RESIDENTIAL

Ms. Tricia Song, Head of Research for Singapore, Colliers International:


Fresh cooling measures introduced in July have reined in the strong growth in private home prices in Singapore. Home values rose by 0.5% quarter-on-quarter (QOQ) – unchanged from initial estimates – in Q3 2018, following price increases of 3.4% in Q2 and 3.1% in Q1.

Cumulatively, private home prices have climbed by 7.9% in the first three quarters of 2018, 9.6% above the recent trough in Q2 2017. Home values are still 3.2% lower than the peak in Q3 2013. 

Although the new measures have broadly weakened sentiment and stemmed a sharp increase in prices, we note that market confidence seems to be improving on the back of relatively positive sales for new launches last month. We believe there are still genuine buyers in the market seeking suitable and competitively-priced units. With a healthy pipeline of new launches coming up, developers who are better in recalibrating their pricing strategy will likely see better turnover.

In the near-term, we do not foresee developers offering deep discounts to move units, with home prices likely to remain flat in Q4 2018. Colliers Research has projected private home prices to rise by 8% for the full year in 2018 and potentially climb by 3% in 2019, in line with the economic growth – barring any external shocks. 

Landed Homes
Prices of landed properties increased by 2.3% QOQ in Q3, lower than the 4.1% growth in Q2. This brought cumulative increase to 10.4% since Q2 2017. However, prices are still 7.3% below their Q3 2013 peak.

Non-Landed Homes
In particular, private non-landed home prices were flat QOQ, compared to a 0.2% increase in the flash estimate which recorded the price index for the first 10 weeks of the quarter. This also marked a significant slowdown, compared to the 3.2% growth in Q2, and putting an end to the rising trend for the past four quarters. They are now 1.9% below a Q3 2013 peak. 

Among these, Core Central Region (CCR) was the only segment that grew, while Rest of Central Region (RCR) and Outside Central Region (OCR) declined. 

CCR
The increase in non-landed home prices in Q3 was led by the CCR which rose by 1.3%, compared with the 0.9% increase in the previous quarter. The CCR was the only region that saw a higher sequential price growth in Q3, supported by prices at luxury residential developments such as 8 Saint Thomas, Wallich Residences, New Futura and Martin Modern. 

In Q3, 8 Saint Thomas was launched and sold 20 units at a median price of SGD3,226 psf, while Wallich Residences sold 10 units at median price of SGD3,553 psf, 8% higher than the median price of SGD3,283 achieved in Q2. New Futura and Martin Modern continued to sell 15 and 30 units sales in Q3 respectively while maintaining their median prices from Q2 2018.  

This attests to our belief that properties in prime districts – especially Districts 9 and 10 – are in a better position to weather any potential slowdown in the market. It also reflects the segment’s resilience and their appeal as trophy assets.

In the near term, we expect prices to hold up better in CCR due to the replacement demand from collective sales owners coupled with limited new supply. The bulk of the collective sales in 1H18 had been focused on the prime region in CCR and the sales could be completing which could prompt replacement demand from the displaced owners.    

RCR
Home values in the RCR fell by 1.3% in Q3 -  after a 5.6% jump in Q2 – as selected projects cleared their remaining inventory at a discount. Sixteen35 Residences sold 11 units at a median price of SGD1,429 psf, 5% lower than the median price of SGD1,507 psf when it was launched in Q2. While some new launches after the cooling measures have seen fairly high takeup rates such as Mayfair Gardens (38%), many others have seen lower takeup rates which will likely keep any price increase in check.  

However, in Q4, there are several relatively attractive offerings that bear watching:  1,399-unit Parc Esta near Eunos MRT Station, the first mixed integrated development in Bidadari -- 667-unit Woodleigh Residences and 548-unit Kent Ridge Hill Residences. 

OCR
Prices also fell in the OCR by a marginal 0.1% in Q3, compared with the 3.0% rise in Q2.  The transactions were mixed with resale prices holding up while new projects such as The Affinity at Serangoon and Gardens Residences dropped prices to move sales after tepid takeup in June 2018.  

In Q4, Whistler Grand in the west coast will be launching at an indicative price of SGD1,380psf, which would be similar to the launch price of its neighboring Twin Vew back in May 2018. 

Supply pipeline and vacancy: Supportive in near term

During Q3 2018, 1,088 private homes obtained Temporary Occupation Permit (TOP), compared to 1,327 units in Q2, 1,977 units in Q1 and 4,249 units in Q4 2017. However, due to demolitions, the stock of completed private residential units (excluding ECs) increased by just 83 units in Q3.  

URA estimates another 3,506 units to be completed in Q4 2018, bringing full year completions to 7,898, a sharp drop of 52% from 2017’s 16,449 units and 62% from 2016’s historical high of 20,803 units. URA expects 10,119, 3,796 and 12,263 private home completions in 2019, 2020, and 2021 respectively, which are below historical average completions. However, completions could rise sharply to 22,280 units in 2022, from the bumper en bloc transactions from 2016-mid 2018.
For the non-landed segment, vacancy rate continued to improve to 7.3% in Q3 from 7.6% in Q2, 8.0% in Q1 and 8.7% in Q4. The peak vacancy was 10.4% in Q2 2016. 

Rentals
The overall private residential rental index rose for the third consecutive quarter, up 0.3% QOQ, decelerating from a 1.0% rise in Q2. Rents have lagged prices by three quarters, and are still 11.9% below their peak in Q3 2013.
Given the easing supply going forward, we expect occupancy to continue to improve and rents could recover by another 1% in Q4 2018, and 5% in 2019, barring any external shocks.

