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Singapore's property market can withstand the impact of Covid-19

17 Feb, 2020

The market has built further resilience since the Sars outbreak through efforts to diversify the economy.

The majority of residential sellers are expected to be able to withstand downward price pressure. Buyer demand for homes remains healthy and could resurface as pent-up demand when the epidemic is over. BT FILE PHOTO

THE impact of the novel coronavirus, which began in China in December, has been felt across the globe. Aside from the very real human cost, many are trying to calculate the economic repercussions of Covid-19. Market watchers and investors alike are keeping a close eye on Singapore, which has one of the most open economies in the world.

But with China taking swift and decisive action to manage the fall-out and keep the global economy stable, we do not expect Singapore to undergo a sharp correction as the situation currently stands. However, the growth forecast is expected to be slightly moderated for this year.

Traditionally seen as a safe haven in this region, Singapore's real estate has built further resilience since the Sars outbreak of 2003 through efforts to diversify the country's economy.

We believe it has more cushion against the downside risk of the novel coronavirus outbreak than in 2003. Sars hit at a time when occupier demand for real estate in Singapore was already weak following the bust in 2001 that spiralled the economy into a recession. Rents for most property sectors were already on a downtrend.

The Sars outbreak in the first six months of 2003 added greater downward pressure, causing sentiment to dip and rents to plunge. The wider real estate and macroeconomic landscapes are different today.

On the office side, the occupier demand base has broadened and the wider mix today, comprising more technology firms and business-services firms, alongside traditional finance and insurance companies, will lend the sector greater stability against external headwinds.

The retail sector, however, faces challenges in market recovery, given the adverse impact the outbreak has on the tourism and retail industries, as consumers avoid crowded places such as shopping malls.

With consumers increasingly relying on e-commerce during these times, retailers who have augmented their offline operations with online platforms will weather this situation better than those who have not. On this note, demand for logistics and warehouse space should be well-supported by e-commerce retailers.

There may also be increased warehousing demand for fresh food and medical supplies. The push for higher standards in the pharmaceutical and food industries could be a boost to cold-chain logistics. With the sector being very much trade-dependent, unresolved trade tensions as well as the halt of manufacturing activities, lockdown of Chinese cities and flight restrictions, could slow its full recovery.

On the residential front, leasing demand for private homes could stay soft in the first half of 2020 as expatriates push back relocation plans and companies put expatriate hiring on hold. Sales volumes will be affected in the short term with travel curtailment and as domestic buyers shy away from viewings until the virus is under control.

We expect the majority of sellers will be able to withstand downward price pressure. Underlying buyer demand for homes remains healthy and could resurface as pent-up demand when the epidemic is over.

Lastly, the impact on Singapore's overall investment sales market is expected to be limited, unless the outbreak drags on deep into the second half of the year. In the meantime, investors are generally expected to take a wait-and-see approach and this could affect transaction volumes in the first half of 2020.

Nonetheless, there could be others who would look past the short-term nervousness and lock in assets at competitive prices. Looking back, Singapore's total investment sales rose 60 per cent year-on-year in value in 2003.

Keeping in mind the above and the timeframe it took for the Sars outbreak to end, the novel coronavirus is not expected to put a prolonged dampener on Singapore's real estate industry. Singapore's medium- and long-term market fundamentals remain intact and will continue to serve it well during this period.

Adapted From The Business Times, Feb 15 2020