Residential Market Update October 2018

Singapore

Unemployment Rate May 2018

GDP Growth Q1 2018

Inflation Rate May 2018

Singapore Interbank Offered Rate Q1 2018

2.0% 0.4%

1.5%

In the first quarter of 2018, Singapore’s economy grew by 4.4% year-on-year (y-o-y), in real terms, and 4.6% in nominal terms; faster than the 3.6%, in real terms and 4.1% in nominal, that it grew the whole of 2017. All major sectors, except for construction, saw growth. The manufacturing sector remained the key economic growth driver, having expanded by 9.8% y-o-y, accelerating from 4.8% in Q4 2017.

The service sector expanded by 4.1% y-o-y in Q1 2018 – slightly faster than the 3.5% expansion in the preceding quarter – primarily due to growth in the finance & insurance and information & communications sectors. By contrast, the construction sector shrank by 5% y-o-y in Q1 2018, matching the rate of contraction seen in Q4 2017. The decline was largely attributed to persistently weak public and private-sector construction activities; a factor that continues to weigh on performance.

However, the cost of borrowing has continued to increase in early 2018, with the three-month Singapore Interbank Offered Rate (Sibor) in June 2018 rising to the highest since September 2008, at 1.514%. Inflation continues to remain positive at under 1%; in May 2018, it stood at 0.35%. Unemployment is at its lowest level for a year, at 2%.

Economic indicators Nominal GDP growth for Singapore, unemployment, inflation and the Singapore Interbank Offered Rate

GDP Growth Unemployment Rate Inflation Rate

2014

2015

2016

2017

2018

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Source: Knight Frank Research, Macrobond, Singstat, Singapore Ministry of Manpower,

Monetary Authority of Singapore

4.6%

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2

In 2017, private home sales reached 25,010 units – a 52.7% increase from 2016 – with the market bottoming out in the second half of 2017 (H2 2017). The festive season prompted declines in Q1 2018, but the number of home sales rebounded in Q2 2018. Fuelled in part by a stronger economic outlook and sentiments, the total private transaction sales volume reached 6,201 units in Q2 2018; a 16.4% quarter-on-quarter (q-o-q) increase from the 5,328 units in Q1 2018.

Due to rising demand, private residential home prices across all market segments in Q2 2018 marked the highest increase since the second quarter of 2010. According to the Urban Redevelopment Authority (URA), the private residential home segment reported a quarterly increase of 3.4% in Q2 2018. The prices of landed and non-landed homes also recorded increases of 3.8% and 3.3% q-o-q respectively.

The price growth was attributable to both domestic and overseas demand. Many

Singaporean buyers were seeking replacement homes after selling their homes collectively (en bloc). The demand from overseas buyers came from some who are now permanent residents in Singapore, as well as buyers who have divested their property portfolios.

Prices for the non-landed private residential segment in the Rest of Central Region (RCR) went up the most, with a quarterly increase of 5.7% in Q2 2018, compared to the Core Central Region (CCR) and the Outside Central Region (OCR), which recorded increases of 1.4% and 2.9% respectively.

The increase in prices of homes in the RCR was not reflected in Q1, due to the lack of launches in this area at that time. The RCR accounted for 2,044 units sold in Q2 2018, about 34% higher than the 1,525 units in Q1 2018.

16.4% Quarter on quarter increase in transactions in Q2 2018

3.4% Quarterly increase in residential home prices in Q2 2018

52.7% Annual increase in residential transactions in 2017

Singapore Sales Market InsightCurrent conditions in the Singapore sales market.

Residential Market

Residential transactions The number of residential transactions in Singapore

Household growth The annual increase in number of households in Singapore

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q4

2017

Q1 2

018

Q2

2018

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2013

2014

2015

2016

2017

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Source: Knight Frank Research, REALIS Source: Knight Frank Research, REALIS Source: Knight Frank Research, Singstat

Residential prices The annual percentage change in non-landed private residential property prices in Singapore

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q4

2017

Q1 2

018

Q2

2018

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

The high number of completions since 2014, coupled with the slower growth of rental demand from expatriates, has contributed to a decline in residential rents in recent years. Since the tightening of the policies relating to foreign labour in 2013, leasing demand has slowed. Foreigners form a significant proportion of the leasing demand in Singapore.

But there are signs that rental levels are hitting a low point, with the supply of new completions tapering in 2017. In recent months rents have been supported by higher demand, due to en bloc sales. Some displaced owners choose to lease rather than buy a new home in the short term, citing higher home prices and rising interest rates.

