Ms. Tricia Song, Head of Research for Singapore, Colliers International:
Private home prices rose sharply by 3.9% in Q1 2018 from Q4 2017, markedly higher than the flash estimate of a 3.1% increase announced earlier this month. It is rare to see such a wide variance between the actual and flash numbers. That said, this is not surprising given that home buying activity was brisk towards the end of March and units sold were generally pricier.
This is the strongest quarterly price growth since the 5.2% QOQ rise in Q2 2010. As at the end of Q1 2018, private residential prices were 5.5% above the trough in Q2 2017, but still 6.8% below the peak in Q3 2013.
We think price increase gathered pace owing to a confluence of factors: diminishing inventory due to a slowdown in launches, pent-up demand for housing, buoyant collective sale market which persuaded many owners to withdraw their homes from the resale market; as well as a more optimistic economic outlook.
It is also interesting to note that rentals of private homes rose by 0.3% in Q1 2018 – the first quarterly uptick since Q3 2013, as vacancy has peaked. The vacancy rate of completed private residential units (excluding Executive Condos) decreased to 7.4% compared to 7.8% at the end of Q4 2017. Given the easing supply going forward, we expect occupancy to improve and rents could stabilise in 2018 and recover from second half of 2018 onwards. We now expect rents could recover 2% (from our earlier forecast of +1%) in 2018.
OCR led price growth in Q1
Broad-based price increase was observed across all private residential segments in Q1 2018, led by the Outside Central Region (OCR), where prices jumped 5.6% QOQ, and are now 7.2% above their trough in Q2 2017. The number of new mass market homes (by proxy of OCR homes) sold in Q1 declined marginally to 951 units from 994 units in previous quarter, and accounted for 60.1% of total new sales in Q1 2018.
OCR projects that saw noticeable price rise included: Kingsford Waterbay in Hougang; Grandeur Park Residences near Tanah Merah MRT; and The Clement Canopy near the West Coast as developers felt confident to raise prices significantly amid depleting inventory. In late March, the launch and good take-up of The Tapestry at higher prices - compared to its surrounding projects - may also have contributed to the spike in the final Q1 price index compared to the flash estimate of 3.8% growth in the OCR.
Stronger upturn in CCR prices
Prices of homes in the Core Central Region (CCR) also grew at a faster pace in Q1 2018, rising by 5.5% over the previous quarter. CCR prices are now 7.1% above their trough in Q2 2017. This was despite fewer units sold in Q1 compared to Q4 as developers raised prices with confidence. New Futura, launched in Q1 2018, achieved good sales at an average price of SGD3,226 psf (based on caveats lodged in Q1).
Ongoing launches such as Martin Modern and Gramercy Park have also been raising their selling prices since their initial launch. Based on caveats lodged in Realis, Martin Modern has seen its median transacted prices increased from SGD2,178 psf in Q3 2017 to SGD2,703 psf by Q1 2018. Gramercy Park’s median price has increased to SGD3,177 psf in Q1 2018, from SGD2,670 psf a year ago.
RCR should see price growth catching up soon
Prices in the Rest of Central Region (RCR) rose the least among the market segments. They increased 1.2% QOQ in Q1 and are now 3.1% above its low in Q4 2016. RCR’s price increase has been more measured, probably due to the lack of new launches at significantly higher prices. With more launches in the next few quarters likely to come from RCR - such as Amber 45, Park Colonial, and Woodleigh Residences etc, which are expected to set benchmark price points - RCR’s price growth should catch up with those in OCR and CCR in the following quarters.
With the stronger-than-expected price growth in Q1 2018, in particular, for non-landed homes, we now project average private home prices to rise by 8% (from 5% forecast before April) for the full year 2018, implying a rise of another 4% for the rest of the year. We think the increase is front-loaded due to the pent-up demand and buyers’ fear of missing out on good value buys as prices trend up.
Average prices could rise by a more gradual pace over the rest of 2018, given an expected gush of new launches in the next few quarters, an expected rise in mortgage rates, and heightened volatility in the world economy. We remain positive on the fundamentals of the Singapore economy and are hopeful of a sustainable gradual property price growth in tandem with the GDP growth.
