Facing The Unknown: Singapore Property Market vs. Covid-19

Residential market

As the curtains fell on 2019, real estate watchers in Singapore were looking forward to a brighter year ahead for the property market. With the deadline for the UK to leave the European Union fixed on 31 January 2020, and trade negotiations between China and the US turning more favourable, developers were looking to sell more new homes than the 9,900 units sold in 2019. Overall home prices have also gained 2.7% through the year, supported by strong pricing of projects in the Rest of Central Region (RCR) and Outside Central Region (OCR). Prices in the Core Central Region (CCR) weakened by 1.7% year-on-year due to relatively fewer luxury projects launched in the year.

Response to new projects launched in January and February of 2020 had been very encouraging, even though the first cases of Covid-19 were detected in late-January. A total of 1,595 new homes were sold, divided almost equally among CCR, RCR and OCR. This number is much higher than the 892 units and 911 units sold over the same period in 2019 and 2018 respectively. Typically, the residential market moves at a slower pace at the beginning of a new year given the apprehension of where the economy might be heading and the two-week long Chinese New Year season. Worthy of mention is The M, which alone garnered 380 sales out of its 522 units. It was reported that 76% of these units were priced below $1.5 mil, signifying that quantum play was the key to success.

Although Singapore and several countries cancelled flights to China as early as end-January, it was only on 11 March 2020 that the World Health Organization (WHO) described Covid-19 as a pandemic. WHO director-general Tedros Adhanom Ghebreyesus expressed concern about path of the disease, which has rapidly expanded across the globe in the months since it was first announced in China. Outbreaks have been reported in more than 110 countries with more than 118,000 confirmed infected persons and 4,200 deaths worldwide, as global stock markets continue to dive.

Some relief for developers

The Singapore Budget 2020, released on 18 February, included several tax reliefs and rental rebates for businesses that were affected by Covid-19. Most recently, the Finance Minister said that the government is working on a second stimulus package to counter Covid-19. It is clear by now that Covid-19 has a far-reaching impact on every facet of the economy and its effect could extend beyond the year. While the government has stated clearly that they will not relax the additional buyer’s stamp duty (ABSD) ruling, they are prepared to consider on a case-by-case basis to extend the ABSD timeline for projects which are unable to meet the completion deadline and to sell all the units in the project by then. This could have a stabilising effect on property prices.

Opportunities amidst uncertainties

With around 10,800 units in 47 projects lined up for launch in the remaining 10 months of the year, developers are monitoring the situation closely and getting more creative in their marketing efforts. 3D video walk-through which simulate walking through the showflat and online streaming of balloting are used to mitigate the efforts of the government's advisory to avoid crowded places.

There can be opportunities amidst uncertainties. Singapore has a limited land resource. As a result, the value of land and the price of apartment projects have been rising steadily over the years. Luxury housing in prime residential enclaves are often well sort after by high-net-worth investors. 
Amid the higher priced luxury projects, there are under-valued projects due to current weaker market sentiments, and because of their smaller land area, site configuration and limited facilities. Possibly at the next residential market upcycle, these are the projects that will have a greater propensity for price appreciation.

Commercial market

On the commercial front, the office market started to slow down in second half of 2019 due to weaker economic growth. Net demand for space in Downtown Core turned negative in Q3 and Q4 of 2019, although the vacancy rate remained at above 90%.

The rental index for Central Area (which encompasses Downtown Core) registered a sharp correction of 3.5% in Q4 2019, showing that rents could have peaked in the preceding quarter. This could be the result of tenants’ conservative outlook about their space needs due to subdued economic growth, and landlords being more realistic on asking rents. In total, the Central Area rental index has fallen by 3.1% from a year ago.

Similarly, the price index for Central Area showed a downward trend in the second half of 2019 as business sentiment declined. However, as the market was stronger in the first half of 2019, the net correction through the whole year was a mild 0.6%. Caveat data shows that prices of office space in Downtown Core and Central Area has risen by some 14% to $2,797 psf. The high price was boosted by a special sale at Samsung Hub in February which achieved a record $3,800 psf. However, there were signs of slowdown with only 45,446 sq ft of strata office space in the Downtown Core and Central Area having changed hands in Jan-Feb 2020. This is about half of the volume transacted in Q1 2019.

With the current clouded economic outlook, occupiers, including co-working space operators, will likely be reluctant to acquire space for expansion in the short-term.

There are still much uncertainties as to how long the current situation will last and if businesses and governments all over the world can contain the impact and mitigate the effects of the outbreak. However, with every crisis, there also comes opportunities.

As individuals and developers manage their expectations, this may be a good time for savvy investors looking to capitalise on opportunities at hand.