2. 1 Global Economy | Aquaint Research
Global Economy
2014 was an eventful year but with less
optimistic than expected by analysts. The
world gone through many conflicts,
accidents and tragedy such as the
Ukraine crisis, the Ebola virus diseases,
Islamic State terrorism and the
misfortune of the two Malaysia aircrafts.
The global economy’s big picture is quite
bleak with sluggish growth in major
economies. European economies is back
in an economic rut while Japan recovery
is faltering again. China’s economy is
preparing to hit the slowest rate of
growth since 1990. Russia, one of the
world’s biggest economies, is on the edge
of recession as a result of dropping oil
price, depreciation of the roubles and
sanctions related to ongoing conflict in
Ukraine.
However, there were some good things
happened too. The US’s turnabout is the
lead engine for the recovery of the global
economy. In the latest data, the US
economy grew at 5% y-o-y in 3Q 2014, the
fastest rate in over a decade. The
revision is powered by an upswing in
investment by business, higher consumer
spending and stronger labour market.
Given the improvement in the economy,
the Federal Reserve (FED) stopped the
quantitative easing in October 2014 and
expects to raise the interest rate in mid-
2015. However, FED is also cautious
about whether the current growth is
sustainable enough to raise the interest
rate. The increase of interest rate by FED
will negatively affect the global real
estate as it is usually heavily leveraged.
However, the global monetary policy
divergence in different countries. While
the US FED and Bank of England may
begin to raise the interest rate, European
Central Bank and the Bank of Japan may
follow the accommodative monetary
policies to push business and investment
activities.
Figure 1
Source: International Monetary Fund and Bloomberg Businessweek
So what is waiting us in 2015? Economists
around the world are pointing to a
brighter picture for the global market in
2015 but not much. There is a divergence
3. 2 Singapore Economic Overview | Aquaint Research
between regions. The picture above
provide a snapshot of expected economic
growth in difference countries, based on
IMF forecast (Figure 1). IMF forecasted
the global growth for 2015 at 3.2%. The
emerging markets in South and East Asia
such as India, China and ASEAN countries
will top the growth. China’s economy is
expected to growth at 7.1%, which is
quite high compared to other countries
but still its lowest rate in the past 15
years. The decelerating growth rate may
continue in a few years on the back of
sluggish real estate activities and huge
accumulative of bad debt. The marked
slowdown of China will significantly
impact the world by lower export
demand from China. Those countries
which exports goods and raw material to
China will experience the downward
pressure. China is currently the biggest
trading partner to both Singapore and
Malaysia.
Mature economies with relative good
prospectus for year 2015 will be the US,
UK and Australia. The US’s recovery
remains firm with the expected growth of
3.0 % to 3.1%. The US will still be the
primary engine driving the global growth.
Meanwhile, the Eurozone and Japan
continue to grow at the slow rate at
around 1.0 %. The Eurozone’s crisis is
likely remain in 2015 with slow recovery
and amounting threat of deflation. The
bright side of the global economy is the
lower oil price. It may help to boost
global growth through increasing
consumers spending and lowering
business costs. In summary, the global
economy is expected to experience a
slow improvement.
Singapore Economic Overview
Singapore’s economic growth slowed
more than expected in the 4Q 2014,
which bring the estimated GDP’ growth
for the whole year 2014 down to 2.8%
(Figure 2). It is lower than the official
forecasts of around 3.0 %. Manufacturing
was the most worrying sector in year
2014. Based on the advance estimate by
MTI, the manufacturing sector contracted
by 5.8 % q-o-q and 2.0 % y-o-y in the last
quarter of 2014. Construction activity
grew by just 0.8% y-o-y in 4Q 2014.
Construction, especially construction in
private sector, will soon feel the
slowdown due to housing downturn,
labour constraints and sluggish growth in
productivity level. Public sector will be
the key demand drivers for construction
sector in 2015.
