SINGAPORE, 22 April 2022 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on URA’s 1Q 2022 real estate statistics.
Landed prices continued to forge ahead by 4.2% qoq in 1Q 2022, supported by new wealth creation and robust demand for limited landed properties. Another factor for sustained demand is that landed homes are largely purchased by Singaporeans who are less impacted by the increase in ABSD rates late last year. Non-landed prices fell by 0.3% qoq in 1Q 2022.
The price increases in non-landed prices in the OCR was not surprising, given the gradual structural shift towards suburban homes in the new pandemic normal with hybrid work practices. The decline in RCR non-landed prices is likely due to some resistance following the sharp 6.7% qoq growth in the last quarter of 2021.
Our analysis of median prices in projects with units sold in February and March this year suggests that growth momentum of new sale prices are more pronounced in the RCR and OCR. For instance, 16 out of 23 projects in the RCR saw higher median prices in March, while 16 out of 21 projects in the OCR also saw the same. On the other hand, less than half (i.e. 12 out of 27) projects in the CCR managed to push up their median pricing in March.
Developers launched considerably fewer units in 1Q 2022, a 73% qoq drop to a near 2-decade low of just 613 units. While this reflects some caution among developers in the wake of the cooling measures, in reality, the unlaunched pipeline has been very limited to begin with, leaving developers with no choice but to spread out their launches over the course of the year, in hope of a stabilisation in market sentiment.
While new home sales declined during the quarter with the lower spate of launches, the pace of demand is still encouraging, as the take-up rate rose to almost 300% from 133% in the previous quarter. This is buoyed by a growing economy and tight labour market, ample liquidity and genuine end-user demand.
Contrary to mainstream belief, the impact of the cooling measures on foreign demand in the CCR has been relatively muted. Last year, foreigners (non-PRs) accounted for 9.1% of non-landed home sales. In the first few months of this year, this share has dipped only marginally to 9.0%. On the other hand, foreign demand for non-landed homes in RCR accounted for 3.8% in the first few months of 2022, as compared to 4.2% in 2021; while that of OCR stood at 1.2% in 2022 versus 1.8% in 2021. This suggests that keen foreign interest remain for homes in the prime districts of Singapore, although it has diluted for the fringe and suburban homes due to lower familiarity.
The unsold inventory with planning approvals has fallen to a record low of just over 14,000 units. Including unsold units in the pipeline but without planning approvals and those completed, the total unsold inventory still stands at about 20,700, which should most likely be cleared in just 1.9 years at the current sales pace. We expect such tight supply-demand balance to lend pricing power to developers in projects with high take-up rates, although there could be some price moderations in selected projects with considerable unsold inventory.
Sale volumes in the secondary market was impacted by the cooling measures; the tightened TDSR limit would have led to a reduction of LTV at the margin for some borrowers. These borrowers would need to fork out monies for a higher down payment for completed properties in the form of cash or CPF. Barring challenging economic conditions, sellers are likely to hold on to asking prices in general and the buyer-seller price gap could weigh on resale sales activity over the next few months. Notable, the share of sub-sale transactions has risen to 2.6% in 1Q 2022, the highest since the end of 2016 (2.9%). However, the bulk of vendors are likely choosing to sell in a relatively strong market climate rather than due to distress.
Sales momentum is expected to slow, on the back of fewer units from new launches in 2022. Nonetheless, the overall residential market will still be supported by a robust labour market, ongoing economic growth, and healthy demand-supply dynamics in the property market, with demand largely from local first-time home buyers and HDB upgraders who are least impacted by the cooling measures. Primary home sales are projected to reach about 11,000 for 2022.
Office prices rose at a sharper pace than rents in 1Q 2022, reflecting continued strong investor interest, even amid the nascent stages of the rental recovery. While a firmer rental growth is undoubtedly priced in, the weight of capital chasing quality office assets in our transparent and business-friendly environment has also led to the outpacing of capital values.
The office rental index rose by 1.6% qoq in 1Q 2022, a steeper increase from 4Q 2021’s 0.9%, supported by a limited supply of quality spaces. The island-wide office occupancy rate held steady at 87.2%, with better quality Category 1 office buildings occupancy remaining constant at 88.0%, while Category 2 occupancy rate increased slightly by 0.1% points to 86.9% in the quarter, exhibiting continued signs of market stabilisation. Office net absorption fell to 13,000 sq m in 1Q 2022 from -10,000 sq m in the previous quarter; the moderation in leasing demand is likely due to corporates holding back on their real estate needs amid the Omicron wave during the quarter.
After two years of grappling with the pandemic and hybrid work styles, coupled with the recent announcement of measures to bring us along the path of living with Covid, firms are likely to be more active in taking a serious look at their corporate real estate needs over the next few months to align with their hybrid working models and to address employee’s evolving requirements. Most firms are optimistic that we are past the worst in terms of pandemic uncertainty, and we expect demand to pick up more strongly in the second half of this year. This will also be especially so when there is greater clarity on some of the other moving parts like the Russia-Ukraine war. In the near term, the supply chain disruptions and the Chinese regulatory clampdown could weigh on the growth of demand.
We are optimistic on the rental outlook for the office market amid growing demand and tight supply; the prime segment is expected to outperform with rental growth of between 3% to 5%.
The latest statistics suggests that the retail sector is not completely out of the woods. Both prices and rents fell in the quarter, and the overall vacancy rate inched up to 8.3% from 8.1% in the previous quarter. The retail index declined slightly by 0.4% qoq in 1Q 2022, a reversal from the 0.6% qoq increase in 4Q 2021.
Overall retail demand fell for the second consecutive quarter to -12,000 sq m in 1Q 2022. The moderation in demand was broad-based across all segments, with the exception of the Rest of Central Area. The island-wide occupancy rate fell slightly to 91.7% in 1Q 2022 from 91.9% in the previous quarter. The Fringe Area demonstrated resilience; its occupancy rate increased the steepest among the various subzones by 0.3% points to 92.1%. On the other hand, the Orchard and RCA subzones showed signs of stabilisation as their occupancy rates held unchanged in the quarter. However, the Downtown Core painted a different picture; its occupancy rate fell by 1.7% qoq to 87.2%, its steepest decline since 2Q 2020 (-2.0%). The Omicron wave during the quarter amid rising inflation woes may have driven retail tenants to reassess their space requirements and caused some to shed spaces.
Nonetheless, the outlook is expected to brighten going forward. Whether in the prime shopping belt, the CBD or in the heartlands, the crowds have returned strongly almost to pre-pandemic levels. The easing of capacity limits, social gatherings and dine-in limits to 10 persons have removed the earlier barriers to retail and leisure activities. The relaxation of religious activities and the resumption of nightlife activities have also helped cement the belief that we are past the worst in coping with the pandemic.
We expect suburban retail rents to lead the market recovery with around 8% of rental growth this year, while prime rents in Orchard and other city areas are also poised for around 3-5% rental growth in 2022.
The return of the crowds brings assurance that brick and mortar is not dead, even as the nation is more familiar with e-commerce. What remains is how retailers can re-invent themselves via new formats, digitalisation and mobile payments, improved service levels and consumer engagement to enhance their consumer base. For malls with vacant retail spaces, greater engagement with the community through pop-ups, fairs and exhibitions could aid in the interim as they re-position themselves.
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