property investment

Understanding The Current Economy & Property Landscape to Hit the Sweet Spot of Property Investment

We have been through a lot in the past few years with the pandemic and global conflicts. The uncertain inflation and interest rate fluctuations have kept us on edge. But Singapore prevails as a safe haven for property investment without breaking a sweat. Let’s explore how!

Key points of the global economy:

  • U.S. mortgage rates skyrocketed to 7.76% with no sign of slowing down.
  • U.S. housing sales plunge for the 4th straight month in a row.
  • Europe’s market liquidity dries up amid soaring debt limits.
  • European economy faces volatility with sky-high interest rates.
  • Stock and property prices tumble in the U.S. and Europe.
  • Confidence crashes among Chinese property investors as debt engulfs industry giants.

Key points of global real estate?

When you see this data, the first question that comes to your mind is, why Singapore?  

While property prices are falling in the USA, Europe and China, it is rising in Singapore. 

So, why would you invest in Singapore with rising prices?

Instead, shouldn’t you take advantage of the lower prices in the West and China?

To answer these questions correctly, you must know why property prices are falling in the USA, Europe and China. From the “Key points of the global economy,” you can observe how extremely vulnerable position these countries are in! 

You need a stable and sustainable environment where your wealth can grow and nurture. Volatile, uncertain economies make for risky and vulnerable outcomes. 

Singapore emerges consistent and stable amid a volatile global economy and real estate landscape. Singapore is coming across challenges, but they are overcoming them and gradually moving upwards as usual. The country has the unique nature of bouncing back from crisis, holding its stable nature, no matter what.

Today, we will discuss how Singapore’s economy is doing and leading to a healthy property landscape. We will further discuss the regional and global economy and real estate conditions. Next, we will guide you to what makes Singapore the sweet spot of property investment and which sector of Singapore you should focus on.

Singapore economy outlook

We have been through a lot in the past few years with the pandemic and the global conflicts. In August 2023, the core inflation softened to 3.4% year-over-year, a significant decrease from the January peak of 5.5%. Concurrently, fixed-rate mortgage interest rates have been on a decline since the beginning of the year, with the potential for further reductions. Down from above 4% in 2022, the most attractive mortgage deals now offer rates as low as 3.15%, signalling a trend toward more accessible borrowing costs.

Singapore real estate outlook

Singapore’s Residential Property Price Index saw a significant rise, increasing by 10.6% in 2021 and 8.4% in 2022, prompting the introduction of additional property curbs and a higher property tax for 2023-2024. While these measures might seem daunting to investors, they reflect the Singaporean government’s proactive nature to ensure a stable property market, safeguarding against speculative bubbles. 

The authority has implemented several measures to moderate borrowing, such as raising the interest rate for medium-term stress tests from 3.5% to 4% for residential properties and 4.5% to 5% for commercial properties.

To discourage excessive property buying, especially by foreigners, the Buyer’s Stamp Duty (BSD) and Additional Buyer’s Stamp Duty (ABSD) have been revised multiple times, with the ABSD for foreign buyers doubling from 30% to 60%, ensuring local residents have better access to affordable homes.

Despite global economic uncertainties, Singapore has maintained a strong job market, with wages on the rise, household wealth increasing, and unemployment in decline. These trends signal continued high property demand.

Singapore’s commercial real estate is the sweet spot for property investment

Singapore’s commercial real estate isn’t just a sweet spot; it’s a stronghold of stability and growth potential. With key sectors showing progressive growth, it suggests a healthy return in the future. 

Despite economic challenges in 2023, Singapore’s commercial real estate sector continues to show a promising outlook. Office rents are still on the rise, albeit more modestly, signalling a positive moment for businesses to reconsider their space needs.

The retail space sees increasing rents and fewer vacancies, especially in sought-after areas, with expected rent growth of 3-5%. Despite a dip in Q3 2023, shophouses remain in demand due to their limited supply, highlighting their investment resilience.

On the other hand, industrial property sales have increased by 5.9% in Q2 2023. Although there’s been a decline in the volume of transactions, the sector’s sales growth signifies enduring investor interest.

Besides, for foreigners, where Singapore residential property imposes 60% ABSD on any purchase, for commercial property, ABSD is fully exempted. 

Put your money in a place where it can grow for years to come, all without extra fees. It’s a smart move for your future and your family in one of the steadiest economies.

We further lay out what’s happening in major global countries to give you a better understanding of what makes Singapore a secure spot for property investment in the current landscape.

Singapore’s edge over regional competitors such as China

China’s real estate sector is teetering on the brink, with consumer confidence plummeting as giants like Evergrande and Country Garden are engulfed in dire debt crises. The China industry players struggling with financial instability are sending shockwaves across the market.

The anticipated rebound in China’s economy is on shaky ground. Geopolitical conflicts have escalated market instability, magnifying the risks. Their property sector was particularly hard hit—a bubble burst, prices in freefall, and a financial squeeze tightening.

In contrast, Singapore offers stability and a positive investment climate, drawing in investors, particularly from dollar-dominated countries. This influx is expected to boost the commercial property market even further.

The USA economic & property landscape is uncertain at best

The 2023 USA commercial real estate market is going through tough times. Interest rates keep going up, which could lead to a recession. This situation makes it hard to predict what will happen next with shops and office spaces. Also, the USA is still dealing with supply chain disruptions, putting commercial real estate investment in a volatile position. 