Figure 2
6.1%
2.5%
3.9%
2.8%
7.8%
0.3%
1.7%
2.40%
4.9%
8.6%
6.1%
3.0%
6.7%
2.8%
5.3%
3.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2011 2012 2013 2014 (P)
Singapore's GDP growth (y-o-y)
at 2010 Price
Overall GDP Manufacturing Construction Services
Source: MTI, Aquaint Research
4. 3 Singapore Property Market | Aquaint Research
With possibly divergent monetary policies
across key central banks worldwide,
there will be a lot of volatile in the
interest rate and currencies in 2015. As
the global market remain uncertain and
uneven between different countries,
economists remain cautious about
Singapore’s economy. Beside external
risks, domestic risks including dampened
activity in property market, tighter
foreign workforce and weak productivity
gains will also affect Singapore economic
outlook. Among all the risks, weak
productivity gains is among the top
concerns of Singapore’s government.
Productivity index has shanked 0.5% in
the first three quarter of 2014. The
increase in wages not couple with
increase in productivity means higher
business cost which can lead to lower
profit margin for companies and reduce
the whole economy’s competitiveness. To
companies and businesses, particular
SMEs, the labour crunch is their worst
nightmare. The economy has been in full
employment and the domestic source for
worker is almost exhausted. However,
new demand for workers, especially in
service oriented sectors i.e retail, F&B
still increase. More firms are expected to
close shop or hold on their expansion
plan due to labour shortage.
On the other hand, there are a few
reasons to be optimistic about
Singapore’s prospect in 2015. Firstly, the
lower oil prices will help lower business
cost of companies and boost the demand
for goods as things become cheaper.
Secondly, the stronger US demand and
capital spending is expected to boost
demand for Singapore exports. However,
it may be offset by lower demand from
other Singapore key trading partners,
namely Eurozone, China and Japan. Last
but not least, Singapore will be
celebrating its 50th
birthday this year, the
long celebration may add more to the
local economy through higher
government spending and higher demand
for services oriented industries, i.e.
retail, F&B, tourism.
The Ministry of Trade and Industry (MTI)
gave the projection GDP growth range
from 2% to 4%, which is the same as last
year 2014. Meanwhile, in the latest
move, DBS bank has cut its 2015 GDP
growth forecast to 3.2% from 3.6%. The
median forecast of 24 private-sector
economists polled by Bloomberg pointed
to the expected growth rate of 3.35% in
2014.
Singapore Property Market
Residential
Price
2014 was a gloomy year for developer
and property investors as the residential
property price in both public and private
market marked a slide down of 6.0% and
4.0%, respectively, during the year
(Figure 3). However, it is a good sign
from the government’s perspective as the
property market finally cooled down
after 8 consecutive rounds of cooling
measure in just a short span of time. The
decline magnitude even might be
underestimated as developers offered
some indirect discount and incentives in
the form of furniture voucher, absorption
of additional stamp duty in order to
prevent lower the original price.
5. 4 Singapore Property Market | Aquaint Research
Figure 3
Sale Volume
Not only price, sale volume of private
residential property dropped to the
lowest level since 2007 with only around
12,720 units sold (Figure 4). The number
of units sold even fall below the financial
crisis period in 2008. The number of HDB
resale units sold in 2014 also dramatically
slide down by 11.2% y-o-y as the increase
in number of new BTO flats.
Figure 4
12,723
17,318
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2007 2008 2009 2010 2011 2012 2013 2014
UnitsSold
Singapore Residential Property's
Sale Volume
Private Residential Resale HDB
Source: URA, Aquaint Research
6. 5 Singapore Property Market | Aquaint Research
Outlook
Going to 2015, the market likely to be
weak as there will be no major change in
term of policies, environment and
sentiment toward the residential market.
The latest NUS-Redas Real Estate
Sentiment Index showed that 70% of the
respondents projected that property
price will fall by 5% to 10% in 2015 and
new sales volume will decline further by
15% to 20%. There is three main reasons
why the market will remain weak in the
future.
1. Firstly, there will be unlikely any
easing or change of property restrictions
in 2015. Despite all the warning, alert
and comments to remove some of the
cooling measures from real estate
players, the government still sees the
current correction in the property price is
not good enough. “If what we observe
this year continues into next year, I
would consider that a very good
development”, said National
Development Minister Khaw Boon Wan.
