property investment in Singapore
| | |

Outlook in 2023: Property investment in Singapore

Bytyson yuk

Property investment in Singapore has a healthy outlook, but year-on-year growth is expected to decline to 2.5% in 2023 from 3.5% in 2022 due to rising inflation, interest rates, and global geopolitical tensions.

Content

Singapore’s GDP will rise 3.7% y-o-y in 2022 as economic indicators return to pre-pandemic normalcy. The unemployment rate is still relatively low, and both earnings and consumer spending are on the upswing.

Despite positive economic data, well-documented challenges will cool market sentiments until 2023. It involves uncertain inflation, interest rate trends, and geopolitical issues worldwide. Inflation is receding, but global monetary policy is uncertain. After a six-to-twelve-month lag, the full consequences of tighter monetary policy are expected in 2023.

However, the Singapore property industry, in specific, is hopeful. Our strategic position, pro-business policies, and stable political scenario attract both international and local investors. Long-term Asia Pacific or Southeast Asia strategy companies are less likely to cut budgets in Singapore, boosting its resilience.

Singapore’s GDP is predicted to expand 2.5% yearly from 2023 to 2027, outpacing the US, Hong Kong, Australia, Germany, Japan, and the UK. It boosts housing demand, which is optimistic about Singapore’s market. Despite weakening demand, rents are anticipated to rise.

Therefore, investors have a home to grow their wealth in a stable environment. Be it family offices, the highly sought-after shophouses or retail businesses, Singapore expects an uptick in transactions.

Residential segment on high demand for HNWI in 2023

The recent cooling measures implemented in September 2022 largely affected the residential sector. On top of that, the rising cost of construction and rising near-term interest rates are a concern for homebuyers. The most refrained segment in residential will be majorly people with budget restraints. 

However, demand for property investment in Singapore comprising high-net-worth individuals (HNWIs) is still booming. Haven assets will underpin HNWIs’ demand for quality properties in gateway economies like Singapore, a developing centre for finance and business in Apac.

 Offices that match the current working environment are here to stay

In a post-pandemic context, the office sector faces issues due to a structural change toward hybrid work. Prime vacancy is low in numerous cities across the region due to the recent robustness of prime demand.

Weaker economic and operating conditions will encourage occupiers to reconsider space holdings. They will be more careful when signing leases, while landlords will prioritise cash flow.

We expect shadow space to emerge with huge layoffs, although significant space reductions in Apac should be rare. Cities like Seoul and Tokyo still prefer office-based working in Seoul and Tokyo, contrary to the US and Europe.

Besides, in 2023, a lot of office buildings are launching with sustainability accreditations. As such, the offices are offering amenities that match the new normal’s preference towards a better and healthy lifestyle. The launch of these new offices is an indication that there is still demand for this segment.

Of course, the dynamic has changed. Companies have to be prepared to accommodate diverse working styles to boost productivity as well as look after the comfort of their employees. But that does not mean the office will vacant drastically. It means new, more evolved office infrastructure will be in demand for property investment in Singapore.

Industrial segment sees more growth from the manufacturing sector

Inflation and limited supply in 2022 are driving up APAC industrial rents. You can expect the rent rise for prime logistics, warehouses, and city-fringe businesses between 2% to 3% in 2023 because of restricted availability and long-term demand from e-commerce, life science, and technology.

A more significant supply pipeline is predicted to restrict conventional factory and business park growth to 1% in 2023. Lower e-commerce demand and fewer supply chain disruptions could reduce warehouse demand in 2023.

Singapore’s manufacturing sector is expected to rise by 50% by 2030. Automation, digitalisation, and cloud use are secular trends propelling APAC’s technology and electronics sectors in 2023. So, this is where the prospect for potential property investment in Singapore lies in 2023.

Hotels are high in demand amid the rising tourist influx

In 2023, Apac’s hotel revenues should grow as inbound tourism improves. The Singapore F1 Night Race boosted hotel ARR, RevPAR, and occupancy rates in September 2022. Despite a tourist recovery and a continuous pipeline of events, we project RevPAR to rise to $186.15 in 2023 but remain below pre-pandemic levels. RevPAR may reach pre-pandemic levels in 2024.

In 2023, you can expect hotel room supply in Apac to expand by 3.3% y-o-y, surpassing pre-pandemic levels. With international visitor arrivals remaining below pre-pandemic levels, labour restrictions, and growing operating costs, new hotels may launch in phases to match rebounding demand, limiting room supply.

Watch out for Shophouses and Hotel property segments in 2023

Capital Marketplaces: New landscape for strategising property investment in Singapore

The dynamics of the global economy have evolved more than ever since 2020. The investment rules and stakes have changed to catch up with the rapidly changing landscape. As a result of the heightened uncertainty we are experiencing, asset managers, developers, and investors are seeking a new equilibrium. On the threshold of a new age, several significant factors will shape the new environment of property investment in Singapore.

1.     Inflation hedges

Commercial real estate has revenue growth possibilities, diversification benefits, and relative stability. Counter-cyclical and structural developments, such as digitisation and demographic shifts, can also bring opportunity. As construction prices grow, refurbishing and reusing assets may boost alpha-based returns.

2.     Rental reversions from commercial property owners

Landlords must achieve positive rental reversions to use commercial real estate as an inflation hedge. Well-leased, quality assets in gateway markets are desirable. We expect investors to focus on core, liquid assets with favourable yields relative to debt costs.

3.     Influx of foreign investors from dollar-dominated countries

We expect more demand for property investment in Singapore from investors with dollars from the Middle East, North America, and some parts of Asia who want to take advantage of the dollar’s strength and broaden their portfolios by investing in the region’s core markets. These investors follow market repricing and are ready to act when conditions stabilise.

4.     Private and sovereign investors will be in power

In the immediate term, private and sovereign investors will dominate. More investors will be prepared to move fast to grab prime assets while competition is low. Singapore has seen a massive migration of US and European family offices in the last two years. These private investors are the most active buyers of trophy office buildings in the region’s safe-haven markets.

Market ripe for property investment in Singapore

Inflation and interest rate uncertainty has expanded the buyer-seller gap. As rents rise and construction expenses rise, sellers have kept their asking prices. Rising financing costs and low Singapore commercial properties yield buyers.

Cash-rich or yield-insensitive investors choose longer-term assets. As buyers and sellers remain divided, sales of property investment in Singapore should decrease in 2023. Institutions may invest in high-yielding products like industrial assets.

While overall transactions may decrease, demand in Singapore properties continue to rise as capital gravitates towards safe-haven assets. High-net-worth individuals seeking wealth diversification are expected to crowd the Singapore market. As private wealth remains liquid and non-yield sensitive, shophouse and strata office markets are expected to continue making records.

Simply put, property buyers will find a lucrative market for property investment in Singapore. The country offers a stable economy, forecasted rising GDP and a positive property industry sentiment. However, you will need an expert guide to navigate you to the right property investment for you.

About me

I am Tyson Yuk, the founder of the blog Commercial Realty Singapore. With over 15 years of experience, my forte is in the commercial and luxury property line. With my blog, I aim to educate, advise and share tips and tricks with potential property buyers and investors to help them make successful property ventures.

Know more about my services,

Want expert advice for property investment in Singapore?

Book a free consultation with me