This article is a transcript from an interview that premiered on Money FM hosted by Lyney Foo interviewing our Chief Research Officer Nicholas Mak. The transcript has been edited for readability on this web platform.
Welcome to viewpoint where we talk about current issues and the latest developments happening around us.
Singapore is piloting a new category of long stay serviced apartments with a three month minimum stay requirement.
The pilot will start with two sites at Upper Thompson Road and Zion Road under the confirmed list of the government land sales program for the second half of 2023.
This is to allow the government to better gauge market demand before studying if the long stay service departments can be implemented more rapidly.
For more on this, we have veteran property analyst Nicholas Mark from property portal Mogul.SG here to share his viewpoints. Thank you for joining me, Nicholas.
This latest development pertaining to the GLS sites have been announced for long stay serviced apartments. What is your view on this?
Well, I think for a long time the government has left it to the private property market to provide rental accommodations including service apartments.
However, due to the sharp rise in housing rental rates during the COVID pandemic especially last year, there have been complaints of high rentals and a lack of rental accommodations from foreign business associations that represent foreign companies and expatriates working in Singapore.
For example, from the start of the pandemic in Q1 2020 to the Q3 2023, residential rental rates have increased by 56%. That's almost unprecedented - and the sharpest rise was last year, where rental rates increased by 30%.
The growth of Singapore's economy and job market partly depends on foreign companies and foreign talents working in Singapore, and we don't want to lose these growth opportunities just because rental rates here are too high or due to insufficient rental accommodation for expatriates.
Other reasons for offering long stay accommodations is that the Singapore population is aging and living longer. Therefore more foreign workers are needed, especially in the health care and elder care industry. This will lead to more demand for rental accommodations.
The third reason is the rise in single and unmarried people in Singapore. For example, in the year 2000, there were 760,000 people who are single and unmarried. That number rose to almost a million people last year.
Some of these singles may want to live independently away from their parents' home, so some of them may choose to rent their accommodations.
Another reason is the rise in the number of people who are divorced or separated. Like for example, in the year 2000, 61,800 people fell into this category, with that number increasing to 164,000 people last year.
Not every unmarried person is eligible to buy a HDB flat or can afford to buy a private property as their home. Hence, some of them may have no choice but to rent their accomodation instead. With all these local people choosing to rent (instead of buy), you may crowd out the number of homes that are available for expatriates.
Hence, the government is offering land for long term rental accommodations because without doing something like this and just leaving it to the market to provide service apartments, there's no guarantee that there would be sufficient accomodations available for everyone.
Service apartments function similarly to a hotel but with conditions, and in this case, the tenants have to stay in it for at least three months.
Experience has shown that the market can be subjected to unexpected sudden shock and the COVID pandemic delivered such a shock so there could be other sudden shocks in the future.
Through this move, the government is making opportunities available for developers to build such service apartments.
What do you think the take up will be?
Well, I think that by looking at the size of the land, the size of these projects are going to be over 1000 units. I think that it will probably be the bigger developers and those who have experience in operating service apartments that will participate in this land tender; developers like Capitaland, Frasers, City Development, Far East Organizations.
Therefore, it's quite likely to be the bigger boys and possibly perhaps joint ventures between large or medium size developers looking to take up these projects.
Is it likely that we will see a trend of more of these long stay service departments popping up in the future?
Well, I think that if we can see a new supply of about one or two of such long stay serviced apartment coming out, there will be quite a significant increase.
So perhaps after this two, there might possibly be one or perhaps two more in the next two years.
And because it is a pilot scheme, there's a possibility the government could actually stop such a scheme if the market is able to cater to the supply.
The thing about serviced apartment is that one owner has to own the entire block or at least a few stacks of it because the rules about service apartment is that they cannot be strata titles and individual units cannot be sold and traded in the market.
Nicholas, you're a veteran analyst when it comes to property. Looking into your crystal ball, what are the key trends in terms of private property market that you are expecting to see in 2024?
Well, I think in the absence of a severe economic recession, the Singapore residential property market is going to remain quite stable residential property prices is expected to continue to expand, albeit at a slower pace as Singapore's GDP is projected to rise by a modest 1-3% next year.
In the rental market, there are already signs of cooling at present, and rentals could actually contract by as much as 10-15% percent in 2024. However, that would only bring the rental rates back to about 2022 level because we must bear in mind rentals has already risen by 56%. So a 10-15% drop isn't really out of the question.
In the sales market, there are actually quite a number of private residential projects waiting to be launched and developers are just timing the market. This means that there could potentially be more residential supply for sale. However, the current cautious sentiments may continue into early 2024.
Property market sentiments could be improved if there's a notable expansion in the wages and household income, especially if there is an improvement in the economy and the job market.
However, the latest cooling measures have jacked up additional buyer stamp duty (ABSD) rates, increasing to 60% for foreign home buyers. This is going to strip away a lot of the potential foreign demand, especially when interest rates are expected to ease off next year and some foreigners could be looking to buy properties outside their home countries.
They may give Singapore a miss because of the high ABSD, which means that private housing demand is going to depend very largely on local demand. And I think that could actually slow down the price growth in the high end residential property segment.
The jury is still out about how much interest rate could ease, because if interest rates were to decline significantly, that could actually give also a big boost to the property market.
20 years ago, roughly about 20-25% of the private housing units transacted in the market were acquired by foreigners, including permanent residents, and that actually can inject a fair bit of liquidity into the housing market.
However, there are several rounds of cooling measures later, including the latest one, have scared or discouraged many foreigners away from buying a private property in Singapore. Currently, the participation rate of foreigners has fallen to single digits between 2-5% of the number of transactions in the market. Which has actually knocked the wind out of sales in the private housing market, especially in the high end segment.
The thing is that many foreigners are not buying mass market condominiums, such as those in suburban areas. They are more interested to buy property in the CCR, which is consists of neighbourhoods in Orchard Road, Patterson Road and so on - areas around our shopping belt, where a majority of Singaporeans are not able to afford such properties.
Therefore, having some foreign participations is in a way healthy because they pick up properties where a majority of Singaporeans are not going to buy anyway.
So will we be left with a glut of such properties?
Unfortunately, yes. But in the resale market, this is a flip side of the cooling measures is that some of the owners are not selling.
Take for example, if an owner, property investor owns about three properties or more, if he were to sell one of the properties, he may not be able or not willing to pay the ABSD to buy a replacement property. Because once you buy another property, he has to pay very high ABSD even if he's a Singaporean.
Therefore the cooling measures, especially ABSD, has actually reduced the level of transactions. I think the property launches will still come online when the market sentiments improve.
However, there's also another factor that because some developers may be able to hold or delay the project launches, but they cannot delay for too long because they are facing the five years ABSD deadline, meaning they need to build and sell all the housing units in their condominium project within a five years deadline. Five years from the time that they bought the land. Yes, they may be delayed for one year or two years but not indefinitely.
What about the resale property space? What do you see in that area?
Well, I think the resale property space partly depends on the rental market which is going to cool down. So we are going to see less investment demand there.
However, it depends on HDB upgraders. Because for some HDB upgraders, when they sell their HDB flat, they have to buy a completed property. And if they are upgrading to a private property, they are more than likely to purchase a resale condominium unit.
I think that the HDB resale market is still going to remain fairly healthy and we could that will probably give some momentum to the resale market.
But the resale market has been at least in this year, slower than last year, partly because of the cooling measures. And I think next year we are going to see roughly about the same level of activity as we see in 2023.
End of transcript.