With higher demand, the number of leasing transactions climbed from 75,721 transactions in 2016 to 81,187 transactions in 2017, to achieve a 7.2% increase. This momentum has continued in 2018, with a total of 34,374 leasing transactions recorded within the first

five months of the year, equating to an annual increase of 6.1%.

The rental market in CCR was active, with leasing transaction volume rising by 8.2% y-o-y to 24,508 transactions in 2017, but the total transaction value grew at a slower pace of 3.4% over the same period. The demand for CCR has been resilient, especially among choice projects that offer efficient layouts and lush landscaping. Yet the high vacancy rate in CCR has pressured owners to be more flexible to retain their existing tenants.

7.2% More lease transactions in 2017 than 2016

34,374 Leasing transactions in the first five months of 2018

8.2% Annual increase in leasing transactions in the Core Central Region in 2017

Singapore Rental Market InsightA look at recent demand in the Singapore rental market.

Residential Market

Source: Knight Frank Research, REALIS Source: Knight Frank Research, REALIS Source: Knight Frank Research, Singstat

Rents The annual percentage change in non-landed private residential rents in CCR

Rental leases The number of leases agreed per quarter

Financial & business services Annual change in employment in financial & business services

2013

2014

2015

2016

2017

0

10,000

20,000

30,000

40,000

50,000

Q1 2

013

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q4

2017

Q1 2

018

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Q1 2

013

Q2

2013

Q3

2013

Q4

2013

Q1 2

014

Q2

2014

Q3

2014

Q4

2014

Q1 2

015

Q2

2015

Q3

2015

Q4

2015

Q1 2

016

Q2

2016

Q3

2016

Q4

2016

Q1 2

017

Q2

2017

Q3

2017

Q4

2017

Q1 2

018

0

5,000

10,000

15,000

20,000

25,000

Malaysia

Singapore Changi Airport

Singapore Strait

East Coast Parkway

Tampines Expressway

Cen

tral

Exp

ress

way

Seletar Expressway

Bukit Tim

ah

Expressway

Kranji E

xpres

sway

Pan-Island Expressway

Ayer Rajah Expressway

Kala

ng-P

aya

Leba

r Exp

ress

way

Local Residential Market PerformanceA look at market performance on a regional level over the past three months.

Local Performance

4

Source: Knight Frank Research, REALIS

Core Central Region (Non-Landed) Rest of Central Region (Non-Landed) Outside Central Region (Non-Landed)

Price 3 months Price 3 months Price 3 months

Rent 3 months Rent 3 months Rent 3 months

Prime gross yield Prime gross yield Prime gross yield

1.41% 2.91%

0.60% -0.30% 0.70%

2.73% 2.99% 3.17%

5.69%

| the change in average prices over the 3 months to June 2018| the change in average rents over the 3 months to March 2018 | the gross yield at June 2018 given average prices and rents

Price 3 monthsRent 3 months

Prime gross yield

Paya LebarIt’s an exciting time for Paya Lebar (District 14), as Singapore’s Urban Redevelopment Authority (URA) unveils its strategy to inject new life into the area. Located in the eastern city fringe, Paya Lebar was once undesirable swampland, the site of Singapore’s first international airport. But over the years it’s transformed into the buzzing commercial hub seen today.

Local Focus

Malaysia

Singapore Changi Airport

Singapore Strait

After its airport moved, much of Paya Lebar was marked for industrial use and it’s now home to manufacturing and production corporates. Part of Paya Lebar is residential, while the other part was used for military and aviation purposes. However, since the announcement for the Circle Line under the Mass Rapid Transit (MRT) system Stage Three and Four (part of URA’s Master Plan 2008), Paya Lebar has been rebranded as a commercial hub second only to the CBD.

With the recent wave of mixed-used developments at Paya Lebar Central, the area is now witnessing a new phase of gentrification. Following Master Plan 2014, the URA has been actively releasing land parcels of varying sizes for commercial needs to promote the decentralisation of business activities from the traditional CBD.

The new developments contrast with older commercial buildings around the intersection of Tanjong Katong Road and Sims Avenue to create a unique character for the area, while shopping and lifestyle amenities give developers the opportunity to create new mixed-use concepts that embrace the theme of “live, learn, work, play”.

One notable integrated development is Lendlease’s four-hectare Paya Lebar Quarter. It comprises close to 1 million sq ft

of office space, 429 residential units and a retail mall of 340,000 sq ft. Slated for completion in H2 2018, the development will be connected to parks and offer its residents impressive amenities.

