SINGAPORE: An Introduction to Real Estate

Singapore Real Estate 2023 

General and Economic Outlook 

In Singapore, all land is state-owned and granted or leased through various estates registered under the Registration of Deed Act 1988 or the Land Titles Act 1993. Despite economic challenges in 2023, the Singapore real estate market, valued at around 44 billion, remains resilient, with expectations of reaching a value of 60 billion by 2028. Factors such as a slow Chinese economic recovery, increased taxes, and weak exports affected the economy, but recent positive indicators, including reduced inflation and a 7% GDP growth in Q3 2023, offer hope for potential real estate investments as prices may decrease by year-end. Singapore remains a prime real estate investment location following Covid-19 filled with opportunity due to its thorough and systematic approach to recovery and revitalisation.

Market Snapshot  

The demand for leasing office space remained low in 2023. While technology firms usually drive the office market, many are experiencing cut costs and mass layoffs following a financial shortfall in 2022. This decrease in demand should create ample opportunity for a decrease in rent for leasing space as lessors compete for tenants.

High interest rates disincentivized many institutional investors from purchasing commercial office property, however, high net-worth or family business investors continued to invest. This trend indicates a shift in the type of investors interested in commercial office property in Singapore. High net-worth individuals and family businesses are less sensitive to interest rates and more focused on the long-term potential of these investments. They are also more likely to have the necessary capital to invest without needing to rely heavily on financing.

This shift could potentially lead to a change in the dynamics of the commercial office property market in Singapore. With these types of investors becoming more prominent, we could see a greater emphasis on properties that offer long-term value and potential for appreciation, rather than immediate rental yields.

Furthermore, the success of stratified spaces like Soltaire on Cecil suggests that there is a demand for more flexible and diverse office spaces. This could lead to more developments offering a mix of office sizes and configurations to cater to a wider range of businesses.

While the high interest rates have posed challenges for some investors, they have also opened up opportunities for others. The commercial office property market in Singapore remains dynamic and resilient, with potential for growth and evolution in the coming years. Residential In 2023, Singapore continues to be a popular destination for international residents.

Despite high prices and lower transaction volume, the residential market has experienced growth, and a decrease in supply is anticipated in the coming years. This trend suggests that opportunities exist for buyers, even though sellers are hesitant to lower prices.

Looking ahead, it's plausible that economic conditions could exert enough pressure on sellers and landlords to lower prices, creating new opportunities for entry into the market. However, any decrease will likely be gradual, given that the market growth remains positive despite signs of a slowdown.

Industrial Trends 

For industrial projects, most land is leased out by the JTC Corporation, a government landlord that imposes various environmentally conscious obligations on the tenant in addition to existing obligations under the Environmental Protection and Management Act 1999.

In 2023, industrial real estate continues to be a significant driving factor in the Singapore real estate market. This is the case even though some older outlier business park developments are struggling to adapt to the new hybrid work model.

However, this new model is expected to provide ample opportunities for the industrial market, as there is an anticipated increase in interest for asset enhancements or redevelopments. Notably, these opportunities present an opportune time for owners to execute sale and leaseback arrangements. 2024 promises to be a fruitful year for prospective industrial investors, as the availability of institutional-grade industrial assets remains limited.

Some of the most notable industrial deals in 2023 include the ESR Logos REIT deal and CapitaLand Ascendas REIT's acquisition of the Shugart business park via a sale leaseback with Seagate.

Hotel Trends 

Singapore continues to offer infinite hotel industry opportunities despite minor setbacks following Covid-19, with one of the highest hotel occupancy rates in the world at approximately 80% in 2023.

Similar to the office sector, hotel investment declined by 51% YOY in the first half of 2023 in the face of macroeconomic and geopolitical challenges and the rising cost of debt. It is believed that this impact is purely external and not representative of the industry growth, however, as hotel market fundamentals remain strong, and industry participants remain optimistic, anticipating that by the end of 2023, there will be a surge in investment that aligns with the elevated hotel figures.

By the end of 2023, it is anticipated that approximately 3,000 hotel rooms will have been added to the Singapore hotel industry. Notable hotel openings include the 302-room Mondrian and the 350-room Pan Pacific Orchard, which have added significant capacity to the industry. Despite the challenges, the resilience and potential of Singapore's hotel industry continue to attract investors and operators from around the world.

New Legislation and Regulatory Measures 

Over the past few years, Singapore's government has made significant strides in enhancing the effectiveness of existing regulations and mitigating the volatility of the global market. This proactive approach has been instrumental in maintaining the stability and growth of the country's real estate sector, even amidst global economic uncertainties.

2023 Developments 

In 2023, Singapore implemented various measures that impacted the real estate market, many aimed to assist the young, single portion of the population to acquire property amidst rapidly increasing property prices.

In April 2023, the government introduced several cooling measures to temper the heated market and ensure long-term stability. These included an increase in the Additional Buyer’s Stamp Duty that resulted in a 3% increase for Singaporeans purchasing a second property and a rate that doubled from 30% to 60% for foreigners, making it a challenging sell for foreign investors.

Notwithstanding, domestic demand remains robust among a new niche group of buyers willing to spend more on new condo launches. The revised ABSD legislation may encourage foreign investors to retain their investments instead of selling, or to seek alternative financing methods to offset this increased financial responsibility upon purchasing.

The Central Provident Fund housing grant for singles has been raised to SGD40,000 for four-room or smaller resale flats, aimed at supporting lower-income first-time home buyers. In 2024, the government plans to introduce a new framework for built-to-order flats, categorized as standard, plus, or prime, each with its own subsidies and restrictions. Real estate developers should consider how the increased grants for singles will impact demographic demand and whether operational or development adjustments are needed.

Regarding the industrial and commercial sectors, the Ministry of Law and the Singapore Land Authority have completed their periodic refinement of the schedule of Non-Residential Properties under the Residential Property Act and updated the list of zones designated as non-residential and available for other uses.

Conclusion 

While prices are high, a market crash is unlikely due to government measures and strong demand from both locals and foreigners across most sectors. The office sector may face challenges due to demand disparities, but industrial investments show a promising future. Despite a reduction in hotel investment volumes, the increase in tourism and occupancy rates bodes well for 2023. Overall, private wealth and opportunistic investors are expected to dominate the real estate market until borrowing costs decrease.