Property sector sentiment down, but underlying demand still exists

Wed, Aug 01, 2018


THE real estate industry's business sentiment plunged after the latest round of property cooling measures, but the outlook of the services sector continued to hold firm even as manufacturing optimism waned.

These findings came from separate quarterly reports released on Tuesday by the Economic Development Board and the Department of Statistics, which looked at business expectations for the second half of the year.

For firms in the services sector, a net weighted balance of 9 per cent expect more favourable business conditions, up marginally from the 8 per cent recorded in the previous survey.

The net weighted balance is the difference between the proportion of optimistic and pessimistic firms.

Real estate was the only industry within the services sector where firms felt that business conditions for the rest of the year would be less favourable, with a net weighted balance of -13 per cent compared to 9 per cent a quarter ago.

In particular, real estate developers expect the recent property cooling measures including the Additional Buyer's Stamp Duty and Loan-to-Value limits to have a negative impact on the property market.

But economists told The Business Times that the dive in the business outlook among real estate players is not something to be worried about at this juncture.

Mizuho Bank economist Vishnu Varathan said: "I think the sentiments just reflect the abruptness and the unexpected timing of the cooling measures, but already we can see how quickly the market is adjusting."

For example, property showrooms still continue to draw interest from buyers as developers offer discounts, he said. "At the end of the day, the underlying demand is still there."

Between the services and manufacturing sectors, the latter was more wary about what lies ahead. A net weighted balance of 7 per cent of manufacturers forecast a brighter business outlook for the six months, down from the 13 per cent seen in the previous survey a quarter ago.

OCBC economist Selena Ling noted: "It is clear that Q3 manufacturing value-add growth is likely to moderate in momentum."

Economists said business sentiment is in line with long-held expectations that services will pick up pace while manufacturing moderates over the next six months.

Reasons for the manufacturing slowdown include easing demand from China, the peaking of the electronics cycle - and now, trade tension concerns have also crept in.

Mr Varathan explained: "President Trump is not focusing so much on services per se, but on goods. Trade tariffs will hit manufacturing more than services."

While the trade tensions could have been factored into the business sentiment, he would "hesitate" to say that it was the predominant driver behind the dip in manufacturing optimism due to the timing of the survey, which was conducted in June and the early half of July.

For the rest of the year, OCBC's Ms Ling expects growth momentum to moderate, but forecasts that the services sector will be the "silver lining for the Singapore economy".

Similarly, Mr Varathan expects the second half of the year to be "slightly less buoyant" compared to the first half, due to the peaking of external demand for manufacturing.

Despite the optimism surrounding the services sector, he does not expect it to accelerate for two main reasons. The first is due to the services sector's closely intertwined relationship with manufacturing, and secondly because of "more difficult global trading conditions".

"The next quarter is the one to watch out for as there would be greater clarity by then on the trade tariffs," he added.