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Positive signs in the real estate market

Positive signs in the real estate market.

With the release of second-quarter real estate statistics by the Urban Redevelopment Authority (URA), there is increased consensus in the industry that the ailing residential property market is stabilising after a total 9.4 per cent slide from the peak of Q3 2013, with an underlying recovery underpinned by the luxury segment.

Lending support to the residential market now is a “lower for longer” interest rate environment, which not only keeps cost of borrowing low, but also prods investors into a deeper pursuit for yields.

Despite rising vacancies and softening rents, early signs of a bottoming-out in the private residential market surfaced – the 0.4 per cent fall in overall private residential price index in Q2 was the smallest quarterly decline seen in the 11 straight quarters of correction.

Resale transactions also staged a strong rebound with a 17.1 per cent year-on-year growth to 2,140 units. In particular, the Core Central Region (CCR) saw a 33.7 per cent jump in resale transactions, which made up 78 per cent of the total 767 transactions in the region, while prices in the CCR rose another 0.3 per cent for a second consecutive quarter.

Notwithstanding continued pressures on rental yields in the private residential market, investors are still expected to pile into real estate amid wild swings in the financial markets stoked by the increased occurrence of “black swan events” such as “Brexit” and global terrorism.

Real estate in Singapore still remains one of the safe haven assets that the rich want to park their money in. Those who are buying are looking at the longer term; they are not looking at short-term rental yields but are looking at long-term capital appreciation.

A total of 131 luxury apartments each worth S$5 billion and above were sold in the first half of this year, marking a 76 per cent jump from the whole of 2015.

The average price of such luxury units sold stood at S$2,950 psf, up from S$2,700 psf as at end-2015.

Among them, Wheelock Properties’ Ardmore Three sold 34 units in H1 at S$3,200 psf. Other projects that moved units during the same period included Leedon Residence and Goodwood Residence by GuocoLand, and Gramercy Park by City Developments Ltd.

Early signs of a bottoming-out are also seen in the city fringe, where prices in the Rest of Central Region (RCR) rose by 0.2 per cent after being flat in the first quarter. Prices in the suburban areas or the Outside Central Region fell by a smaller 0.5 per cent, compared to 1.3 per cent in the previous quarter.

The 1.4 percentage point increase in vacancy rate for private residential units to a 16-year high at 8.9 per cent – when viewed against the surge in completions – may not be all that alarming.

A tapering-off in completions after this year will also provide the needed breathing space for the market to absorb the current unsold units in both completed licensed projects and uncompleted projects, which have fallen to a historical low of 23,282 units in Q2.

All these may be encouraging signs for developers with upcoming project launches. But they will have to bear in mind that buyers are still price sensitive and cautious and have many residential options to choose from.

Having strong product attributes and the right pricing remains the winning formula seen in launches that have performed well so far.

Elsewhere in Malaysia, there is no denying that the near-term outlook for the residential sector remains cloudy. But some consultants believe that demand for housing in select cities such as Kuala Lumpur and Nusajaya remains strong, with the high-speed rail link between Kuala Lumpur and Singapore set to benefit cities along the rail corridor.

A “lower for longer” interest rate environment, along with the slide in capital values, may also inspire big-ticket transactions in Singapore’s commercial space, if the sovereign wealth funds and insurance companies are willing to stomach lower yields in the short term.

During Q2, office and retail space marked their steepest quarterly price and rental falls over the past one year or so.

This is also triggering more flight-to-quality movements by companies in the office space as they see this as an opportune time to secure premium spaces at favourable rates.

There was a slew of pre-leasing deals in the upcoming prime developments during Q2. Marina One reportedly achieved 550,000 sq ft in leasing pre-commitments, translating into a pre-commitment rate of 30 per cent; Guoco Tower also saw substantial take-up of space during the quarter with tech firm SAS leasing 20,000 sq ft of floor space in the development.

An estimated 6.6 million sq ft of office gross floor area is projected to be completed in the next 18 months. The average annual office demand in the past three years is about 1.2 million sq ft. Along with a potential increase in secondary shadow space, the heat is on office landlords to offer attractive rents to compete.

Similarly in the retail space, malls will have to evolve too, given retailers’ rising interest in omni-channel retailing – in other words, providing a seamless shopping experience across stores and the online channel.

Given the challenging outlook, it would be imperative for landlords to undertake a proactive approach to manage their tenant mix to continually engage and excite shoppers. One possible area of growth is the F&B sector as well as the experiential and lifestyle segment.

Adapted from: The Business Times, 28 July 2016