Singapore Property Focus, Forecasts For 2015

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

CEA Reg No. : R030951Z
Huttons Asia Pte Ltd
Mobile: (65) 9184 0208 
Website: http://sg-realestate-sg.blogspot.sg/
Sales Enquiry: mervintang.huttons@gmail.com

Career Discussions: http://sg-realestate-sg.blogspot.com/ 

Testimonials: http://sg-realestate-sg.blogspot.sg/p/testimonials.html

North East Line GTA: http://nelpropertychampions.blogspot.sg/