When I returned to the industry in March 2016, I remembered the mood in the real estate market was sombre across all sectors. Fast forward to eighteen months later, and the mood could not be more different.

This change is particularly pronounced for the residential and office property markets.

A Flurry of Activity in both the Home Sales and Landbanking Markets

Fresh numbers released by the Urban Redevelopment Authority (URA) on 15 August 2017 showed that developers sold 1,108 private homes in July 2017. This brings the cumulative number of new home sales by developers for the first seven months of 2017 to 7,147 units or an average of 1,021 units per month. If this rate continues, which I believe will be the case barring adverse external events derailing the recovery in buyers’ sentiment, developers’ sales will surpass the 2016 number of 7,972 units by end-August, and the full-year sales tally could reach a four-year high of 11,000-12,500 units.

Such is the strength of the recovery in home sales – a journey that commenced as early as March 2016 although its sustainability was still tentative at that point in time. However, by now, it is clear that buyers have returned to the market, although not yet with a vengeance, as the market cooling measures curtailing affordability are still largely in place. This explains why prices, in general, have yet to turn around in spite of the sustained return of demand.

Nonetheless, there are signs that home prices are bottoming, as the URA’s all-private residential property price index has been showing moderation in price declines, with the latest reading at -0.1% q-o-q as at 2Q17. This is a significant event on two counts. First, it is the smallest q-o-q decline for 15 quarters. Second, it is an upgrade over the flash estimate reading of -0.3% – hinting at some price strengthening within the later weeks of the quarter, captured by the final index but not the flash index.

Developers have been quick to seize opportunities in this segment, resulting in the flurry of activity in the collective sales market and creating headline news on the Government Land Sales (GLS) front. Assuming Tampines Court is successfully sold at the SGD 970 million conditional bid it recently received, developers would have acquired more than SGD 3 billion-worth of collective sales sites (from a total of seven deals) year-to-date. This is almost triple the SGD 1 billion amassed from three transactions in full-year 2016. More deals are brewing and, if successful, will elevate this figure further.

It is also worth noting that developers’ caution, which limits their appetite to smallish sites worth less than SGD 200 million, has since given way to optimism and aggression. Of the ten collective sales deals sealed in the last 18 months, six have crossed the SGD 200 million mark with the latest Tampines Court deal, if successful, edging close to the SGD 1 billion mark. In the GLS sphere, at least five sites with a predominantly residential component worth more than SGD 500 million each have been awarded since January 2016. This compares with just two in all of 2014 and 2015.

CBD Office Rents Strengthen Ahead of Expectations

The impact of the influx of supply in 2017 on CBD office rents was milder and shorter-lived than anticipated. This can be partially attributed to the uplift in business sentiment fuelled by the incessant GDP growth forecast upgrades for the year by economists. An increasing number of corporations are now observed to be more prepared to reconsider their real estate plans and this has lent support to the leasing market.

Improved business confidence has also resulted in more companies willing to commit to leases ahead of lease expiry and this has helped to move the take-up rates of recent and soon-to-be completed developments.

As the take-up rates for these projects breach the psychological barrier of 50% of their NLA, the downward pressure on rents has eased significantly. In fact, the bargaining power of landlords of developments with high occupancy rates has strengthened, and some have already raised rents.

Some may question the possibility of this, given that demand is still largely driven by relocation. Would not the rents of developments with large space given up by tenants who have committed to space in the new schemes come under pressure and drag down the overall market?

While it is true that relocation continues to form the bulk of demand, the rising trend of occupiers committing to space ahead of lease expiry means that spaces will be vacated and returned to the market only on a staggered basis. This has greatly mitigated the downward pressure on rents and enabled the positive vibes surrounding the GDP growth upgrades to turn sentiment around.

JLL’s research showed that Grade A CBD rents bottomed in 1Q17 and posted a 0.6% q-o-q increase in 2Q17. This puts to an end two years of decline in rents amounting to 20.1% in total.

There is potential for Grade A CBD office rents to continue to firm in 2Q17 given that new completions are expected to peak in 2017 and taper thereafter, before picking up again in 2020.

In the en bloc sales market, investor interest in CBD office assets remains elevated, driven by the desire of investors to ride on the rent recovery while seeking a safe haven for their capital.

Retail and Industrial Still Weak Generally but Bright Spots Exist

Business park rents have also turned the corner on the back of the dearth of new supply following the peaking of new completions in 2016. The government’s push towards moving Singapore’s economy up the value chain to focus on knowledge-based and value-creation activity has and will continue to support demand for business park space.

While the retail industry continues to transform and adapt to the structural changes, there are early signs that consumer sentiment could be on the mend. Retail sales (excluding motor vehicles) from March to June 2017 on a constant price basis have posted four consecutive months of y-o-y growth. This is the longest streak of expansion since 2013. Significantly, spending on discretionary items such as watches and jewellery, furniture and household equipment, and optical goods and books have all posted five to six straight months of growth on a similar basis.

On the industrial front, the recovery of the manufacturing and trade activity since the later part of 2016 could hopefully translate to improved demand for factory and warehouse spaces soon and help to stabilise rents and capital values in 2018.

To wrap up, 2017 has been a positive year so far for Singapore’s real estate market in general, with rents and capital values for CBD office and business park spaces having bottomed and returned to growth. Meanwhile, the demand for private homes has made a sustained return and prices are on track to bottom in the next quarter or two and post moderate increases thereafter.

Singapore’s property market certainly appears to be setting sail for recovery and 2017 looks set to be the turning point for most sectors of the market.

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