By Edmund Tie Research / EdgeProp Singapore | March 13, 2020 8:00 AM SGT

SINGAPORE (EDGEPROP) – Even as authorities are doing their utmost to contain the spread of Covid-19 in a bid to restore public confidence and daily normalcy, the foremost question is: Can Covid-19 be contained as soon as practicable in accordance with mainland China’s target to put the outbreak under control by May 2020?

Singapore’s tourism industry and other businesses reliant on mainland Chinese customers are facing daunting challenges as travel restrictions have been imposed since the Lunar New Year holiday season (Photo: Albert Chua/EdgeProp Singapore)

To find out, researchers initially drew comparisons with the period during SARS, which had significantly impacted market sentiment and the economy back in 2003. During the SARS outbreak of 2003, private homes market performance (see Figure 1) did not see a significant price correction. Based on the URA All Residential Price Index, overall private home prices corrected by 2.3% from 4Q2002 to 2Q2004. While prices remained flat, transaction volume, however, saw a V-shaped recovery in private home sales back then, with total sales volume in the primary and secondary markets have recovered from a 41% quarterly fall in 1Q2003 (with 1,407 units sold) to 147% quarterly jump in 2Q2003 (with 3,481 units sold).

Plagued by SARS fears and the weak economic sentiment, office occupancy in the Downtown Core Planning Area fell from 83.5% in 4Q2002 to a record low of 80.7% in 1Q2004, before recovering marginally to 81.3% in 2Q2004 (Figure 2). The Office Rental Index of private sector office space in the Central Area, after having declined by six consecutive quarters since 2Q2001 in the aftermath of the Sept 11, 2001, terrorist attack on the World Trade Center in New York, continued to slide for another six consecutive quarters with a cumulative fall of 11.6% from 4Q2002 to 1Q2004. Office property prices in the Central Area suffered an overall decline of 12.8% for the same period.

Travel advisories imposed on Singapore shut out a substantial volume of vacationers and business-related travel (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Singapore’s tourism sector was hit hard during the SARS period, with international visitor arrivals declining sharply by 19% annually to 6.12 million in 2003 (Figure 3). Travel advisories imposed on Singapore shut out a substantial volume of vacationers and business-related travel. Many retail malls were hit by poor business, though domestic consumption — such as contributions from the Great Singapore Sale — helped to cushion the impact on the retail sector then. Retail occupancy in Orchard Road, Singapore’s prime shopping belt, remained stable with an average of 95.4% in 2003. The number of SARS cases worldwide had tapered off substantially by August 2003 and there were no new cases of SARS by May 2004.

Covid-19 is different from SARS and H1N1

However, recent research findings suggest that cases of Covid-19 are more difficult to detect due to the inability as yet to determine the incubation and infectious periods for infected cases, thereby rendering past containment measures for SARS seemingly less effective for the current Covid-19 situation. China’s ability to contain the spread is critical for the global economy, being an epicentre of manufacturing and production that permeates through global supply chains, including Singapore. But could Covid-19 morph into another infectious disease like Influenza A or H1N1? Also referred to as ‘’swine flu’’, this flu virus — which was first detected in the US in April 2009 — caused a global pandemic with cases across 214 countries and overseas territories or communities. Researchers estimated that the 2009 H1N1 global infection rate could be 11% to 21% of the then global population of some 6.8 billion with as many as 284,500 fatalities although the World Health Organization recorded 18,449 deaths in August 2010.

Taking a prudent approach in tackling H1N1, Singapore first raised its Dorscon alert level to Yellow on April 28, 2009, and then to Orange on April 30, 2009, before revising it down to Yellow on May 11, 2009. The pandemic began to taper off in November 2009 and the number of cases was in steep decline by May 2010. By August 2010, WHO declared an end to the epidemic. Did H1N1 impact the property market in Singapore? The 2009-2010 period coincided with the aftermath of the GFC of 2008, during which the economy, residential and retail markets were on the mend from 2009 till mid-2010 (Figure 4).

China now a ‘powerhouse’

Fast forward 17 years to 2020. This time, Asia’s economic landscape has changed with mainland China rising to become a powerhouse that is now the world’s second-biggest economy. China has also grown to be an important partner to Singapore in terms of trade, business connections and tourism. According to the Singapore Department of Statistics, the republic’s cumulative direct investments to mainland China has expanded to $139.3 billion, constituting 16.7% of total investments overseas. Total Singapore exports to mainland China reached $16.6 billion in 2017, 80.4% higher compared to $9.2 billion in 2013.

