Singapore Real Estate Faces a Depressing 2009

Earlier this year, Singapore Ministry of Trade and Industry predicted that the city state’s economy will contract by 2 to 5 percent in 2009. It turns out this …

Earlier this year, Singapore Ministry of Trade and Industry predicted that the city state’s economy will contract by 2 to 5 percent in 2009. It turns out this might have been an optimistic forecast. Prime Minister Lee Hsien Loong told CNBC that the economy might actually shrink by as much as 8 percent, according to Reuters. This is not surprising when considering that Singapore’s economy is heavily dependent on trade.

Export based economies have been severely hit by the global slowdown as consumer confidence plummets and demand for certain product categories drops. Decreasing demand for electronics, pharmaceutical products, and chemicals will likely continue to affect the city state’s economy throughout 2009, according to CNN. The manufacturing sector fell by 29 percent and the electronic sector dropped by a staggering 43 percent in January of 2009 when compared to the same period in 2008, according to Channel NewsAsia.

Singapore real estate market

Singapore’s property sector hasn’t been spared from the global economic downturn. Data from the Urban Redevelopment Authority (URA) shows that real estate transactions in January were the lowest since URA began keeping record in June 2007, according to Property Report Asia.

Figures from the fourth quarter of 2008 show a sharp drop in activity as investors became deterred by economic uncertainty and climbing credit costs, according to a report by CB Richard Ellis (CBRE), a global real estate services company. This is further confirmed by the 70 percent drop in total transaction value to $17.84 billion in 2008, down from $54.02 billion in 2007.

The good news is that Singapore’s property market is still predicted to remain strong in the long term. The Urban Land Institute and PricewaterhouseCoopers (PwC) recently put Singapore second among the top five Asia Pacific cities for property investment in its 2009 regional report of Emerging Trends in Real Estate. The report analyzed 20 Asia Pacific cities and talked to real estate professionals in each city to determine ranking.

Residential property sector

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Activity in the residential sector made up 35.1 percent of total investment sales, adding up to $6.27 billion, according to the CBRE report. Compared to 2007, transaction figures for 2008 dropped by an astonishing 80.8 percent, down from $32.71 billion of transactions in 2007.

Prices in the residential sector are likely to slide further down as newly finished developments enter an already weak market reported Jones Lang LaSalle, a financial and professional services firm specializing in real estate services. Rental yields are expected to drop further in 2009 as economic conditions worsen.

Office property sector

The office sector was responsible for 30.2 percent of 2008’s total property investment sales, according to CBRE’s report. The 2008 figures reflected a 62.4 percent drop, from $14.34 billion in 2007 to $5.39 billion in 2008.

Companies are beginning to downsize their spaces. Notably, Citibank and Development Bank of Singapore are said to have sublet their office spaces, according to Jones Lang LaSalle’s report.

Industrial property sector

Unlike the other property sectors in Singapore, the Industrial sector welcomed a significant amount of investment 2008, according to CBRE. It contributed 18.5 percent to total real estate investment sales for 2008 and was up a whopping 65 percent from the previous year.

However, the high tech industrial property sector is feeling the pinch as the city state’s economy contracts, reported Jones Lang LaSalle. The rest of 2009 is expected to bring more of the same as high tech business prospects continue to be bleak.

Looking ahead

Global economic recovery will likely take time, according to CBRE. Investment levels in Singapore’s property sector and transaction volumes will continue to be depressed through 2009. Hopefully there will be no further escalation of the credit crisis and market conditions will begin to improve or remain steady instead of worsening.

“The biggest threat to Singapore other than the squeeze on credit, is the seemingly generous pipeline of development projects which may be completed during a period of sagging interest from foreign business investors,” said David Sandison, Tax Partner at PricewaterhouseCoopers, according to the company’s press release. “Apart from this, local players in the retail and office space are also seeking to cut costs by downsizing and relocating to more affordable parts of the island. Acceleration of government infrastructure projects and other measures aimed at buoying the economy should however be sufficient to stabilize the market and see it relatively safely through these troubled times,” he said.




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