Sentiment in real estate market still on downward track in Q3: NUS poll

Nov 09, 2023

PROPERTY sentiment has been sent to a new low by external economic uncertainties caused by the escalating hostilities in Gaza and the ongoing war in Ukraine, a recent poll has found.

Real estate executives had also flagged the slowing down in new-sale activities in the local residential property market in September and October as reasons for the low sentiment, in the quarterly survey by the Institute of Real Estate and Urban Studies (IREUS) of the National University of Singapore (NUS).

In the third quarter, prime residential was the worst-performing sector in IREUS’ sentiment index survey, with a negative current net balance of 68 per cent. The sector also scored the worst future net balance among the respondents, at negative 30 per cent.

Net balance measures the difference between positive and negative responses, with a negative net balance pointing to a poorer sentiment.

IREUS director Qian Wenlan also attributed the dimmer outlook to the April 2023 property cooling measures, which levied a 60 per cent Additional Buyer’s Stamp Duty (ABSD) on foreign buyers of residential properties.

She said: “The recent money laundering bust sent chills through the luxury-home market here. In conjunction with higher borrowing costs and a substantially higher ABSD, foreign buyers now face a triple whammy that will disincentivise capital from entering this market segment.”

In contrast, the suburban residential sector is showing more resilience, at a negative 13 per cent for both current net balance and future net balance.

Survey respondents put this down to prices having reached a high in most regions, so buyers are expected to remain cautious and price-sensitive amid the economic headwinds. The higher number of options among suburban housing projects could also account for the outlook there being brighter, relative to the prime residential segment.

Those polled were also more negative than positive on prospects in most real estate sectors, except for prime retail, suburban retail and hotel/serviced apartments in Q3.

Ninety per cent of respondents flagged a slow-down in the global economy as the top risk to watch; 62.5 per cent cited rising inflation and interest rates as another major risk factor.

Prof Qian said: “The high cost of credit could translate into higher costs of doing business and a weaker labour market, among other issues arising from a slowing economy.”

Concerns over job losses in the domestic economy ranked third among the top risks – at 60 per cent, up from 52.5 per cent in Q2. Property executives were less concerned in Q3 about the tightening of financing / liquidity in the debt market, rising construction costs, and risks relating to new property launches.

Only 20 per cent of property executives cited concerns regarding the supply of development land and government intervention to cool the market, down from the 60 per cent in the previous quarter.

The risk of a real estate price bubble ranked the lowest, remaining constant at 7.5 per cent in Q3.

The Composite Sentiment Index, comprising the Current Sentiment Index and Future Sentiment Index, and which is a barometer of the general prevailing sentiment, fell from 4.6 in Q2 to 4.3 in Q3 – below the neutral score of 5.0. The Current Sentiment Index reflects sentiment over the past six months, and the Future Sentiment Index, for the next six months.

Prof Qian suggested that the lower sentiment index could be due to the current conflict in the Middle East, which is a major energy supplier and key shipping passageway; trouble there would contribute to higher oil prices and possibly trigger a recession over a wide geography.

“With domestic growth slowing, buyer sentiment may have reached a turning point,” she said.

Thirty per cent of executives surveyed in Q3 expect a moderately or substantially higher number of units to be launched in new projects in the next six months; 55 per cent of them expect the number to remain about the same.

Only 10 per cent of them expect fewer new launches.

Compared with Q2, there was less expectation of higher pricing for new launches in Q3. Only 20 per cent of the respondents expected new launch prices to be moderately higher. Seventy per cent of them believed new launch prices would be the same, an increase from 50 per cent in the previous quarter.

Only 5 per cent of property players expected prices to be moderately less, while 5 per cent expected prices to be substantially lower.

Survey respondents said that heightened risks faced by developers and previously committed capital outlays would prevent substantial price reductions. Prices should thus be relatively stable, though projects with strong selling points or those located where there is pent-up demand are likely to perform better than others.

Land was a top concern in Q3, with 25 per cent of those polled saying it would affect development cost. In the Q2 survey, 30 per cent expressed this view.

The Real Estate Sentiment Index (RESI) is the result of a poll among senior executives in Singapore’s real estate and development industry for a gauge of their perceptions and expectations of current and future private real estate market conditions. A standard-format questionnaire is mailed out electronically to these respondents, which include developers, consultants, financial institutions, professional firms and service providers. The survey is done quarterly, in March, June, September and December.