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My 2023 predictions for Singapore's property market, having advised HNWIs for 16 years

Inflation and cooling measures were the talk of the town in the second half of 2022. With the Chinese economy reopening and companies conducting layoffs left, right, and centre, what can you expect from Singapore’s property market this year? Here are my predictions for the commercial, industrial, residential, and new launch segments respectively.


First, a word about interest rates


I recently held an invite-only event, An Afternoon With Harvey Chia, where I was asked if the Singapore Overnight Rate Average (SORA) is determined by the appetite for residential loans. Well, the short answer is no. Importantly, it’s also based on the interbank lending rate and anticipated movements on the feds’ part.


To that end, there are two upcoming hikes – of 25 basis points each – in the next couple of months. At its height in June 2022, inflation in the US rose to 9% (overall index) and 7% (core) in June 2022, before dropping to 6-7% and 5.2% respectively in December. To their credit, they’ve done a decent job in lowering these numbers. I don’t foresee them wielding the axe as much this year, which means that SORA is likely to have a downward trend.


That leaves us with a tale of two halves. While the first quarter will still see increasing rates, it will probably dip thereafter when dust settles and the recession kicks in. We wouldn’t worry too much if we were you, but it pays to check your loan documents to review what you had signed up for. After all, we secure the assets we’ve purchased by defending them against the mortgage rates. At the end of the day, these cost savings go towards your capital gains.


Commercial


Prediction 1: Buyers are going to take a breather


Foreigners have to fork out a 30% ABSD when buying a residential property, which means they lose 30 cents for every dollar spent immediately. Even if they were to consider commercial property, our government has managed our currency really well and the Sing dollar remains strong. Our properties are not as affordable compared to the rest of Asia, which could prompt this group to look outward at the region.


Prediction 2: Landlords will be in tricky positions


Since commercial properties aren’t a dime a dozen, sellers could remain relatively neutral. However, if recession does kick in, tenants who feel heat under their collars may start to negotiate with their landlords. For instance, they may want to lease their properties out as shadow space, especially as companies give less importance to an in-person workforce. Since tenants who require less space will have more bargaining power, landlords could be put in a spot.


Industrial


Prediction 3: Industrial market will be under pressure in a recession


In 2023, the industrial market will be back to basics. If buyers do not have a practical need for the space, they wouldn’t buy it – especially not as an investment vehicle. After all, you can own industrial property without purchasing a physical unit through reits from folks like Ascendas and Mapletree Logistics. Not only do you get to operate as a “landlord”, you also get the yield without doing the dirty work. Besides, those holding on to physical units may consider selling them to recover a fair bit of money.


While the industrial market will remain relatively neutral, it will be under pressure should recession kick in. Landlords of smaller businesses, who tend towards industrial space, can expect negotiations. The exception to the rule, however, are businesses who have a specific need for industrial space. These include food factories, cold storage, and even the central kitchens of food delivery companies.


Residential

Prediction 4: Resale buyers will be relentless


This shouldn’t surprise anyone. Last year, many buyers held off not because they could not afford to purchase but because they could not come to an agreement with sellers. Only 2,000 units were transacted each month during November and December, in part due to the year-end holiday season, but sellers remain relatively resilient as leasing is always an option.


Has the year started in full swing? Absolutely. Markets have started to move, too. In the first week of 2023, I’d managed to help a buyer shave half a million off the valuation of a big-ticket purchase. Clearly, sellers are willing to negotiate when the deal sizes are bigger. That being said, I expect a little standoff in most buying and selling activities, which would eventually shift into a buyers’ market.


Prediction 5: Tenants will experience a year of relief


Since incomes aren’t growing as quickly even for foreigners, I don’t foresee rental rates being particularly high this year. Plus, new units that have completed building and been released into the market offer alternatives, especially if tenants are willing to compromise on location for a reduced monthly expense.


New launches



Prediction 6: Investors are going to be strategic


An increasing number of buyers are looking to new launches, rather than resale condos, for investments. Why is that so? The short answer: interest rates. When you buy a new launch from the get-go, you fork out 20% and pay another 5% when the foundation has been completed. So, if you’re covering 75% of the purchase with a loan, a majority of it hasn’t kicked in just yet. The next time you pay any money is 12 months later, once the foundation has been piled. This does two things: it gives you a reprieve from the high interest rates, while allowing you to take a future position by hedging.


Naturally, other buyers looking at new launches for residential purposes are mere price-takers. But who dictates the price? That brings me to my next prediction.


Prediction 7: $2,000 per square foot will be the norm


When I started my journey in 2007, en bloc was seen as a blessing by everyone in the development. Who would protest a premium of 30-50%? No one, that’s who. Today, even with the same premiums but higher values, people have a chip on their shoulder because of ABSD. Since en blocs typically take place in older developments, with larger units mainly occupied by homeowners, consensus can only be reached with a higher premium. Given cautious attitudes and the limited supply of land, developers get to dictate the pace and price at which en blocs happen.


What is this magic number, you ask? Whether you’re looking in districts 1, 2, or 5, you can probably throw a rock and it would hit a showflat that starts at S$2,000 PSF. In the developer’s view, the land easily costs S$1,200, excluding the costs of construction, time, and risk, as well as their profit margin. As these “raw materials” increase in price, it gets transferred to buyers like yourselves.


In a nutshell, I foresee the following in 2023:

  • Interest rates will fall in the second half of the year,

  • Commercial transactions may still happen albeit highly tactical,

  • Industrial market will be on the backburner,

  • The residential resale market will shift to a buyer’s market,

  • And new launches will knock it out of the park.

If you’re uncertain how to take advantage of or defend your positions against these upcoming developments, reach out to me (Harvey Chia) at 9199 9141.




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