What Property Bubble?

By Jennifer Chia

Interest rates spiked in 2022, stalling global property markets. But while Singapore’s real estate sector has slowed, prices remain elevated. Here’s why the country may be an outlier and buck the downward trend in real estate.

It is official – tenants in Singapore now pay more for their apartments than their counterparts in notoriously expensive Hong Kong.

In December, South China Morning Post looked at three major locations in both cities, and found that average rental charges are higher at US$4.32 per square foot in the Lion City – having risen almost 30 per cent over the past year – versus US$4.27 in the Fragrant Harbour.

A confluence of social, political and economic factors in the post-pandemic landscape has upended property markets around the globe as we knew them. So how did this state of affairs come to pass?

Global Outlook

The headlines said it all in 2022. Rising interest rates caused mortgage rates to soar, and raging inflation hit pockets the world over. In certain geographies such as Hong Kong, long and harsh Covid shutdowns also saw expatriates leaving in droves.

As the world emerges from the pandemic, new challenges such as central bank rate hikes, inflationary pressures, Russia’s continued war with Ukraine as well as recent upheavals in the global banking sector point to the possibility of recession in many global cities, especially those in the United States and the Euro-zone, according to the World Bank.

Major property markets have been hit by the dire outlook. UK housing prices ground to a halt in late 2022 after a 28-month run, as rising mortgage rates spooked buyers. Australia, another favourite of Asian property investors, has met similar headwinds. Properties in its major cities have recorded a drop in prices last October as interest rate rises slam Australia’s highly leveraged markets.

Buyers of Singapore Corporate Real Estate Spooked

Singapore, being closely tied to international financial markets, has not been spared rising interest rates amid an unfavourable economic environment. A year ago, the three-month compounded SORA was at 0.25 per cent; this has spiked to 3.577 per cent in April 2023, making it increasingly challenging for borrowers to finance property loans. (SORA refers to the Singapore Overnight Rate Average, the interest rate benchmark.) Its headline inflation has increased to 6.1 per cent year-on-year for 2022.

Uncertain when markets will stabilise and when inflation will plateau, institutional investors who have to borrow to fund purchases have been staying on the sidelines, leaving big ticket office deals at a standstill from Q3 2022, especially those offered upwards of S$200 million.

Notable office deals that have fallen through in the past year include the sales of the 15-storey Bugis Junction Towers for S$680 million and the 24-storey Parkview Square for S$900 million. Mismatches in pricing expectations between sellers and buyers have also led to no expressions of interest in the sales of 78 Shenton Way in the Central Business District (CBD) and Asia Green at 7 and 9 Tampines Grande.

Alongside higher value commercial buildings, en bloc sales have also hit the skids.

People’s Park Centre, just outside the CBD, closed without bids after taking another stab at a S$1.8 billion collective sale following a failed attempt in August 2022. Golden Mile Tower is set to be relaunched for en bloc sale on 7 April 2023 with its reserve price reduced to S$600 million from S$650 million after a similarly poor showing in its first collective sale attempt in January this year. Analysts are sceptical that the new launches will attract developers as the large quantum poses high risks for developers, coupled with rising construction costs due to inflation.

Is there a silver lining for investors yet in 2023?

Bucking The Trend

Four observations suggest that Singapore’s property market is bucking the trend.

First, Covid-related construction delays continue to constrain the release of new Housing Development Board (HDB) units and even rising mortgage rates have not fully dampened Singaporeans’ appetite for residential property.

HDB flats have continued to sell at eye-popping prices – a five-room flat at Pinnacle@Duxton changed hands just in March for a cool S$1.4 million. This is despite cooling measures introduced last September, such as a lowering of the Loan-to-Value (LTV) ratio for HDB loans from 85 per cent to 80 per cent. With the backlog of uncompleted flats easing only in 2025, we expect this trend to continue for a couple of years.

Private home prices in Singapore increased by 3.2 per cent in the first quarter of 2023, according to official flash estimates released by URA. Interested buyers have returned after the holiday lull at the end of 2022 for attractively priced homes in the market.

Second, cash-rich Mainlanders are investing heavily in prime Singapore residential properties. Last September, Lianhe Zaobao reported that a Chinese national bought four units at the 3 Orchard By-The-Park condominium in a single deal worth S$60 million, at an average price of S$3,600 to S$3,700 psf. This followed another bulk purchase in June, where a Fujian buyer bulk-purchased 20 units at the new riverside condominium Canninghill Piers at Clarke Quay for S$85 million at an average price of approximately S$2,773 psf.

And it is not just apartments either. In total, 227 non-residential new sale and resale properties in Singapore were purchased by Chinese buyers in 2022. A report by Huttons Asia says that “Singapore has a reputation for being a haven… which is favoured by investors. There is keen interest among Chinese corporations to set up operations in Singapore.”

With the Chinese government ending its zero-Covid policy from January, further en masse reinvestment in the Southeast Asia region is possible. However, buying sentiment will likely remain cautious amid economic uncertainties, with interest rates for the average Chinese investor in the more mass market segment remaining prohibitive. Early signs point to much smaller outflows than previous years, but there are indications that in the wake of the pandemic, Chinese families are looking to relocate assets, and themselves, overseas.

Third, Singapore’s strata-titled office deals and commercial shophouses were still popular for investors last year. These properties tend to be in price ranges of S$10 million to S$50 million, a sweet spot for cash-rich investors who do not need to borrow or be subject to the ever-rising SORA and which do not attract ABSD.

These investors are typically the UHNWIs, family offices and property investment funds, all of which have flocked into Singapore in the last two years.

In September 2022 alone, four multi-million dollar deals were transacted: A UHNW investor is said to have purchased a S$42 million Joo Chiat Road shophouse “for wealth preservation” from Singapore-listed Lian Beng Group. A real estate investment group is reported to have bought a row of five Jalan Besar conservation shophouses for S$40 million. A pair of shophouses at Tanjong Pagar Road changed hands for S$35.88 million, while a shophouse at Craig Road sold for S$11 million.

Fourth, to top off the year, Hong Kong-based Link Reit – the continent’s largest real estate investment trust – made its maiden acquisition in Singapore, a portfolio comprising mega lifestyle mall Jurong Point and part of Thomson Plaza mall. The deal cost US$1.6 billion and was Singapore’s largest real estate transaction for 2022.

Link Reit’s decision to invest in Singapore echoes the common investor sentiment that Singapore remains a stable, transparent and business-friendly market amid a turbulent global climate elsewhere. While the dramatic rise in interest rates kept investment and occupier markets under strain, it did create opportunities for big investors like Link Reit to acquire assets in the Singapore market which rarely come up for sale.

Singapore Sidesteps The 2023 Property Slump

Singapore’s average annual real wages have grown almost 20 per cent since 2017 and, with total employment expanding, households are looking to upgrade their home ownership. Due to Covid disruptions, net new housing has fallen below the 10-year average. Construction shortfall should ease and with foreign manpower steadily returning and wealthy individuals and institutional investors flocking to Singapore, demand will likely remain robust.

However there is already talk that Hong Kong’s reopening, and its current “buyer’s market” for residences, will see more expatriates choosing the Fragrant Harbour over us for pure affordability reasons. That said, with our banks awash with overseas funds and foreign wealth looking for a “plan B” haven, the bet is that Singapore rides out the global property slump as an outlier.


TSMP law corporation