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Outlook: Singapore Property Market to Ride on Economic Growth in 2011

by Jared Heng

All segments of Singapore’s property market have a positive outlook for 2011, according to Nicholas Mak, Executive Director of SLP International Property Consultants Pte Ltd.

Singapore’s central bank expects inflation to average between 2 and 3 cent in 2011. The island nation’s GDP is also officially forecast to register a healthy growth of 4 to 6 per cent next year, despite moderat- ing from the estimated 15 per cent for 2010.

Mak said the rising prices are “not necessarily bad for the property market” as it will be supported by Singapore’s strong economic growth and the large amount of liquidity in Asia.

“I don’t think there will be additional (government) cooling (measures) in the first quarter of 2011,” Mak said. “It depends on market behav- iour.”

However, he added that if prices increased by more than 10 per cent in a six-month period next year, or even by 20 per cent for the whole of 2011, there may be further cooling measures.

Private Residential Property

Local private residential property prices are likely to increase next year due to positive sentiments and an expected rise in demand for real estate driven by strong liquidity, low interest rates and the contin- ued influx of immigrants, Mak said.

Steve Melhuish, CEO and Co-Founder of PropertyGuru, shares a similar view. “We expect private property prices to rise by at least 10 per cent in 2011, compared to 15 per cent already this year,” he said.

However, Melhuish expects the number of new private home units sold to drop from over 15,000 in 2010 to about 12,000 next year “as we don’t believe the current demand is sustainable.”

Meanwhile, the government’s cooling measures in end-August did not appear to have impacted the private residential property sector signifi- cantly, with strong price growth seen in the third quarter and healthy new home sales in November.

PropertyGuru expects a continued rise in private residential property prices next year due to the healthy GDP growth forecast and abun- dant liquidity in the market. Other driving factors include intense competition among investors, and property cooling measures overseas that might encourage some foreign buyers to invest in Singapore.

“We expect private residential property prices to rise by 10 per cent in 2011, compared to 15 per cent already this year,” Melhuish said. “High-end properties are expected to lead the price hike.”

However, he added that the price growth rate this year might not be sustainable in 2011 as a combination of the government’s latest cooling measures, increased land supply, and the more moderate GDP growth forecast would have an impact.

To keep up with demand, the government is expected to release many new land parcels for sale. According to Melhuish, the total potential supply of private housing units – including confirmed sites for 1H2011 – that can be completed within the next few years will be about 80,200 units.

Meanwhile, PropertyGuru’s fourth-quarter property sentiment survey in October revealed that 59 per cent of respondents expect HDB housing prices to decrease or remain the same over the next 12 months. This was significantly more than the 24.4 per cent recorded in the previous survey in the second quarter.

“Looking to 2011… the jury is still out on whether interest rates will remain at the current level,” said Joseph Tan, Executive Director for Residential Services at CB Richard Ellis. “Demand for new homes could be around 11,000 to 15,000. Prices are expected to see a steady but small growth of 3 to 5 per cent.”

Luxury Property Segment

The private luxury property sector might perform better in 2011, compared with what it has achieved this year, Mak said, adding that several other factors are pushing up demand for properties. Besides

the fact that Singapore is considered an attractive place to invest, the strengthening of its currency against the greenback is also attracting foreign funds for investment in local assets, such as real estate, he said.

Mak expects private luxury property prices to increase next year, but not significantly or rapidly unless there is a strong inflow of investment funds. However, he also noted that the government’s latest cooling measures have “put a stabilising factor in the market” to prevent it from overheating.

In contrast, PropertyGuru expects prices in the private luxury property sector to escalate even further in 2011 as current prices are still below the peak levels seen in 2007. Furthermore, Singapore’s luxury property prices are still lower than those in Hong Kong, Sydney and London.

“Given this, we expect luxury property prices in Singapore to rise by at least 8 per cent in 2011 – supported by solid economic fundamentals, strong cash holdings by Singaporeans, low interest rates, political and financial stability as well as the increasing number of millionaire Singaporeans and high net worth individuals shifting (their) focus from countries such as Hong Kong and China,” Melhuish said.

Office Property

On the office property front, growth of the sector will depend on the pace of economic and employment growth. Overall, SLP’s Mak expects the office property sector to perform well next year as employment in certain industries continues to increase amid the currently tight local labour market. Rentals have also started to increase, reflecting growth in demand for office property. “Unless there is a recession, I don’t see anything that will derail this upward trend,” he said.

PropertyGuru estimates that there will be approximately 3 million square feet of new office space in Singapore in 2011, with significantly lesser new supply from 2012 to 2014.

“Ongoing downward pressure on rents may be felt by older buildings as tenants prefer new office developments,” PropertyGuru’s Melhuish said, adding that while office demand is expected to expand with economic growth, the rate of rental increase will be moderate, unlike levels seen in 2006 and 2007.

According to the PropertyGuru chief, more private residential property investors are turning their attention to the commercial property sector, particularly industrial or shophouse properties where rental yields can be high. The government’s cooling measures may also encourage other residential property investors to consider commercial property, he said.

Industrial Property

A total of approximately 16 million square feet of industrial space in Singapore is expected to be completed from 2011 to 2013, Melhuish said. Major upcoming industrial developments include Midview City and West Park BizCentral.

Melhuish added that as the yearly increase in supply over the next two years is forecast to be less than the 10-year average annual take-up of 9.16 million square feet, rents for the industrial sector are expected to increase gradually.

Retail Property

Melhuish expects to see approximately 1 million square feet of new retail space in Singapore next year. Major upcoming retail develop- ments include Clementi Mall, Gardens by the Bay, Scotts Square, and Greenwich V.

“The pressure due to (the) increase in supply of retail space at (the) Orchard/Scotts Road area is expected to ease as retail space is expected to be gradually absorbed,” he said. “With lesser supply coming on stream in 2011 and 2012, retails rents may increase.”

However, Melhuish said the emergence of suburban malls, creation of more shopping space at new MRT stations as well as new retail expe- riences at Marina Bay Sands “will have an ongoing downward price pressure on Orchard Road where rental rates remain soft.”

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