Liquidity still aplenty for Singapore, with investors in the hunt for real estate yield

Wed, Feb 05, 2020

CHRISTINE LI


THE economic impact of the novel coronavirus outbreak is expected to be short-lived, based on the current situation.

The Singapore government has succeeded in putting in place multiple lines of defence to prevent the spread of the virus. Singapore currently has 24 confirmed cases of the virus, including the first four cases of local transmissions announced on Tuesday evening. There have been no deaths reported so far.

The current fatality rate of 2.1 per cent appears rather mild, compared to the 9.6 per cent for that of Sars. Sars happened between November 2002 and July 2003, with 8,096 cases and a death toll of 774 in about 30 regions. In Singapore, 238 people were infected and 33 died.

Any disruption to market activity is expected to be short-lived, held up by the country's sound economic fundamentals.

The impact will be mostly felt by the hospitality, retail and F&B sectors, with limited impact on both the office and industrial sectors, as these are not tourism-related.

Corporates may delay decision making in the first quarter of 2020 as they focus on tactical issues around operations in China for the moment.

This is expected to affect activity in the first quarter of 2020 against an office leasing market that has already been grappling with a slowdown arising from the US-China trade war.

The impact on the hospitality sector is more immediate. With millions in China under an effective lockdown and a ban on Chinese tour groups and travellers who have recently visited China, tourist arrivals, especially from China, are expected to slow in the first half of 2020.

Given that Chinese tourists make up about 20 per cent of Singapore's international visitors, with about 3.6 million Chinese visiting Singapore last year, the overall hotel revenue per available room is expected to see some downward pressure in the first half.

The slowdown in tourist arrivals will result in a decline in shopping spend by Chinese tourists, particularly retail trades and tourist destinations which cater to Chinese tourists.

Chinese tourists were the top spenders in the first half of 2019, spending close to S$2 billion on shopping, accommodation and F&B, among other areas; 51 per cent of that was spent on shopping alone.

Some of the shopping destinations targeting tourists - mainly Marina Bay Sands and Orchard Road locations - could thus be affected if the travel ban and virus outbreak persists.

However, landlords of major shopping centres are not under pressure to lower rents, especially if the overall situation improves in the next couple of weeks.

Typically, the well-managed shopping centres also have enough tenants-in-waiting to take up vacancies that may become available.

As long as the virus remains at bay with no community spread, the temporary decline in footfalls at malls should recover over a short period of time.

Liquidity is still aplenty and investors continue to search for yield in the real estate sector.

Well-managed and well-located office and industrial assets will remain sought-after by investors and occupiers who typically take a medium- to long-term view when they purchase or lease these properties.

Post-virus, the mid-term outlook for the hospitality market is favourable, given the low hotel supply pipeline over the next few years and healthy visitor arrival estimates.

A slew of new tourist initiatives and developments are expected to raise the attractiveness of Singapore as a regional tourist destination in South-east Asia over the long term.

This includes continued investment in Singapore's aviation infrastructure - Changi Airport Terminal 5 - and tourism attractions and developments such as the Mandai eco-tourism hub, Jurong Lake District, Sentosa redevelopment and asset enhancement initiatives (AEI) works at the two integrated resorts.

In the residential sector, there could be a slight impact on project launches as developers are likely to hold back new launches in view of the weaker sentiment.

High-end luxury properties with more Chinese buyers could be hit by slower take-up rates as viewings are expected to slow down amid the outbreak.

Again, the impact should still be contained as Singapore continues to be seen as a safe haven amid heightened global uncertainties.

The writer is the head of research for Singapore and South-east Asia at global property consultancy Cushman & Wakefield.