In 2022, soaring interest rates brought the global property market to a standstill. While the Singapore property market has slowed, prices remain resilient. Here’s why Singapore may be an outlier and resist the downward property trend.
It’s official – tenants in Singapore now pay more for apartment rentals than their counterparts in the notoriously expensive city of Hong Kong.
In December 2022, the South China Morning Post studied three key districts in both cities and found that the average rent in the Lion City had risen by nearly 30% over the past year to US$4.32 per square foot, compared to Hong Kong’s US$4.27.
A confluence of post-pandemic social, political, and economic factors has upended the global property market as we know it. So, how did this state of affairs come about?
Table of Contents
Global Outlook
The headlines from 2022 painted a stark picture. Rising interest rates sent mortgage rates soaring, and inflation ran rampant across the globe. In some regions, like Hong Kong, prolonged and stringent Covid lockdowns also led to an exodus of expatriates.
Related Articles:
As the world recovered from the pandemic, new challenges such as central bank interest rate hikes, inflationary pressures, the ongoing Russia-Ukraine war, and recent upheavals in the global banking sector have put many global cities, especially in the United States and the Eurozone, at risk of recession, according to the World Bank.
Major property markets were hit by the grim outlook. UK house prices came to a screeching halt at the end of 2022 after 28 consecutive months of increases, as rising mortgage rates spooked homebuyers. Australia, another favorite among Asian property investors, has faced similar headwinds. Property prices in its major cities saw a decline in October last year as rising interest rates hit Australia’s highly leveraged market.
Singapore’s Corporate Real Estate Buyers Get Spooked
Closely linked to international financial markets, Singapore has not been immune to the effects of rising interest rates and unfavorable economic conditions. A year ago, the three-month compounded Singapore Overnight Rate Average (Sora) was 0.25%; by April, this figure had soared to 3.577%, making it increasingly challenging for borrowers to secure loans. (Sora is the interest rate benchmark.) Its annual inflation rate for 2022 had risen to 6.1%.
With no certainty as to when the market will stabilize and inflation will peak, institutional investors who require borrowing to fund their purchases have been on the sidelines, causing major office deals, especially those exceeding S$200 million, to stall from the third quarter of 2022 onwards.
Notable office deals that have been shelved over the past year include:
- The sale of the 15-storey Bugis Junction Towers for S$680 million.
- The sale of the 24-storey Parkview Square for S$900 million.
A mismatch in pricing expectations between sellers and buyers also resulted in no interest for 78 Shenton Way and Asia Green at 7 and 9 Tampines Grande in the Central Business District (CBD).
En Bloc Sales for Large Developments Also in a Bind
People’s Park Centre, located on the fringe of the CBD, attempted another collective sale at S$1.8 billion after a failed attempt in August 2022, but ultimately received no bids. Golden Mile Tower, after its first collective sale attempt in January this year was unsuccessful, was relaunched with a reduced reserve price from S$650 million to S$600 million. Analysts say that large-scale investments are riskier for developers, and coupled with rising construction costs due to inflation, newly launched projects may struggle to attract developers.
Is there a silver lining for investors in 2023?
Bucking the Trend
Four observations suggest that the Singapore property market is bucking the trend:
1. Pandemic-induced construction delays continue to limit the supply of new Housing & Development Board (HDB) units, and even rising mortgage rates have not fully dampened Singaporeans’ demand for residential properties. Despite cooling measures introduced last September that lowered the HDB Loan-to-Value (LTV) ratio from 85% to 80%, HDB flats are still selling at astounding prices — for example, a five-room flat at Pinnacle@Duxton was sold for S$1.4 million in March. With the backlog of uncompleted homes not expected to ease until 2025, veteran Singapore real estate expert Leo Kwek anticipates this trend will continue for a few more years.
2. Cash-rich foreign investors are snapping up high-end residential properties in Singapore. Last September, Lianhe Zaobao reported that a foreign buyer purchased four units at the 3 Orchard By-The-Park condominium for an average price of S$3,600 to S$3,700 per square foot, in a deal totaling S$60 million. This followed a bulk purchase in June, where a Fujianese buyer bought 20 units at the new riverfront condominium Canninghill Piers in Clarke Quay for S$85 million, at an average price of about S$2,773 per square foot.
Related Articles:
Furthermore, it’s not just condominiums. A total of 227 non-residential new and resale properties were purchased by foreign buyers in 2022. A report by Anjia SG states, “Singapore enjoys a reputation as a favored safe haven for investors. Foreign businesses are very interested in establishing operations in Singapore.”
Amid economic uncertainty, homebuyer sentiment may remain cautious, and for the average foreign investor, mass-market interest rates are still too high.
3. Last year, strata-titled office deals and commercial shophouses remained popular with investors in Singapore. These properties, typically priced between S$10 million and S$50 million, are an ideal price range for cash-rich investors who do not require borrowing or are unaffected by the rising Sora, and are not subject to Additional Buyer’s Stamp Duty (ABSD).
These investors are often ultra-high-net-worth (UHNW) individuals, family offices, and real estate investment funds, which have flocked to Singapore in the past two years.
In September 2022 alone, four multi-million dollar deals took place: a UHNW investor reportedly bought a commercial shophouse on Joo Chiat Road from Singapore-listed company Lian Beng Group for S$42 million for “wealth preservation.” A real estate investment group was reported to have bought five conserved shophouses on Jalan Besar for S$40 million. Additionally, a pair of commercial shophouses on Tanjong Pagar Road sold for S$35.88 million, while a shophouse on Craig Road was sold for S$11 million.
4. In what was Singapore’s largest real estate transaction of 2022, Hong Kong-based Link Reit — Asia’s largest real estate investment trust — made its first acquisition in Singapore, involving the mega lifestyle mall Jurong Point and part of Thomson Plaza for a transaction amount of US$1.6 billion.
Link Reit’s decision to invest in Singapore reflects the general investor sentiment that Singapore remains a stable, transparent, and business-friendly market amidst a turbulent global climate. Although the sharp rise in interest rates has put pressure on investment and occupier markets, it has created opportunities for large investors like Link Reit to purchase rarely available assets in the Singapore market.
Singapore Avoids a Property Market Downturn in 2023
Since 2017, Singapore’s average real wages have grown by nearly 20%, and as total employment expands, households are looking to improve their homeownership. Due to the impact of Covid, net new housing additions have fallen below the 10-year average. As the construction shortage eases, foreign labor steadily returns, and wealthy individuals and institutional investors flock to Singapore, demand is likely to remain strong.
However, there are already rumors that with Hong Kong’s reopening and its current “buyer’s market,” housing prices are more affordable, and more expatriates will choose Hong Kong. Leo states: “Nevertheless, with our banks full of overseas funds and foreign wealth seeking a ‘Plan B,’ Singapore, as an anomaly, is poised to remain strong amidst the global property market downturn.”
For further enquiries, please get in touch:
WeChat: sgleokwek
Telegram: sgleokwek
WhatsApp: Message us
