Dear All,
It is the time of the year again to gaze into the property
crystal ball and make predictions for how the market will unfold in 2015.
Back in 2014, I had made a similar estimate into the future
and on hindsight have been proven correct.
For 2015, let’s peer into the crystal ball and see what it holds.
This study should be made in conjunction with social and macro-economic
perspectives. 2014 was highlighted by
low transaction volumes whereby sellers and buyers were locked in a stand-off
of where property prices should move.
The start of 2015, on hindsight proved the trend that prices declined
over 2014 and that the government has maintained its desire to see another
single digit price drop.
This is the
first year it has occurred on a sustained basis as since the first series of
cooling measures were rolled out in 2010, they never had the effect of bringing
prices down until 2014.
What then for 2015?
We shall look at this from a demand and supply perspective.
A. Supply Surge
At the later end of 2014 and moving into 2017, many project
launches will start to TOP having been launched during the “good times” prior
to the 2013 cooling measures. This will result
in a supply surge of vacant units coming onto the market. Furthermore, the looming supply issue needs
to be seen in the context of another phenomenon that is characteristic of
launches that take place post 2010.
Experimental Launches
From 2010, there have been a series of “experimental
launches” in the market. Experimental in
a sense that they are untried and unproven concepts that look great on paper in
2010-2013, but now face the litmus test of being tenanted in the current
market.
Residential Units
By now we are familiar with the term, “mickey mouse flat”,
but have you heard of “micro mickey mouse”?
A series of them will be appearing in the market soon, namely 600ish
square foot sizes for 3 bedroom units in the suburban areas. Or, investment style studios and 1 bedroom
units far from any commercial centre.
The sales pitch is that these sizes are common in developed
cities like Hong Kong. That works, if
you are in Hong Kong since all the sizes are the same. However if you are the only Hong Kong sized
apartment in Singapore, it would not bode well as the tenant / buyer has plenty
of selection available.
Any prospective demand for this will be answered over the
course of this year.
Commercial,
Industrial & Office Units
The post 2010 era has been characterised by developers
launching a series of strata titled office and commercial units. These, are highly experimental given their
launch price in relation to expected rental yields. In short, they were sold based on the private
individual’s ability to secure loans.
The draw back for strata titled properties that these will
always lose out to managed malls and offices.
This kicks off a vicious cycle that the inability to control the tenant
mix would often lead to the mall having a hodge podge character which does not
assist to drive good human traffic into the mall. For offices, this makes it a challenge for
the building to achieve a grade A status since there is no ability to control
the tenant mix, nor to attract the blue chip brand names to set up shop.
The biggest concern for these upcoming projects when they
TOP, are the sizes. They would be
challenged to find suitable tenants.
Most CBD office spaces are very large.
The grade A office towers typically offer spaces 3000sqft and
above. Hence for small new launches, it
would be impossible to command top dollar similar to these grade A spaces.
There has been much hype about the upcoming office buildings
coming online and the higher supply situation expected this year.
Strata industrial units will face much of the same
issue. They were a number of these
launches post 2010. They will be
completing at about the same time and would be awaiting tenants. What the sales brochures fail to say is that
the tenant wait could be as long as 6 months.
Business formations do not occur as fast as a private individual coming
into Singapore to work, thus leading to the long vacancy period.
This is a chicken and egg situation that is tied to the
residential situation that is closely tied to the incoming resident population.
B. Stagnant Demand
The years 2009 to 2013 were marked with a very high rate of
immigrant driven population growth. The
euphoria of the rising rental yields and property prices heralded a period of
price rises that has seen property prices double during this period.
The assumption then was that the growth would continue, and
hence keep pace with the building frenzy that has boosted supply. That has proved false. The sudden drop in incoming immigration
numbers has occurred primarily for political reasons, stemming from “overcrowding”.
The question is then what does the overcrowding entail?
1. Infrastructure, water, electricity & gas, transport, healthcare
Water,
electricity & gas
Our water and electricity/gas
infrastructure systems have been constantly updated with the building of new
Newater and desalination plants.
Transport
& Healthcare
However our transport systems are ancient
and have of late made a habit of constantly breaking down. To put it into perspective, our East-West and
North-South lines were built at a time when we carried pagers to school. That technology drives our trains. The rush hour congestion without breakdowns is
considered to be child-free zones.
Meaning that no parent would risk transporting young children during
these times.
Healthcare system wise, the hospitals are
expanding capacity to increase the available beds. The challenge is that we as a country cannot
train enough health care workers given the same amount of time it takes to
build a hospital.
2. Goods and Services
In a nutshell, Singapore is now the
priciest country for expatriates in the world.
Translated into layman English, it means we are the most expensive place
to live in now.
Implications
Given the above limitations, it would be
challenging to see further immigration to further expand the population given
the above challenges. This spill over effect
will be most pronounced in the services industry that face challenges hiring
service staff.
Conclusion : Outcome
and Opportunities
Buyers
– The 2014 market was characterised by sellers looking to upgrade and hence
disposing the current property. 2015
will have the addition of investor owned properties whose properties have
become dilapidated or simply vacant for a long period of time. Or, properties that are no longer financially
viable. This will be endemic in the D9,10,11
areas and in Sentosa.
2015 is firesale year, however do stay away
from failed experimental launches.
Tenants
– Residential and office tenants will have a great selection and pricing
negotiation power. F&B, retail
tenants MUST factor location above all else.
Sellers
& Landlords – Good advice and
capable brokers will move your units.
Gone are the days that a part time relative could help you keep your
investment property rented out with minimum vacant times. It does not work like that anymore.
New
Agents – 2015 will be very much the same as 2014. Just slightly easier as
transaction volumes pick up given that sellers now have to accept a more
reasonable pricing. The opportunity is
such that the market condition now shatters previous exclusive agent-owner
relationships given the inability to keep up with the increased demands.
In short, the strong get stronger, the weak
leave the industry.
Thus as such, 2015 will be a year of
renewal, losses will be made, there will be good buys to snap up. New entrants to the business will find many
opportunities to grow and succeed.
Good luck to all!
Best Regards,
Mervin Tang
Group Director
Division Lead Trainer, Project Sales, International Projects