In 2019, China became Singapore’s top trading partner, with bilateral trade between the two countries totalling $137.3 billion. This exceeds that between Singapore with Malaysia at $113 billion and between Singapore and the EU at $111 billion. Vice versa, Singapore’s presence in mainland China has been growing over the past decade. Based on the International Organisation for Migration, more than 20,000 Singaporeans are estimated to be living or working in mainland China.

In terms of tourism, mainland China has also been an important source of tourist arrivals to Singapore and made up about one-fifth of all international visitors (Photo: Albert Chua/EdgeProp Singapore)

In terms of tourism, mainland China has also been an important source of tourist arrivals to Singapore and made up about one-fifth of all international visitors. Singapore received a total of 3.42 million visitors and $3.91 billion in tourism receipts from mainland China in 2018. Compared to a decade ago, the figures were more modest, with 1.08 million mainland Chinese visitors contributing $1.42 billion in tourism receipts in 2008. Rocked by the Covid-19 outbreak, the knock-on effects from mainland China’s rapid downturn in business activities on bilateral trade with Singapore is potentially adverse in 1Q2020. Singapore’s tourism industry and other businesses reliant on mainland Chinese customers are facing daunting challenges as travel restrictions have been imposed since the Lunar New Year holiday season. From Feb 1, 2020, Singapore has suspended entry and transit to all travellers with a recent history of travel to China and suspending visas for Chinese passport holders, in a bid to contain the fast-spreading Covid-19. Invariably, the outbreak has also disrupted global supply chains and created ripple effects on other sectors, with the economy so much more integrated with China’s. As highlighted by the Singapore government during the Budget 2020 announcement, the duration and severity of the Covid-19 outbreak and its impact on the global economy are still unclear, given that it has only been two months since the outbreak erupted.

US Fed emergency rate cut

In a surprise move by the US Federal Reserve, an emergency measure to cut the benchmark US interest rate by half a percentage point to just below 1.25% was made on March 3, 2020, to cushion the economic and financial fallout from the coronavirus. Since late February to date, Covid-19 has spread to more countries in Asia, the Middle East, Europe and the US. The US Fed’s emergency interest rate cut ahead of scheduled policy meetings, the first time in 12 years since the GFC, has spooked markets on fears of a credit crunch for SMBs in the US. Companies are at higher risks of cash flow and debt issues in the coming months as the fallout from Covid-19 is felt across businesses with month-long slumps in various activities and slow fulfilment of work completion and payments. More events in the US are cancelled while meetings have gone online. Similarly, Hong Kong’s monetary authority reduced its base lending rate by half a percentage point to 1.5% to support the city state’s borrowers in weathering a retail and consumption slump.

The unpredictability of infectious diseases in general and now Covid-19 is creating a lot more unknowns for consumers and businesses (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Covid-19 and its effects on the Singapore property market

The unpredictability of infectious diseases in general and now Covid-19 is creating a lot more unknowns for consumers and businesses. As the number of confirmed cases increases and travel restrictions remains, mainland China has been the hardest-hit and the impact on Singapore, being linked to mainland China economically and socially, could be greater than initially envisaged. As an immediate impact, the construction progress of various property developments was hampered in February by a shortfall of workers, since mainland Chinese workers were either served with Leave of Absence orders or not allowed to return to Singapore in the near term.

1Q2020 observations and impact

Residential

Prospective buyers have put their visits and property selection plans on hold until the travel restrictions are lifted (Photo: Samuel Isaac Chua/EdgeProp Singapore)

For the private homes market, the number of new sales launches is expected to remain consistent with a few projects slated to launch from end-February. While developers are currently observing the situation, they are likely to proceed with the launches as planned if the current situation in Singapore does not deteriorate significantly. Staying within the five-year project completion deadline to avoid the additional buyer’s stamp duty is an important consideration for developers to ensure that their launch schedules are met and the sales process starts in a timely manner. Developers have generally stepped up on the necessary precautionary measures to ensure hygiene and cleanliness in showflats and safeguard the health of their staff and marketing agents. Marketing agencies have also advised their agents to be more vigilant on their health and heighten hygiene consciousness. This will instil confidence for potential buyers to continue visiting showflats. As the retail, travel and hospitality sectors have been markedly affected by the absence of mainland Chinese visitors, the buying momentum of private homes from mainland Chinese buyers is envisaged to slow significantly in 1Q2020. Prospective buyers have put their visits and property selection plans on hold until the travel restrictions are lifted. Developers and agents are seeking to maintain contacts with their buyers through online marketing channels for now.

