The Singapore real estate market saw a decline in sentiment in 3Q2022, according to findings of the Real Estate Sentiment Index (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - The Singapore real estate market saw a decline in sentiment during 3Q2022, according to findings of the Real Estate Sentiment Index (RESI) published by National University of Singapore Real Estate (NUS+RE). The damper sentiment comes amid headwinds including rising interest rates, inflationary pressures, as well as fresh property curbs, the study notes.
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RESI, which aims to provide an alternative measure of the private real estate market performance, is based on a quarterly survey conducted among senior executives of real estate firms. RESI measures the perceptions and expectations of real estate development and market conditions in Singapore.
The survey findings are translated into a Current Sentiment Index and a Future Sentiment Index which track changes in sentiments over the past six months and the next six months respectively. The indices are used to derive the Composite Sentiment Index, which serves as an indicator of the current overall market sentiment.
In 3Q2022, the Composite Sentiment Index declined 0.6 points to 5.1, down from 5.7 in 2Q2022. This comes on the back of declines in both the Current Sentiment Index and the Future Sentiment Index. The former dipped from 6.1 in 2Q2022 to 5.4 in 3Q2022, while the latter fell to 4.8 in 3Q2022 from 5.3 in the previous quarter.
As part of its study, RESI uses a “net balance percentage” approach to reflect market sentiment, with a positive net balance indicating optimism and a negative net balance showing the opposite
All real estate sectors maintained a positive current net balance in 3Q2022, albeit with an average decline of 5% from 2Q2022, notes the study. The hotel/serviced apartment sector maintained the highest current net balance of +86% while the office sector had the second highest current net balance of +54%. The industrial/logistics sector took the third spot with a current net balance of +46%, followed closely by prime retail at 43%.
Despite the sanguine sentiment on the current situation, senior executives polled in the survey were less optimistic about the future. Many sectors showed negative future net balances, especially the suburban residential segment, which recorded the lowest score of -19%. Other sectors that showed negative balances are the suburban retail (-8%), industrial/logistics (-5%) and business park/hi-tech space (-3%) sectors.
In contrast, the prime residential segment recorded a positive future net balance of +3%. “The contrast in outlooks between the two residential markets could be due to buyer segmentation,” says Institute of Real Estate and Urban Studies (IREUS) director Sing Tien Foo.
Suburban homes in the Outside Central Region (OCR) typically attract locals, whose purchasing powers are likely to be impacted by the latest property curbs rolled out by the government, coupled with rising interest rates. “In contrast, demand for prime residences in the Core Central Region (CCR) is supported by foreign purchasers, institutional capital, and high-net-worth individuals, who are more resilient against such financial hurdles,” Sing explains.
As the US Federal Reserve continues to hike interest rates in a bid to rein in inflation, growth is anticipated to slow as consumption and investment weaken. According to IRUES, about 87% of survey respondents cited a decline in the global economy as a potential risk.
81% of respondents expressed concern over rising construction costs, while the proportion of respondents feeling ambivalent about government intervention to cool the property market increased from 26.7% to 37.8%.
However, many agreed that correction was necessary, and the proportion of those citing a price bubble as a risk decreased sharply from 16.7% in 2Q2022 to 2.7% in 3Q2022, the report notes. Notwithstanding the macroprudential measures, 57% of developers polled expected unit prices of new launches in the next six months to be moderately higher, while only a minority of 10% thought that prices would slide.
Sing cautions that given the current environment and growing uncertainties, any price increase will have to be more measured as homebuyers become more careful. “In addition to macroeconomic headwinds, wage growth will not be able to keep pace with the current rate of inflation in the property market,” he says.
He adds: “Price growth, if not softened, will further drive a wedge between buyers’ earning and purchasing power and affordability in the housing market, which may risk long-term sustainability.”