IN FOCUS6-8 min read

Singapore real estate: an Asian safe-haven?

Singapore’s real estate market has performed strongly as the domestic economy recovers from Covid-19 and overseas buyers seek a refuge from uncertainty elsewhere in the world. While slowing global growth is a near-term headwind, the unique features of Singapore’s real estate market – including a stable political climate, a well-respected legal system and access to global markets – should prove supportive in these turbulent times.

07/10/2022
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Authors

Nick Paisner
Investment Content Specialist

Asia Pacific has some of the world’s most dynamic real estate markets, with US$217 billion invested in the commercial property sector in 20211. In our view, APAC real estate offers investors a long-run structural growth opportunity. The regional momentum is underpinned by urbanisation, economic growth and technological development and leadership.

Against this backdrop, Singapore has been a particularly strong performer. Singapore recorded a 52% increase in commercial property investment in the first half of 2022 compared to an 11% fall for APAC as a whole, rising to second place among all APAC cities2. Singapore’s real estate sector has seen increased demand from domestic and overseas buyers, attracted by solid fundamentals in the commercial, residential and industrial sectors.

“Singapore real estate is very much on our radar,” says Ranjiv Raman, Head of Private Assets & Equities for Schroders Wealth, Asia Pacific. “We can provide clients with exposure through publicly-traded property vehicles. Via our partnership with Schroders Capital, we can also offer access to private funds and direct investments in commercial property.” Please contact your relationship manager to learn more about real-estate opportunities in Singapore.

Cyclical and structural support for Singapore real estate

Singapore has recovered from the pandemic more quickly than many other markets in Asia. After growth of 7.6% in 2021, the economy looks set to expand by about 3.6% in 2022 – faster than long-time APAC leader China on about 3.2%3. As in most developed economies, inflation and interest rates are rising, though less so than in western markets. For example, CPI inflation looks set to peak in Singapore at about 6.0% by the end of 2023, compared to 8.0% in the US and 8.6% in the UK4. In addition, having almost completely removed Covid-19 restrictions over the spring and summer of 2022, Singapore is seeing business and tourist travel recover faster than most other APAC markets. Singapore’s relative macro-economic stability is a definite tailwind for real estate investors.

Limited land supply has always supported real estate values in Singapore. Looking ahead, a focus on higher sustainability standards as well as ongoing labour shortages and supply chain bottlenecks will continue to weigh on supply of new property across the various real estate asset types. This factor should help to ensure rising capital values and higher rents.

Longer-term dynamics add to the appeal. “Singapore is one of the most politically stable countries in the region, with a deeply established free-market economy,” says Adrian Seow, Head of Singapore Real Estate at Schroders Capital. Alongside the positive economic backdrop, this has seen “Singapore become increasingly attractive to high-net-worth individuals and family offices.”

The government also has a successful track record of managing property markets to reduce the “boom and bust” dynamic that real estate investors know all too well. Late last year, the government introduced residential property curbs to cool the rise in home prices – following similar intervention in 2018. In addition to the use of property taxes, the government intervenes in the market through its role as a land owner, increasing or decreasing supply of land for new development in particular sectors as required.

Government-led efforts to ensure the long-term sustainability of the property sector should also support demand, as increasing numbers of investors – and lenders – focus on the environmental footprint of their portfolios. Historically, the real estate sector does not have a good track record: it has contributed around 30% of global annual greenhouse gas emissions, according to the UN Environmental Programme. Singapore’s “Green Building Masterplan” is an ambitious plan to improve the situation. It calls for 80% of Singapore’s buildings to meet new green standards, 80% of new developments to be “Super Low Energy”, and an 80% improvement in energy efficiency by 2030. Few other global cities are as forward-looking in their approach to ensuring the sustainability of the built environment.

An attractive destination for global businesses

Singapore’s office market benefited from robust demand in 2021 and this has continued into 2022. Central Business District rents rose at an 8.5% annualised rate in the second quarter, according to consultancy JLL. This is the joint highest rate in APAC.

Singapore has benefited from the persistence of Covid-19 restrictions elsewhere in the region. And demand has been boosted by high-profile international companies taking office space, including large multinational technology companies such as Alibaba, ByteDance and Amazon and the Chinese fast-fashion group SHEIN.

While global macro-economic challenges will not help business confidence, supply factors should remain supportive. Over the three years to the end of 2024, new office supply is expected to be some 13% lower than the annual average seen for the past ten years, according to a recent estimate from CBRE.

Residential demand still strong

There is growing interest from Chinese buyers, as wealthy individuals and families consider their options in light of China’s zero-Covid policy, as well as economic slowdown. Singapore’s stability and status as a gateway to global markets are powerful attractions.

Prices have continued to rise quickly this year, according to the latest figures from the Urban Redevelopment Authority. Its private residential property price index increased by 3.5% per cent in the second quarter of 2022, accelerating from a 0.7% rise in the previous quarter. “In the past months, prices continue to be supported by pent-up demand,” says Seow.

The outlook could be more challenging, at least in the near term. A higher cost of living and rising interest rates will make renting and buying homes less affordable, even if the impact has been limited so far. Government measures to cool price rises in the residential property market could also take a toll. Overseas buyers now face a 30% stamp duty – up from 20%. Those buying property through companies face similar additional taxes.

A dynamic industrial sector

Singapore’s industrial and logistics sector is benefiting from several supportive trends. A growing number of international companies are looking to diversify and decentralise their supply chains. Singapore’s position as a global hub means it is ideally placed to help with this transformation. Developments in technology and healthcare have also been driving demand for industrial sites. US chipmaker GlobalFoundries announced a $4bn investment in Singapore production to help meet demand for semi-conductors. In the healthcare sector, vaccine-makers Sanofi and BioNTech have both announced significant plans to build capacity in Singapore.

Industrial rents grew at an annualised rate of 6.6% in the second quarter of 2022, according to JLL, reflecting this strong demand outlook. The government plans to release around 6.4 hectares of industrial land, spread over seven locations. From an investment perspective, this additional supply could remove some of the heat from sector – but should also help to ensure the sustainability of its growth.

Providing the infrastructure for an increasingly digital world has not always been without challenges, however. The authorities imposed a moratorium on the development of new data-centres as a result of concerns over power usage. In 2020, Singapore’s 60 or so datacentres were using around 7% of the country’s power output, according to the Ministry of Trade and Industry. After new environmental standards were imposed on new projects, the restrictions have been eased this year.

A unique market

Singapore’s real estate market benefits from a number of unique features that support investors. Space and new supply are limited – both by geography and a government with a track record of successful stewardship of the real estate sector. “The combination of political stability, international connections and a highly educated workforce also makes the city-state particularly compelling for real estate investors” says Ranjiv.

No doubt, the challenges facing the global economy from rising inflation and interest rates could pose headwinds over the coming months – for investors in Singapore and elsewhere. However, given the strong underlying fundamentals supporting the office, residential and industrial sectors, Singapore does offer a clear regional advantage.

Looking ahead, Schroders Capital continues to see opportunities in “value-add” repositioning and upgrading of older or underperforming assets in Singapore. In addition, the return of foreign visitors in high numbers to Singapore should ensure a strong recovery in the hospitality sector, while high street retail may also recover faster than in many other Asian cities.

1 Source: MSCI RCA database (September 2022)

2 Source: Ibid.

3 Source: Oxford Economics database (September 2022)

4 Source: Oxford Economics (September 2022) for Singapore; Schroders, Economic and Strategy Viewpoint (Q3 2022) for US and UK

Authors

Nick Paisner
Investment Content Specialist

Topics

The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.