Slowdown in market activities amid rising challenges
New sales volumes inched down moderately in Q3 2022 with 2,187 units sold, 8.8% qoq lower than that in the previous quarter on the back of declining launch volumes. There were 1,455 units launched for sale during Q3 2022 as compared to 1,956 units launched in Q2 2022. New sales volumes are expected to further moderate in the upcoming quarter due to the year-end holiday period as well as the impact of fresh property curbs.
Similarly, secondary market sales volumes (including resale and sub-sale) also went down gradually in Q3 2022 amid rising macroeconomic uncertainties. Secondary market sales volumes decreased by 10.3% qoq in Q3 2022. For the first three quarters of this year, secondary market sales reached 11,893 units, about 23.9% yoy lower than that in Q1-Q3 2021.
Further slowdown in market sales is expected as buyers become more cautious and prudent due to the new cooling measures and cloudy economic outlook.
Robust price growth triggered new round of cooling measures
Private residential property prices rose 3.8% in the third quarter of this year, largely led by strong growth in suburban condo prices due to new benchmark launch prices. Specifically, non-landed home prices in the outside central region (OCR) surge by 7.5% qoq – the fastest pace of price growth there since Q3 2009. There were three major launches in the OCR during Q3 2022 including AMO Residence, Lentor Modern and Sky Eden@Bedok which achieved brisk sales at benchmark prices.
AMO Residence managed to move 362 units or 97.3% of total units at median prices of 2,110 psf during its first quarter of launch. Similarly, GuocoLand sold 512 units or around 84.6% of total units in nearby Lentor Modern at median prices of $2,108 psf in Q3 2022. Sky Eden @ Bedok sold 121 units or around 76.6% of total units at were transacted at median price of $2,118 psf during their first quarter of launch. Sales at three projects drove almost 80% of Q3’s new sales in the OCR based on URA’s Q3 data.
For the first nine months of 2022, private residential home prices have increased by 8.2%, higher than the 5.3% growth during the same period last year. Private home prices have cumulatively risen by 23.5% for ten consecutive quarters. Strong price growth against the backdrop of rising macroeconomic headwinds especially soaring borrowing costs have triggered the latest round of cooling measure to ensure prudent borrowing from households.
Developers turning cautious amidst rising uncertainties despite low inventory level
Unsold inventory declined by 1.9% qoq during Q3 2022, reversing the 12.0% rise in the previous quarter. Unsold stock remained low at 15,777 units in Q3 2022 as compared to a ten-year annual average of 26,953 units. Despite low inventory level, for the past few months since August, the collective sale market was quiet with no news on major collective sale deal being concluded. Recent GLS tenders closed in September also fetched fewer bids than expected. These could signal a slowdown in developers’ land acquisition activities amid concern on rising interest rates, inflationary pressure, heightened constructions costs and macroeconomic headwinds. Moreover, recent cooling measures have tightened financing conditions and further adds to the overhang of numerous headwinds faced by the private residential market. Despite low levels of unsold inventory, developers are turning increasingly cautious amidst an uncertain macro environment.
Residential Rents Continued to Inch Up
Private residential rents continued to climb up by 8.6% qoq in Q3 2022, reaching a new peak, following the robust 6.7% qoq rise in the previous quarter. This is also the highest quarterly increase in rents in 15 years. Rents have been rising for eight consecutive quarters more than 30%. For the first nine months of 2022, rents have gone up across all three market segments with mass-market rents rising the most by almost 22% YTD, followed by rental increases in the RCR (21.5%) and CCR (19.5%). Islandwide vacancy rates remained low at 5.7%. Among the three market segments, OCR has the lowest vacancy rate of 4.0% given its more affordable rents.
Around 8,722 units are expected to be completed for the whole of 2022 – way below the 10-year (2012-2021) annual average of 12,673 units. Tight supply situation would underpin occupancy rate and rental growth. However, tenants’ resistance might kick in as rent growth has been accelerating for the past few quarters. Slowdown in rental growth is expected for 2023, as expected completions would increase to 18,234 units.
Price growth to moderate
Overall private residential prices which rose by 8.2% in Q1 – Q3 2022, are expected to continue inching up, underpinned by resilient underlying property demand and a tight labour market. However, price growth is expected to slow down given uncertain macro-conditions and newly announced cooling measures.
