household are also considered high.
“Property prices have risen 60% over the last four years but have declined by just 3.3% over the last three quarters. The property market may be stabilising but it is still too early to ease the cooling measures,” Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) said at a recent news conference on the MAS annual report for fiscal 2013-14.
In his view, relaxing property measures at a time of low interest rates may set off another spiral of price increases. He noted that it would take time for prices to adjust, and as a result the central bank would continue to monitor supply and demand conditions very closely.
“Not just the levels of demand and supply, we also have to look carefully at the credit and liquidity environment and a variety of other factors to make a continual judgement,” said Mr Menon.
Like their peers in China, policymakers in Singapore in recent years have been concerned about the financial impact that could be caused by a potential property bubble. As a result, they began imposing curbs on the market in 2009. The most recent measure, introduced in June 2013, tightened loan approvals in order to discourage imprudent borrowing.
Mr Menon noted that slowing home prices as well as lower car prices had led to a reduction in inflation and helped keep the city-state’s growth on track. GDP expansion averaged 3.4% year-on-year in the first half of 2014.
He said the measures introduced to cool Singapore’s property market fell into two categories. The first is structural, with a focus on the total debt-service ratio, usually meant for a longer period. The second set of measures is cyclical, and can include the likes of loan-to-valuation limits and stamp duties which can be adjusted based on prevailing market conditions.
However, while the cooling measures may have dampened sentiment in some segments of Singapore’s property market, leasing demand for offices and hotel investments have held up relatively well, with an increase in transactions in the first two quarters of this year helping to keep rental rates fairly steady.
According to CBRE, a multinational property management services company, the office segment in Singapore still shows a very positive outlook. Total investment sales volume for the second quarter increased by 14.1% from the first, according to preliminary estimates. The good momentum in office investment sales reflects the fact that the rental market is strengthening.
“Rents are rising and vacancy rates are falling and this trend is expected to continue for the foreseeable future, especially for the CBD core market,” said Desmond Sim, head of CBRE Research (Singapore). “The few en-bloc office deals that have been signed are expected to supplement the already active office strata market.”
In the second quarter of 2014, office sector investment deals by both the private and public sectors accounted for about 40% of the total investment sales volume. The private investment sales market also remained relatively healthy, CBRE indicated.
Meanwhile, UOB Kay Hian, one of the largest listed securities companies in Singapore, said that the overall growth expectation of the property market would outweigh concerns of a rise in interest rates. It said the hotel segment was poised for a turnaround, so now was a good opportunity for investors to gain exposure in the sector.
“Office occupancy hit a new five-year high at 95.7%, sparking a 5% rise in rentals, the fastest quarter-to-quarter growth in three years,” the brokerage said in a recent report. “However, the hotel segment will be the next to move after offices.
“We see superior investment opportunities in the hotel market. We expect the yield gap between hotel REITs and physical hotel transactions to narrow, driven by corporate demand.”
In the first quarter, Singapore received about 3.9 million international visitors, which helped lifting hotel-room revenue by 12% to US$644 million (S$800 million), with luxury hotels recording the strongest growth rate.
Despite a dwindling number of visitors from China due to the continuing impact of the tourism law that was introduced on Oct 1, 2013, more tourists from South Korea, Vietnam and Indonesia have been making up for the shortfall.
Moreover, Singapore Tourism Board (STB) data showed an increase in the average room rate, which stood at US$210 (S$261) in the first three months of this year, up 2.7% from the same period last year.
Singapore property highlights
OFFICE DEMAND
Prime office rents in the CBD, led strongly by Grade A buildings, are expected to rise by 10% over the next 12 to 18 months.
Some cost-conscious tenants may relocate some operations toward suburban areas if CBD rents continue to rise further.
Businesses in sectors such as energy, commodities and technology do not necessarily require prime CBD locations and will be among the first to move out when rents spike.
Suburban areas now account for about 24% of the 54.6 million square feet (5.1 million sq m) of total office space in Singapore, according to CBRE.
Between 2014 and 2017, some 5.4 million square feet of new office space are expected be added in the CBD, and just under 1 million outside the city.
Challenges ahead: Even though grade A space in suburban areas such as Jurong and Buona Vista has been well-received by companies, convincing staff to move from the CBD is difficult.
RESIDENTIAL PROPERTY
Prices of private residential properties in the second quarter fell by 1% from the previous quarter — the third consecutive quarter of decline, according to the Urban Redevelopment Authority (URA). The decline was seen across all segments. However, the overall market has been stabilising due to the cooling measures put in place to curb speculation.
HOTELS
Citywide occupancy was 82.5% in June 2014, a decline of 2.5 percentage points from a year earlier, as new room supply (+2.8%) outpaced demand (+0.2%), according to STR Global, a hotel performance data provider. However, occupancy has remained above 80% in every month of the first half of 2014.
An estimated 12,700 more rooms are expected to enter the market between now and 2018, according to the Singapore Tourism Board (STB).