Mr. Duncan White, Head of Office Services, Colliers International:
In Q1 2018, URA’s Office Rental Index for the Central Region rose for the third consecutive quarter. Rents grew 2.6% quarter-on-quarter (QOQ), the same pace as Q4 2017. This alludes to a cumulative recovery of 7.7% in less than a year since the market bottom in mid-2017. Renewed strength amongst businesses, especially the services sectors, coupled with a limited stock of upcoming new CBD supply over 2018-2020, likely drove the brisk rental recovery.
The market upturn was most keenly observed in the highest tier developments in the Central Business District (CBD), characterised by the Premium submarket in Raffles Place and New Downtown. Based on Colliers International’s research, average rents of CBD Premium buildings recorded a 4.8% QOQ increase, bringing the cumulative increase to 14.3% since the rental trough in H1 2017. This is nearly double the 7.7% growth tracked by the URA office rental index for Central Region over the same period.
In tandem, island-wide vacancy tracked by URA declined by 0.1ppt QOQ to 12.5% during Q1 2018, as leasing transactions picked up pace amid expectations of escalating market rents.
Correspondingly, prices grew on the back of improving sentiment in the leasing market. The office price index in the Central Region increased for the third consecutive quarter, albeit at a graduated clip of 1.3% QOQ, as compared to 2.7% QOQ in the preceding period.
Given the fast pace of recovery, we expect prime office rents to surpass the previous peak seen in 2015 by end-2018. Firm economic momentum, bolstered by synchronised growth across office-using sectors, should elevate prime office rents 10% to 12% higher YOY by end-2018. This rental growth is likely front-loaded, moderating down to an increase of 5% to 7% over 2019.
The cyclical shift to a landlord's market is a prime impetus to conduct early rent reviews or relocation decisions, given that CBD market rents may be up to 20% higher than 2017 rates by end-2019. Businesses should review future expansionary needs, with vacancy trending downwards and expected to dip to sub-4% in 2019.
As the market recovers and vacancy tightens, we recommend occupiers to bring forward impending lease reviews. In a landlords’ market, tenants will find it increasingly challenging to secure attractive rents. In addition, we have observed that many landlords have scaled back on lease incentives in the past months. Please refer to Colliers' Q1 office quarterly report.
Ms. Tricia Song, Head of Research for Singapore, Colliers International:
URA’s Retail Rental Index for the Central Region saw an uptick of 0.1% QOQ, marking the first increase in three years albeit by a small margin. This was in line with expectations given that retail rental declines have edged down each year over the past two years. For the whole of 2017, rentals of retail space in the Central Region fell by 4.7%, a substantial drawdown from the decrease of 8.3% recorded in 2016.
URA’s latest data also showed the islandwide vacancy rate for retail space edging up 0.1ppt QOQ to 7.5% in Q1 2018. The tight changes in rents and vacancy suggests that some market consolidation is underway in the retail property sector, and a market bottom may be found this year as landlords and retailers adapt to the new retail landscape.
This is underpinned by a recovering consumer climate and surge in Chinese visitor arrivals. Retail sales shifted back into positive territory in 2017 after three consecutive years of sales decline, albeit from a low base.
Rents in Orchard Road appear better supported than in the Regional Centres, and will also remain the primary beneficiary of the surging tourist arrivals in the short-term. Furthermore, the URA and STB's joint efforts in rejuvenating the shopping belt with a Shibuya-style scrambled pedestrian crossing, as well as various directives under the "Orchard Road Blueprint" initiative, are likely to lend further support to the recovery sentiment.
However, we note that the improving sales climate may not quickly translate into substantially improved profit margins, due to higher competition afoot with multiple stores peddling similar wares. This should cap any upside to retailer margins, and hence we do not expect Orchard prime rents to record a dramatic rally despite the encouraging boost in overall retail sales and tourism indicators.
We expect the overall retail property market to stabilise over 2018 and 2019. Prime retail rents in the Orchard precinct should lead the recovery, rising 1% to 3% YOY in 2018. For the Regional Centres, select shopping malls should outperform, particularly those in suburban locations with significant catchment areas.