Colliers is launching a brand-new podcast series where Colliers Experts comment on the latest real estate news and provide their advice on how to maximise the potential of property.
Weileng Tang, Managing Director, is hosting the first episode and discusses the impact of Joe Biden’s first 100 days on Singapore’s real estate market.
As the global economy looks set for a rebound after COVID-19, all eyes are on the recovery in the U.S. With the passing of the $1.9 trillion COVID-19 relief package, the economy is set to go into overdrive. As demand for products and services strengthens, there are questions about the direction of inflation and interest rates in the U.S. and Asia Pacific. Against this economic backdrop, we will look at implications for real estate in Singapore and ask what opportunities lie ahead.
Macroeconomic overview
Most major economies are in their early stages of recovery, although not all markets are moving at the same speed.
"The U.S.A.’s G.D.P. is forecast to grow by 7.7% this year, the highest growth rate in 70 years. Meanwhile, China’s G.D.P. is forecast to grow by 8.9%. This means those two markets will most likely drive the global economy and lend upside support to Asia and Singapore."
With very positive labour market data reported, the U.S.A. is expected to add close to 8 million jobs this year, the largest growth rate in history.
While the headline numbers are looking positive for the global economy, it’s certainly not without its risks. These large stimulus packages and the ongoing expansion of the monetary base have led to an uptick in inflation expectations. The U.S.A. expects interest rate hikes as early as the end of next year or early 2023. While this, in itself, is not necessarily a bad thing, there are growing concerns about the potential for runaway inflation and what that could mean both for the economy and for real estate investment.
Within the APAC, China’s G.D.P. is expected to move from investment-led growth to private consumption. Similarly, markets such as Japan, Malaysia, the Philippines, Indonesia, Thailand, and even India are also expected to rebound based on their vaccination efforts and the extent of their recovery hinges on their respective COVID-19 situations.
Impact on Singapore
Singapore’s recovery is better than expected recovery with a 1.3% YoY growth in Q1 2021 led by the manufacturing and construction sectors. Despite the recent surge of cases and restrictions, trade is still expected to recover on the back of a stronger global and regional economic outlook.
The consensus is that Singapore’s economy will continue to grow at the government forecast reference range of 4-6% in 2021, up from a negative 5% in 2020.
From an investment perspective, Singapore remains a safe haven, and investment volumes can be expected to return to pre-COVID-19 level by the end of the year.
On the office property market front, CBD Grade A rents stabilised at SGD 9.54 per sq ft last quarter as we saw positive net absorption after two consecutive quarters of contraction. New demand continues to be led by the technology sector, and flexible workspace operators continue to expand moderately.
Office rents in Singapore are set to grow by up to 3% over the next five years, while vacancy drops to just over 4%. Despite the current slowdown, if this goes as planned, Singapore could become the second most expensive location within the APAC among the markets Colliers Research tracks within the region.
Impact on Singapore’s capital values
In terms of base interest, Singapore has followed suit to many other markets. The short-end of the curve is low and likely to stay low in the short-to-medium term, but there’s been upward pressure at the long end of the yield curve.
Over the medium term, we expect relatively stable yields and capital values will be driven more by rental markets than by movements in cap rates unless we see a level of unwanted inflation creeping into the market.
Listen to the full Colliers Singapore Property Insights podcast – episode 1 | Biding your time here.
Please see below for more information on our research.
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