_URA Real Estate Stats Q3 2022 Commentary

Sectors such as banking, finance, real estate and insurance are still expanding and registered an increase in hiring sentiments by ten percentage points q-o-q in Q3 2022 and 44 percentage points y-o-y

Leonard Tay October 28, 2022

Residential

Private home sales in Q3 2022 amounted to a total of 2,187 units in the primary market and 3,961 in the secondary market (sub-sale and resale). Compared to the previous quarter in Q2 2022, new sale volume eased by 8.8% from 2,397 transactions. Secondary sales volume also fell by 10.3% from 4,414 units in the same period. Despite the latest cooling measures announced at the end of September, the progressive rise in interest rates and the spectre of possible recessionary pressures, aspirations of buyers against limited inventory continue to translate into sales activity supporting prices when a compelling project is launched. In Q3 2022, these included AMO Residence, Lentor Modern and Sky Eden@Bedok. As such, 6,409 new sales were recorded in the first nine months of 2022 and remains on track to end the year with a total of about 8,000 to 9,000.

The URA All Residential Price Index continues to rise, recording an increase of 3.8% in Q3 2022. Between January and September 2022, prices of private homes expanded by 8.2% and looks set to end the year with a gain of more than 10% despite the challenges of the cooling measures and rising interest rates. Suburban high-rise homes remained popular as the price index for non-landed homes in the Outside Central Region (OCR) grew 7.5% in Q3 2022 and 12.2% in the first nine months of 2022. Demand for these new launches in suburban locations was strong, as homebuyers were willing to pay prices set at new benchmarks for suburban condominiums, exhibiting the upward housing aspirations of Singaporeans who have the financial means as a result of steadily growing affluence and household-net-worth prosperity in the past decade.

Homebuyers who are still on the lookout for a new home that is under development and hope to make a purchase before interest rates increase further, will likely continue to be active at launches in the remaining months of the year. Despite this, the mix of cooling measures just nine months apart, a possible recession in 2023, widespread inflation, and the manner in which private home prices have climbed in the last two-and-a-half years, will inevitably start to shift the sentiment of some homebuyers into tentative territory as interest rates progressively rise from now and into 2023.

The URA rental index for private residential homes increased 8.6% q-o-q in Q3 2022, reflecting a gain of 20.8% in the first nine months of 2022. The opening of borders coupled with the introduction of employment policies to attract top talent worldwide will contribute to the increase in leasing demand from professionals drawn to a stable Singapore, adding to the local residents who have been unable to find a suitable replacement home. Additionally, the most recent announcement of the cooling measures that took effect from 30 September 2022, imposed a wait-out period of 15 months for those moving from private homes to HDB. Downgraders from private homes, including retirees, would now have to source for alternative accommodation before being eligible to buy a non-subsidised HDB resale flat that is larger than a 4-room unit. This group would likely either rent or stay with relatives or friends. Those who do not have options other than to rent would exacerbate demand in the leasing market, putting more upward pressure on private residential rental values that have already been increasing substantially throughout 2022. Rents in the private residential market will continue to increase in the remainder of 2022 and into 2023.

Office

The office rental index increased by 2.1% q-o-q in Q3 2022, following the 2.4% growth in the previous quarter. From January to September 2022, the rental index has improved by 6.3%. Office occupancy levels inched upwards to 88.3% in Q3 2022 from 88.0% in Q2. The increase in rental coupled with an improvement in office occupancy level characterise an increasingly landlord's market since the middle of 2022. This dynamic will continue into 2023 as occupiers are still on the lookout for quality office space in the CBD area where supply remains tight.

Looming economic headwinds has resulted in many economists turning cautious and downgrading their expectations for GDP growth for the year. Nevertheless, sectors such as banking, finance, real estate and insurance are still expanding and registered an increase in hiring sentiments by ten percentage points q-o-q in Q3 2022 and 44 percentage points y-o-y. The expansion in employment and increased headcount suggest that occupiers are still looking to expand. Although global inflation, supply chain and material disruptions, and geopolitical unrest are combining to push global economies into a slowdown, Singapore nonetheless remains poised as a shelter for multinational firms to weather the oncoming economic challenges, barring further redundancies in certain technology segments. With occupancies steadily tightening and leasing activity to remain firm for the rest of 2022, growth in rents for the whole of the year and into 2023 is expected to continue.

Retail

In the third quarter, the retail rental index of 79.3 was a slight contraction of 0.4% q-o-q and 0.6% y-o-y from 79.6 and 79.8 respectively. The slowing pace of decline in the rental index signals that a bottoming out of rents can be expected sooner-rather-than-later, barring further external headwinds that could again obstruct the path of recovery for the retail market.

The net take-up of retail space increased by 322,917 sf in Q3, compared to the 86,111 sf in the previous quarter. Supported by demand from locals as well as tourists who have returned with the lifting of travel curbs, retailers are once again encouraged to set up shops or expand their existing footprint. In the third quarter, the re-emergence of various leisure and entertainment avenues such as carnivals as well as bazaars were welcomed and patronised by many, promoting retailers in tourist hotspots such as Clarke Quay and Orchard Road. Most importantly, the Formula One Grand Prix which made its grand entrance back to Singapore after two years spurred tourist arrivals in the city-state as a series of meetings, incentives, conventions and exhibitions (MICE) events were scheduled to coincide with the sporting event. From July to September 2022 alone, about 2.2 million international tourist arrivals were recorded, compared to the 1.3 million in the second quarter of the year, bringing buzz back to retailers.

Correspondingly, the net new supply of retail space increased by 107,639 sf, higher than the 10,764 sf of new space that came on stream in Q2. As such, with net take-up of retail space outpacing the increase in stock, the occupancy rate in the third quarter improved by 0.4 percentage points to 92.2%.

As the last quarter of the year approaches, notable events such as the 11.11 Sale, Black Friday, Christmas, as well as New Year’s Eve, are expected to drive retail spending. Riding on the encouraging momentum towards a sustainable recovery, prime retail rents are on course to grow by the earlier projection of 2% to 4% for the whole of 2022. Notwithstanding looming uncertainties as inflationary pressures on the economy threaten market stability, retailers should continue to seek value enhancements and improve user platforms. This will not only help to differentiate their consumer offerings, but also ensures that they are prepared to shelter against external volatilities and other potential black swan events that could unhinge the delicate balance of the current state of recovery.