Safe havens: Singapore

SINGAPORE'S residential sector had a stellar year with record new home sales in 2012. For the first 10 months of this year, excluding executive condominiums, 19,792 private residential units were sold compared with 15,904 for the whole of 2011. Prices on the whole still managed to rise 0.3% in the first three quarters of the year with those for terraced houses going up the most or 3%.

In some areas, condominiums in subsequent launches saw prices rise up to 40% from February 2010 to October 2012 whilst the overall property price index rose 18%. This tells us that market performance was location specific.

In the commercial market, office rents remained soft due to the ongoing financial crisis in Europe that crimped financial institutions' expansion plans. However, there is still demand from real economy companies, such as the oil and gas, commodity, IT and trading representative offices. The latter are mainly from China.

Retail space has been hot due to the lack of new stock. Over the past 10 years, retail space per capita in Singapore has fallen from eight sq ft to seven sq ft. Rents have held up well as Singapore's enlarging population, which grew 2.5% in 2012, was able to offset any economic ailments in the West.

In 2013, mass-market residential properties will do well due to the impact of land cost push inflation. In some suburban sites, between the start of 2012 and the third quarter, land prices went up 46%. Therefore, we believe mass-market prices could rise 10% in 2013.

For luxury residential properties, there are signs that foreign demand is returning. Sentosa is beginning to see increasing activity after a lull post-global financial crisis. With Hong Kong having a buyer's tax on foreigners, most safe haven cities within an 11-hour flight from Shanghai or Beijing have some sort of buyer's tax, making Singapore's additional buyer's stamp duty (ABSD) on foreigners less exceptional.

In office space, activity should focus on the strata title market as liquidity chases hard assets. Also, with six rounds of cooling measures on the residential market still in force and nothing in the commercial market space, money flows to the point of least resistance.

In the retail sector, the lack of new product offerings will drive strata space prices to new highs. Already, some strata space in mixed-use developments have gone up to S$8,000 psf.

Some positive factors in the new year are the relaxation of the cooling measures now in force in the private residential market; increasing population driving up housing and retail demand; continuing low interest rates; and positive price and buying momentum, which should continue into 2013 for residential and strata-titled office/retail space.

However, external factors like epidemics and wars, further cooling measures for the residential market and perhaps also the commercial market, and an unexpected spike in interest rates could dampen the market.

This story first appeared in The Edge weekly edition of Dec 24-31, 2012.