With news of the recovery of the property market in Singapore, many investors may be anxious to jump into the sector to earn a handsome profit.
Given the many different segments of properties and REITs to choose from, investors should take note of the following key points highlighted by UOB-Kay Hian from the Built Environment & Property Prospects Seminar 2018 where industry experts shed light on the outlook of the residential, office and industrial segments.
Strong growth is expected in the residential segment with the rise in sales and pricing, primarily due to the growth in the luxury segment. As the market cooled down after the implementation of the Total Debt Servicing Ration (TDSR) in the second quarter of 2013, prices were lower for a longer-than-average period of time, with 14 quarters of consecutive decline as compared to an average of 8.4 quarters.
The falling prices have led to an increase in the difference between Urban Redevelopment Authority’s Property Price Index (PPI) and the liquid assets per household, resulting in “pent-up demand has to be released” according to UOB. This will likely result in a more sustainable recovery in the residential segment as these demands are met over a period of time.
Savills, the global real estate service provider, mentioned that according to the Relative Strength Index, the current private residential prices are close to bottom and hence will likely not decline any further, even if a Black Swan event (an event that is unexpected and almost impossible to predict) were to occur.
Concerns over an interest rate hike should also not be too detrimental given that homeowners can switch from a floating plan to a fixed interest rate “which has been benign”, according to UOB’s report.
2. Office segment
Leasing demand for office segment has been strong with rising need for office space from tech and real estate companies. The expansion in need for office space may see companies shifting to outside of Central Business District (CBD) area.
The new projects including Guoco Tower (99 percent), Marina One (80 percent), Duo Tower (80 percent) and UIC building(85 percent) are all seeing a high level of occupancy rates.
As the manufacturing industry expands, it also creates jobs in the service industry which results in demand for office space. According to Cushman & Wakefield, “every 100 new jobs in manufacturing also create 27 new jobs in services” and hence manufacturing growth has been great for the office segment as well.
However, investors should note the expansion in shadow spaces which are “leased but empty spaces, due to downsized companies or tenants with more-than-needed leased spaces.” The presence of these shadow spaces raises the risk that once these leases expire, more options will be available in the market and competition will increase.
Rise Of The Co-working Era
Another important trend to note is the rising popularity of co-working which have been successfully increasing productivity and expanding business network and incomes among companies that are under such a scheme.
Co-working is the sharing of office space with different companies and has started to gain popularity in Singapore. WeWork, the world’s largest provider of such schemes of sharing working space has started to grow their presence in Singapore by the end of last year. They currently have three leased centers under them namely Beach Centre, Robinson Road, and Funan. The company is also planning to open another ten more centers in the CBD area over the 12 months.
According to Falkon, the company WeWork has achieved an increase in the value of a building by about 25 percent. Such enhancements, if realized in Singapore, will certainly see more companies jumping onboard.
3. Industrial segment
According to Knight Frank, the industrial space available has seen a significant increase which led to falling occupancy rates. Thankfully the supply of industrial space is anticipated to peak this year and fall over the next few years, and occupancy rate might rise.
Business parks are seeing a rise in demand as some financial firms have changed their location in response to rising office rentals, and shifted some of their back-end operations to business parks. Coupled with the lack of new spaces available, business parks are seeing an increase in rentals. However, warehouses are seeing a fall in rents with an increase in supply.
Overall the industrial segment seems the most lackluster in terms of performance.