Here are our top five predictions as the Lion City braces for slower economic growth and the possibility of a recession next year.
Singapore had narrowly missed a technical recession in the third quarter of 2013 growing by 0.1 per cent on a year-on-year basis according to advance estimates from the Ministry of Trade and Industry (MTI).
Still, the economy remains muted as the labour market continues to soften while retrenchments are on the rise. We are already seeing firms asking employees to take a shorter workweek, particularly in the manufacturing sector as this is most affected by the ongoing global headwinds.
Given the trade war will likely persist in 2020 combined with a bleak job market ahead, here are the possible impacts on Singapore’s property market.
#1 High-end properties will likely take the first hit
High-end properties are those that are located in Districts 1, 2, 9, 10 and 11. These properties are first to take the hit should a recession occur next year as they are the most volatile – they are the first to rebound during an upturn but also the first to see the largest decline in capital values.
Why is this so?
This is because this market segment is driven generally by speculators and foreign investors. As the economy takes a hit, they are likely to offload the properties once they are unable to finance their mortgage or secure tenants.
During the 2008 crisis, for instance, we saw properties in prime areas declining by as much as 30 per cent.
Also, the cooling measures that were announced last year will likely see such buyers staying away from this market.
The only exception is the ultra-high-net-worth individuals as seen in the penthouse unit at Wallich Residence that was purchase by British billionaire James Dyson in April this year. However, such buyers are far and few between.
#2 Vacancy rates for high-end units will likely increase
The soft job market and increase in retrenchments will see expatriates either being repatriated or a cut in their housing allowance.
As such tenants generally favour renting homes in the prime areas, we are likely to see vacancy rates increase as they exit from the market or opt for cheaper housing options in the city fringe and heartland areas of Singapore.
With an increase in vacancy rates, this will likely trigger a price war among landlords as they reduce their asking price in the hope of securing a tenant. As a result, rentals in the prime areas will likely decline as well. Again, this was seen during the 2008 crisis.
#3 Mass market segment will be resilient
Mass market homes are those that are located in the Outside Central Region (OCR) as defined by the Urban Redevelopment Authority (URA).
Why are such homes more resilient compared to those located in the Core Central Region (CCR) and Rest of Central Region (RCR)?
This is because the OCR is driven by genuine homebuyers and where the rentals are more affordable. While we will likely see a price decline in the secondary market due, it will not be as much as the prime areas.
For instance, during the 2008 crisis, prices in the OCR declined by around 10 to 15 per cent.
#4 Flight to safety in the mass market rental segment
Having said that, the mass market segment is not immune to the economic slowdown and soft labour market. We are already seeing workers being retrenched or told to take a pay cut, particularly among those in the manufacturing sector.
As the manufacturing sector takes a hit, so will the rental market. However, this market is still considered relatively affordable for the expatriate worker albeit with a reduced budget. Therefore, this market will see a flight to safety among the white-collar workers who do not mind living in the heartlands. Landlords will also likely to lower their asking price in a bid to continue attracting tenants.
#5 Affordable homes will be in demand
The property market is very much sentiment-driven. However, the affordable home segment is different as it is driven by buyers who genuinely need a roof over their heads.
As such, the HDB market will see good take-up rates particularly for homes that are being offered under the Build-To-Order (BTO) and Sale of Balance Flats (SBF) exercises.
In November, for instance, the HDB launched 4,571 BTO units and 3,599 SBF units. The BTO units are located in Tengah, Tampines and Ang Mo Kio while the SBF units are located in both mature and non-mature estates.
The Enhanced CPF Housing Grant (EHG) of up to $80,000 that was announced in September this year will provide much-needed help for homebuyers in acquiring their first home and ease their property journey.
This article was first published in Khalil Adis.