Is Singapore real estate losing its shine?
Real estate is one of the best choices you can make when it comes to investment. The higher returns available when compared to bond yields, and the potential for capital appreciation, are key reasons why real estate is a preferred choice.
Asian markets have been a popular destination for investment funds in recent years as investors look globally for yield. The lower yields currently on offer in Western property markets, and even negative yields in some cases, have made Asia a popular choice for real estate investment. This is evident from the huge overseas funds flow into Asian markets in the first quarter of this year.
Singapore’s status as an international business hub means it attracts material amounts of real estate capital. However, recent economist reports suggests that the economy is now losing some of its appeal, when compared with the Australian or Japanese markets. Along with Hong Kong and China recently, inflows into Singapore real estate have fallen.
This is not necessarily a negative in itself, since Singapore remains firmly on the radar screen for foreign investors. With the global economy still sluggish, however, and Asian currencies likely to weaken further versus the dollar, investors currently have an attractive opportunity to capitalize on dollar strength in terms of buying overseas real estate. On a longer term view, moreover, Asian demographic factors are likely to underpin rising demand for real estate, thereby supporting the potential for continued growth in the investment market.
Why is the popularity of Singapore real estate falling?
We believe that we are currently seeing a consolidation phase after the strong growth of recent years. We are seeing a similar trend in the Indian markets where property prices have fallen 10-15% from their peak in some major cities.
In Singapore, cooling consumer demand, coupled with short term excess supply in commercial property and office space, are key factors behind a softer market environment. At present we are seeing some rental reductions as landlords look to attract new tenants. However, over the longer term, market growth remains supported by the economy’s status as a business hub.
Analysts are positive that the mismatch between supply and demand will stabilize by the second half of next year and into 2018.
We expect the US Federal Reserve will hike rates again this year, possibly in the second half. This can only boost the relative outlook for Asian real estate markets, given the likely continued strength of the US dollar vs Asian currencies.