We do not expect developers to reduce prices at new launches given their healthy balance sheet. Also, unsold inventory remains low while land acquisition and construction costs stay high. Therefore, developers are likely to pace out their launch progress and recalibrate their marketing strategies in view of a potentially lower demand due to higher interest rates and an economic slowdown.
Private residential prices are projected to register a full year growth of 8% - 9% for 2022, on the back of rising rents and higher inflation. Price growth could be moderated further to 3% - 4% in the following year, affected by accumulation of downward pressure on the market.
Market underpinned by tight supply
The Singapore office market continues to see favourable demand supply dynamics, leading to higher rents. Central Region office rents trended higher by 2.1% qoq in Q3 2022, a fourth consecutive quarter of growth, though slowing from 2.4% qoq growth seen in Q2 2022. Notably, growth was broad-based, with central area and fringe area rents marking 2.1% and 2.5% qoq growth in Q3 2022 respectively.
Islandwide office vacancy rates fell to 11.7% in Q3 2022 from 12.0% in the last quarter, driven by positive islandwide office net demand of 258,000 sf in Q3 2022, the 2nd consecutive quarter of positive net demand. Notably, islandwide office net demand was dominantly fuelled by the Downtown Core, which saw positive net demand of 183,000 sf. Current vacancy rates in the downtown core has tightened to 12.2% in Q3 2022, from 12.4% in Q2 2022, though it remains far from pre-pandemic levels of about 9.3% (in Q4 2019).
While we remain positive on the mid to long term outlook of the Singapore office market, demand and rental growth could slow in Q4 2022 and 2023, as tightening financing conditions and an uncertain macro-outlook dampens office demand. The tech sector, a key source of office demand, would be weighed down by tightening financing conditions as they adopt a wait-and-see stance and assess market liquidity.
However, long-term prospects of tech firms remain unchanged and well-financed and growing tech firms could still drive pockets of demand. Non-bank finance and professional services firms would continue to support office demand as they expand their operations in Singapore and tap on the increasing wealth in Asia. The Singapore office market could see resilience due to her status as a safe haven and a regional business hub.
In sum, overall office rents are still expected to grow, albeit at a slower pace, in Q4 2022 and 2023 as the market would continue to be supported by tight supply conditions even as demand starts to falter.
Retailers gain confidence amidst economic reopening and return to normalcy
Central Region retail rents declined by 0.4% qoq in Q3 2022, extending its 0.5% qoq decline in the previous quarter. Overall retail rents in Central Region remained soft as landlords accepted lower rents to shore up occupancy in non-prime retail space. Nonetheless, a bottoming out of central region retail rents could be on the horizon as the pace of decline has slowed over the last few quarters.
Central region retail vacancy rates fell to 9.3% in Q3 2022 from 9.8% in the prior quarter. Central Region retail net demand turned around to positive territory of 269,000 sf in Q3 2022 from 172,000 sf in the previous quarter. Given the economic re-opening of Singapore and return to pre-covid normalcy, retailers had more confidence to take up physical retail spaces.
Retail vacancy rates in Orchard fell to 10.8% in Q3 2022, as Orchard net demand reached 54,000 sf, a quarterly high since Q4 2017. The demand for prime retail spaces in Orchard is picking up as retailers, both local and overseas, gained confidence to expand in view of the tourism recovery. Significant openings in Q3 2022 include sportswear giant Puma’s flagship store of about 7,100 sf at 313@Somerset and homegrown furniture brand Castlery’s largest showroom of 24,000 sf at Liat Towers. New-to-market streetwear brands are also sprouting up. Korean label MLB has debuted at Mandarin Gallery in Q3 2022. Sneaker platform SNKRDunk has recently opened its first overseas flagship at Mandarin Gallery in October.
Retail vacancy rates in the Outside Central Region (OCR) remained stable at 5.1%, with OCR net demand reaching 54,000 sf in Q3 2022. Suburban retail spaces remains sought after by retailers, given a stable footfall supported by nearby residential catchments and the adoption of hybrid work.
While we anticipate a recovery in central region retail rents as rents pick up from near rock bottom levels and footfalls increase due to higher tourist arrivals and return-to-office momentum, this would be tempered by potentially weakening consumer confidence due to higher inflation and interest rates. The recovery in tourism also remains weighed down by travel restrictions in China. As such, the recovery in Central Region retail rents is expected to be mild and drawn out.