USA inflation and mortgage rates

While Singapore’s inflation and mortgage rates are gradually improving, the USA is still struggling. Even though inflation slowed down a bit at the end of 2022, by November 2, it reached 7.76% in the U.S. This was much higher than the 3% we saw just two years earlier. The average rate for a 30-year mortgage is the highest it’s been in 23 years, and it doesn’t look like it will drop soon as the FED is more concerned about bringing down the inflation at its target of 2%, currently persisting at 3.7%

Not to mention, the increasing interest rate made taking a loan very expensive. Coupled with this, the Russia-Ukraine conflict and the sanctions on Russia have made things worse. 

Rent increases

Rent has gone up a lot, with a 7.5% increase from last year as of October 2022. This rise in rent affects all types of housing. In places like Silicon Valley, even people with good jobs at big tech companies are finding it hard to afford a place to live.

Home sales are slowing down

The number of homes being sold every month has been falling for 4 months in a row. In September, sales went down by 2%, and this drop happened all over the U.S. This makes it clear that it’s becoming harder for people to afford homes because mortgage rates are high and there aren’t many houses available to buy.

Europe’s economic condition makes for a challenging real estate investment outlook

After Brexit, and now more recently with the Russia-Ukraine conflict, Europe is experiencing a significant interest rate surge, its biggest in decades. It has led to a re-rating of property values across the region. This has impacted the affordability and demand in the housing market, with rising mortgage rates eroding affordability.

According to a report by CNBC, there are concerns about the health of Europe’s commercial real estate market, with some investors questioning whether it could be the next sector to implode. 

Debt ceiling has reached an alarming level

Following March’s banking crises, fears have arisen of a so-called doom loop, in which a potential bank run could trigger a property sector downturn. European funds invested directly in real estate recorded outflows of £172 million ($215.4 million) in February, according to Morningstar Direct data. Some analysts now see real estate stocks falling by 20%-40% by next year, with commercial real estate being higher risk can even plummet to 50%.

Allianz Economic Research predicts that the commercial real estate sector in Europe is facing strong cyclical headwinds due to prolonged uncertainty and rising interest rates. Sharply rising interest rates (+375bps since July 2022) remain a major source of concern.

Banks have become more cautious, enforcing stricter lending criteria, a trend that’s hitting the real estate sector hard. This pullback in lending is clear from the drop in the yearly increase of loans recently (refer to Figure 1), which is intensifying the downturn in the commercial real estate market. 

property investment

Additionally, the sluggish economy is causing more businesses to fail, a situation that could result in more tenants being unable to pay their rent, potentially increasing the rate of rental defaults.

property investment

In terms of the challenges faced by the commercial property sector in Europe, the sector is facing the challenges of obsolescence as decarbonisation gathers momentum. This will widen the prime and average markets further, according to a report by Cushman & Wakefield.

In conclusion, the commercial property sector in Europe is facing challenges such as rising interest rates, obsolescence, and declining market liquidity. As such, it might only be a good time to invest in commercial real estate in Europe with further observation or until their economic balance meets a more stable dynamic.

Comparative analysis of the property markets in Singapore, Europe and the USA based on key economic indicators.

Economic IndicatorSingaporeEuropeUSA
Interest RatesLower trendSignificant surge – the highest in decadesRising with mortgage rate above 7%
Inflation RateRelatively lowHigh due to energy costs surgeHigh but persistent measures taken to curb
Loan ConditionsFavourable due to lower interest rates and no restrictions on foreign ownership for commercial propertiesTighter due to rising mortgage ratesTighter due to higher mortgage rates slowing home sales
Market AttractivenessHigh for commercial properties, especially to foreign investorsModerate opportunities in prime office and build-to-rent sub-sectorsMixed Industrial & logistics leasing surpassing expectations, residential market facing headwinds

Key Points for property buyers and investors

Right now, buying and investing in property is tricky. The costs of buying a home are high, and the whole housing market is shifting. So, buyers and investors must be careful and pay attention to these changes to make good decisions.

Singapore’s geopolitical stability as a strategic advantage

As the U.S. and Europe experience a decoupling effect, Singapore’s geopolitical landscape remains stable and neutral. This equilibrium positions Singapore as a safe harbour for investment, particularly appealing to foreign investors seeking security in times of international volatility.

Lucrative opportunities for foreign investors

The steady geopolitical climate, coupled with a resilient property market, makes Singapore an exceptionally attractive destination for foreign capital. Investors looking beyond the vulnerable Western markets will find a safe haven within Singapore’s borders.

The Singapore Dollar’s resilience

Amidst economic uncertainty, the Singapore Dollar (SGD) has demonstrated robustness against major currencies like the USD, MYR, and Euro. In turbulent times, the SGD stands as a defensive currency, underpinning assets with a layer of security not easily found elsewhere.

Political certainty and economic stability

Singapore’s political scene is characterised by its stability, which translates into consistent, reliable policies fostering a stable property industry. This stability is a cornerstone that contributes to the resilience of the investment landscape, making it a preferred choice for those seeking a predictable and secure market.

Dawn of Singapore’s golden era in real estate property investment

Singapore is on the precipice of entering a golden era. Property prices in Singapore have been on an uptrend. In 1990 and 2004, we saw peaks like this. Both times, we were transitioning to a new government. Now, in 2024, we are again in the middle of a government transition. The current government has previously proven to handle the pandemic exceptionally well. So, it is entirely possible that we are entering a golden age with a sustainable housing industry.

property investment

Source: Trading Economics

Investors are encouraged to consider the unique alignment of Singapore’s stable political climate, robust currency, and upward-trending property market. Property investment is especially lucrative for Singapore’s commercial property market, which is not only growing rapidly but is also ABSD exempted for foreigners, among other benefits. These elements collectively indicate that Singapore is not only poised for resilience but also for a prosperous period that savvy investors must capitalise on.

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