Outlook
Colliers Research is maintaining its 8% price growth forecast for the full 2018 as new launches ahead should lend support to home values. 

We expect a slew of new projects to be launched before the year-end festive season, and particularly after the encouraging take-up in September which showed developer sales growing strongly by 51% month-on-month to 932 units. 

With regard to the recent revised guidelines on unit sizes announced in a circular by the Urban Redevelopment Authority, we think the new ruling should have little incremental impact on home prices as they would likely impact size configurations for projects completing beyond 2023. In the near-term, we believe the revised guidelines should not affect those developers which have already acquired land and obtained both Pre-Application Feasibility Study (PAFS) and planning approvals. Hence, the supply of residential units that is slated through 2023 – assuming a five-year construction period – should not be affected by the new guidelines. 


OFFICE

Mr. Duncan White, Head of Office Services, Colliers International:

Sales prices and rents of office properties continued to recover in Q3 2018, thanks to stronger demand for space from a broad range of sectors, as well as improved investment appetite for prime office assets.
  
In Q3 2018, URA’s Office Rental Index for the Central Region rose for the fifth consecutive quarter. Rents grew 2.5% quarter-on-quarter (QOQ), re-accelerating from the two preceding upticks of 1.6% and 2.6% QOQ recorded in Q2 2018 and Q1 2018 respectively. This verified our previous prediction that the market slowdown in Q2 was momentary after the rapid rise since Q2 2017. Current rents are still 9% below the most recent peak in Q1 2015. 

Overall the statistics alluded to a strong cumulative rental recovery of nearly 12% for office space in the Central Region, since the market trough in Q2 2017. In tandem, island-wide vacancy as tracked by URA tightened by another 0.2ppt QOQ to 12.0% during Q3 2018, as leasing transactions picked up pace amid scarce new stock.

Office sales prices on the other hand grew at a much subdued pace. URA’s Office Price Index for the Central Area rose at a slower clip of 0.1% QOQ as compared to 1.9% QOQ in the preceding period. 

The slowdown in price levels came after strong upticks in the previous three quarters. The punitive ABSD measures on the residential sector since July should continue to fuel a shift in investor interest towards the commercial sector. 

Based on Colliers International’s research, during Q3, cognizance of tightening vacancy likely drove a series of consolidation and relocation activity by multinational corporations. Colliers continues to see broad-based expansionary demand, mainly financial, professional services, technology and flexible workspace firms. 

Outlook
Going forward, the overall property outlook could be clouded by global economic uncertainties. After a strong front-loaded recovery since Q2 2017. We expect prime office rent growth to taper off to single digits in 2019, but should still be supported by limited new prime supply from 2018-2021 and strong demand from flexible workspace operators. It was reported recently that JustCo is taking up the second floor of China Square Central by Q4 2019, adding to its portfolio of 13 centres.    
 

RETAIL

Ms. Tricia Song, Head of Research for Singapore, Colliers International:

URA’s retail real estate indices for Q3 2018 resumed its spell of declining rents and occupancy. URA’s Retail Rental Index for the Central Region fell by 1.2% QOQ, compared to the 1.1% decline in Q2 2018.  Except for a blip in Q1 2018 which showed a 0.1% QOQ uptick, the rents have declined a cumulative 18.1% since Q4 2014.  

URA’s Retail Price Index for the Central Region, on the other hand, rose by 0.3% QOQ; reversing the previous quarter’s 1.3% decline. The weight of capital chasing limited investible retail stock in the market could have decoupled the prices with the underlying rents. 

Meanwhile, island-wide retail vacancy increased by 0.3ppt QOQ to 7.6x% in Q3 2018. On a YOY basis, vacancy has fallen by 0.6ppt since Q3 2017.. During the quarter, the largest new supply injection came from Wisteria Mall, the retail component of a residential-retail mixed development in Yishun, with a Gross Floor Area (GFA) of 7,700 sq m (82,900 sqft). 

Outlook

Consumer spending has remained cautious. Excluding motor vehicles, retail sales index increased 0.1% and 2.4% year-on-year (YOY) in July and August 2018 respectively. According to CapitaLand Mall Trust, in the nine months ending September 2018, shopper traffic at its portfolio of 15 predominantly suburban malls declined 1.8% YOY while tenants’ sales psf per month increased by 0.5% YOY over the same period. Colliers believes landlords need to continue to engage shoppers with new offerings and enhanced experiences in the new era of omni-channel shopping lifestyles. 
 
Encouragingly, almost 90% of retail space at Jewel Changi Airport has been taken up ahead of its expected launch next March. With 280 shops over 53,800 sqm of retail space, Jewel Changi Airport will probably be the single largest mall in the eastern part of Singapore, and is positioned as a showcase of Singapore brands to the international audience, as well as to locals who will likely make up 60% of the visitors. We believe this will add significant competition to the retail landscape. Nearby malls such as those in Pasir Ris, Tampines, Bedok and Paya Lebar may need to up their game and carve out a niche for themselves. Orchard Road malls would also need to keep reinventing to stay relevant and keep the tourist dollar.

Broadly, we expect the overall retail property market to stabilise over 2018 and 2019 as rental declines have edged down each year over the past two years. YTD 2018, rents have declined 2.2%. 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. 

Ground floor retail rents in prime shopping centres along Orchard Road 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.