The M achieved strong sales results on the first two launch weekends with more than 392 units sold (75%) out of 522 units (Photo: Wing Tai Asia)

Online marketing channels that are being explored by developers include three-dimensional videos of showflats, interactive e-brochures, along with stepped-up strategies such as content marketing and social media. These strategies are more effective to reach out to a larger audience in the mass-market segment. For high-end projects, the on-site showflat experience and dedicated face-to-face consultation by brokers, bankers and lawyers still prevails as these efforts help to increase sales conversion. While it may be early days, the impact on private home sales from Covid-19 could be attenuated as serious investors hunt for attractive launches and hard-to-come-by projects. For instance, executive condominium Parc Canberra sold 64% of its units, averaging $1,085 psf, over the launch weekend, while The M and executive condominium Ola attracted over 2,000 and 3,200 visitors respectively during the preview weekend. The M achieved strong sales results on the first two launch weekends with more than 392 units sold (75%) out of 522 units. Like last year, 2020’s demand is likely to originate mainly from Singapore citizens and residents.

Office

Even as they are currently assessing the Covid-19 outbreak situation, more office occupiers are likely to commit to suitable business space locations after the outbreak subsides (Photo: Samuel Isaac Chua/EdgeProp Singapore)

In terms of any knock-on effect on the office property market, we have yet to see a marked slowdown in office leasing enquiries for 1Q2020. Enterprises have been exploring workspace options for some time as they mull over mid-term plans. Even as they are currently assessing the Covid-19 outbreak situation, more office occupiers are likely to commit to suitable business space locations after the outbreak subsides. As more companies adopt or explore business continuity plans (BCP) under the Dorscon Orange alert level in Singapore, the demand for tech solutions that support plans such as offsite conference calls and work-from-home arrangements has risen. The accelerated pace of technology and digitalisation in workstyles would propel the expansion of existing tech firms and creation of start-ups, thereby translating to higher demand for office spaces from tech tenants, both in a flexible workspace and core spaces.

Industrial

Invariably, the outbreak has also disrupted global supply chains and created ripple effects on other sectors, with the economy so much more integrated with China’s (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Would we see an immediate downturn in the industrial property market? While there are reports of steep declines in manufacturing activity arising from labour shortages in mainland China in February, it is also early days at this stage for Singapore industrial players to make any significant changes to their industrial space take-up plans. They are closely monitoring how their order books and production output evolves in tandem with the pandemic situation in mainland China after the Chinese workforce progressively returns to work from mid-February onwards. Notwithstanding, we envisage a slowdown in manufacturing activity and industrial space take-up due to delays in major decision-making by industrialists until the impact on businesses is clearer in the coming months. This may involve reviews of BCP and production supply chain management for corporates and manufacturers in the region and increasingly around the world.

Retail

Since late February to date, Covid-19 has spread to more countries in Asia, the Middle East, Europe and the US (Photo: Albert Chua/EdgeProp Singapore)

Singapore’s retail sector will be bracing for a challenging period in the near-term with overall retail sales likely to see further declines over the first two quarters of 2020. As at December 2019, the picture is subdued with most categories showing a decline.Spooked by contagion fears and the government’s advisory to residents to avoid crowded places, we observed lower numbers of shoppers in some retail malls over the past month, while restaurants are reportedly impacted by a marked fall in sales turnover arising from substantial cancellations by customers. F&B services are likely to take a hit in sales performance at least for 1Q2020. Conversely, other retail categories that are seeing strong demand include medical goods and toiletries, in particular surgical masks, thermometers, hand sanitisers and other hygiene-reinforcing goods.Grocery stores and supermarkets are slated to see a strong uptick in sales turnover, especially in 1Q2020 which saw a surge of consumers stocking up necessities in the first weekend of February out of anxiety and uncertainty over the Covid-19 situation.