The government is preparing for a so-
called “soft landing” for both public and
private residential market with a
correction of single-digit change per
year. For those who still hope that the
government will remove some of the
restriction in 2015, you might be
disappointed. Mr Khaw said some of the
measures are temporary and will only be
adjusted when the market is cool
enough, which we expect it mean at least
10% to 15% more downward correction.
Those temporary measures are likely
mean buyer’s and seller’s taxes.
However, the market killers, Total Debt
Servicing Ratio (TDSR) framework, will
stay on to make sure that buyers can be
financial prudence in their decision.
2. Secondly, the weak demand and
massive supply for residential property
will remain in 2015. Lower price and sale
volume are not the most worrying
numbers to property investors but
vacancy rate. It is most applicable to
non-landed properties. Vacancy rate for
non-landed properties is climbing up to
reach 9.1% in 4Q 2014, the highest level
ever since 2007 (Figure 5). This number
are expected to increase to the max level
of more than 10% in the next 3 years.
Until 2017, around 71,550 non-landed
residential units will be added into the
market, many of them are in the
suburban area. This new upcoming supply
is as much as the total new supply in the
last 9 years according to URA’s statistics.
The supply of residential house is
increasing rapidly but not population.
The fertility rate of Singaporeans remain
low at 1.19 per female. Meanwhile, the
government is very unlikely to loosen the
current tight immigration and foreign
worker policy before the next election.
The increase in number of employment
pass, S Pass and Work Permit holders was
staying near zero in 2014 (Figure 6).
Thus, the buying and leasing demand will
stay flat in the future.
The fear of oversupply and falling rents
will likely overshadow the residential
market. Tenants will have more choices
for their accommodation. Those
properties at not convenience locations
such as further from town, not near MRT
station or transportation nodes will be
left far off. As many homes were bought
as an investment, the decrease in rental
rate subsequently lead to more decline in
property prices or even more default in
mortgage payment, especially if
mortgage rate significantly increase.
7. 6 Singapore Property Market | Aquaint Research
Figure 5
Figure 6
3. Last but not least, the threat of
increasing in interest rate by FED is
coming closer. As Singapore dollar was
weakening against the greenback, 3-
month Singapore Interbank Offered Rate
(SIBOR), which is used frequently to price
mortgage loan, already surged nearly by
20 basis points as of Jan 2015 (Figure 7).
The rise in interest rate will make it is
more expensive to obtain a mortgage.
Together with falling rental return,
investors will likely look for higher yield
asset class instead of residential
properties. The rise in interest rate and
lower cash inflow also stress on heavily
leveraged buyers. More mortgage sales
are expected in the future especially
from the luxury properties in prime
location as the monthly payment rise
significantly due to their big price tag.
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2010 2011 2012 2013 2014
% Change in Number of
Foreign Workforce in Singapore
Employment Pass S Pass Work Permit
Source: MOM, Aquaint Research
8. 7 Singapore Property Market | Aquaint Research
Figure 7
In conclusion, year 2015 is likely bring a
bleak atmosphere for Singapore
residential market. Not much new
developments are offered for sale also as
the government scaled down on the land
sale. However, it is a good chance for
genuine buyers to shop for their dream
home when the price is more reasonable.
More price reduction can be expected in
the future, so the best things to do now
is start do searching for ideal location
and project and waiting for the right time
to enter. Especially, the landed-property
sector is presenting a great
opportunities. Unlike non-landed
properties, the future supply of non-
landed properties in Singapore is
reasonable, vacancy rate is decreasing
but the price is sliding faster due to the
loan restriction. If investors have to
ability to invest and hold on that big
ticket item, there is a great chance of
capital appreciation in the future.
We expect the overall private home
prices to soften by 4% to 6% in 2015. HDB
resale price will likely follow the same
downward trend with greater magnitude
of about 6% to 8%. With huge supply of
new homes pursuing limited pool of
tenants with tightening budget, the
rental market is projected to face a
downward pressure of about 5% to 7%.