Grocery stores and supermarkets are slated to see a strong uptick in sales turnover, especially in 1Q2020 (Photo: Samuel. Isaac Chua/EdgeProp Singapore)

Other healthcare service providers and e-commerce trades in retail, food delivery players, healthcare goods and services, online learning platforms and goods import retailers, have been receiving markedly stronger interest since Covid-19 surfaced in Singapore. The possible mixed-bag performance across various retail trades — with the higher overall number of retailers likely to suffer lower sales takings mainly due to declining footfall at physical stores — could result in retail rents registering an overall decline in the first half of 2020. Although Covid-19 could lead to a slowdown in the commercial property market over the short term, Singapore could gain and come up stronger in the mid- to longer-term due to its proactive control of the situation. In fact, researchers at Harvard University have praised Singapore’s handling of the Covid-19 outbreak as the “gold standard of near-perfect detection”.

Scenarios that could unfold

Best case: V-shaped recovery

In the best-case scenario, where Covid-19 comes under control within the next two to three months with a reduction in the number of new cases in Singapore and worldwide, we anticipate that investors and homebuyers will resume their property hunting activity in Singapore, while at the broader level, business activity could pick up appreciably from the start of the 2H2020.• A sustained recovery in residential sales volume, rents and prices could possibly gather pace from 2H2020, on a scenario that the economic outlook turns brighter with an uptick in manufacturing activities and stable job prospects. New sale private home sales could touch 9,000 units and overall private residential prices may grow at a stable rate of 2–3% y-o-y 4Q2020.• Consumer confidence could return swiftly as the number of new Covid-19 cases dwindle, and a rebound in tourism, hotel and retail sectors could follow from the start of 2H2020 onwards. Office and retail rents could be resilient against declines and possibly pose modest growths by end-2020, on the back of investment resurgence and cash flow support.

Worst case: U-shaped recovery

In the worst-case scenario, Covid-19 could linger persistently over the long term, with growing risks of escalating into a pandemic worldwide that could prove hard to contain.• A Covid-19 pandemic, if significant, could pose protracted disruptions in production and logistics supply chains over an extended period. Hikes in freight rates, lack of manpower in factories and goods delivery drivers particularly in China, have added cost and time pressures on manufacturers and logistics service providers. If the virus outbreak persists worldwide, these challenges could weigh on manufacturing, logistics, tourism and retail sectors and exert an adverse impact on the economy, consumer sentiment and the demand for industrial and commercial space in the whole of 2020. With enterprises possibly hit by an extended slowdown in activities and investments, office and retail rents may post declines by 2–3% annually this year. Private residential sales performance may face stronger headwinds arising from muted economic outlook.• Notwithstanding this scenario of a worldwide pandemic, businesses and consumers are likely to brave through and revert to their routine rhythm of activities, under a normalised precautionary regime of personal hygiene, illness prevention, new ways of work and play and supporting the well-being of occupants in public spaces.• As market confidence could gradually restore after 3Q2020 in this scenario, Singapore’s property market could see more transactions characterised by a rebound in overall activity beyond the 3Q2020 or 4Q2020. Institutional and retail property investors are likely to be back in the game to hunt for safe havens such as Singapore, in order to deploy their capital in an environment of prolonged low-interest rates.

Year 2020 would be an opportunity for property developers, landlords, retailers, office occupiers and industrialists to double up their efforts to change the usual ways of doing business (Photo: Albert Chua/EdgeProp Singapore)

Finding new ways amid uncertainty

Year 2020 would, therefore, be an opportunity for property developers, landlords, retailers, office occupiers and industrialists to double up their efforts to change the usual ways of doing business and to revamp and enhance their operations for long-term growth. At the same time, tapping on the resources from the initiatives set out in Budget 2020, continuously collaborating with the authorities to update them on market changes and actively respond to customers’ changing needs would better prepare enterprises to pivot to new areas of businesses and property investments.

Taken from Insight Paper March 2020 entitled Brave the cold and carry on — Impact of Covid-19 on Singapore property by Edmund Tie Research

Original Article: https://www.edgeprop.sg/property-news/three-conservation-shophouses-and-terrace-house-sale-3836-mil

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