Another major, recently completed, development is Sims Urban Oasis by GuocoLand. Close to James Cook University and established schools such as Geylang Methodist Primary School, this popular project comprises 1,024 residential units.

Potential investors are also attracted to Paya Lebar’s residential properties because of their rental potential. Given the area’s proximity to the CBD, it’s become an attractive proposition for companies seeking to decouple their functions and relocate outside the district. The growing number of information technology firms – both start-ups and established SMEs – further deepens the rental catchment in the area.

What you could buy for…

SGD 800,000 A leasehold one-bedroom unit in the RCR, such as Serangoon

SGD 1.8 million A freehold one-bedroom unit in Orchard Road

SGD 8 million A freehold four-bedroom Orchard Road unit with concierge services

6

Property Snapshot*

In this section, Knight Frank highlight certain characteristics of properties that appear to be driving demand. From the private property caveats lodged in the year to June 2018, from Singapore URA data, it is possible to derive patterns of property buyers that help readers to better understand the local market.

Property Snapshot

Data from the Singapore Urban Redevelopment Authority (URA) shows that in the second quarter of 2018, there were 2,366 private new home sales. Over the same time period, according to Singstat, there were 1,327 private residential property completions and construction was started on another 3,023 private properties.

For all new sales in Singapore, the Central Region has witnessed the most activity, with the number of sales reaching 4,053 between June 2017 and June 2018. Within the Central Region, the Core Central Region, which includes the Central Business District, is especially popular among investors. An example of a new property in the Core Central Region is illustrated on the right.

Owning a private property is on the wish list for many Singaporeans given its association to status. Foreign buyers, separately, are attracted to property in Singapore due to its potential as an investment asset, but also for Singapore’s security, lifestyle, education and pro-business environment. Across all districts, non-landed properties, like the one illustrated to the right, equated to a total of 31,267 or 90.9% of all transactions in the year to June 2018. Non-landed properties that attract strong demand tends to have good accessibility and are close to high growth areas.

Despite there being six property types to choose from in Singapore, the most popular within the housing market are private condominiums. Across all districts, private condominiums saw the highest transaction rates with 14,816 total sales in the year to June 2018. The Central Region was responsible for nearly half of these, as it saw a total of 8,184 transactions. An example of a new property featuring private condominiums in this region, is illustrated to the right. Private condominiums are the most frequently transacted in the market because there are less ownership restrictions. For instance, foreign buyers are not allowed to purchase landed properties, except in certain exempted areas like Sentosa.

Location

Non-landed Properties

Private Condominiums

*The property listed in this section is for reference only. HSBC does not hold a view of the property and is not soliciting, advising or recommending any reader to buy or sell the property. Readers should be aware of changes to the price of the property and exercise proper due diligence before entering into any property transaction.

Artist Impression for Marina One Residences

Artist Impression for Twin VEW

Artist Impression for Daintree Residences

7

Next Steps

Please contact your HSBC Premier Relationship Manager or call our HSBC Premier hotline:

Hong Kong+852-2233-3322www.hsbc.com.hk

Important Notice© Knight Frank LLP 2018 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

Important NoticeThis report is issued by The Hongkong and Shanghai Banking Corporation Limited (“HSBC”). The content of this report, including but not limited to the information stated and/or opinion(s) expressed in this report, is exclusively prepared and/or provided by Knight Frank LLP. This report is to provide a high level overview of a specific property market, and is for information purposes only. HSBC has not been involved in the preparation of such information and opinions. HSBC makes no guarantee, representation or warranty and accepts no responsibility for the accuracy and/or completeness of the information and/or opinions contained in this report. In no event will HSBC or HSBC Group be liable for any damages, losses or liabilities including without limitation, direct or indirect, special, incidental, consequential damages, losses or liabilities, in connection with your use of this report or your reliance on or use or inability to use the information contained in this report. This report does not constitute and should not be construed as a solicitation, an investment advice or a recommendation to any reader of this content to buy or sell properties nor should it be regarded as investment research or tax or legal advice. HSBC is not recommending or soliciting any action based on it. Any market information shown refers to the past and should not be seen as an indication of future market performance. You should always consider seeking professional advice when thinking about undertaking any form of investment. This report is distributed in Hong Kong and may be distributed in other jurisdictions where its distribution is lawful (but not intended for jurisdiction where its distribution is unlawful). This report is not intended for anyone other than the recipient. The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings.

For property enquiries:Tan Tee KhoonExecutive Director & Head of Residential Project Marketing teekhoon.tan@sg.knightfrank.com

Linda ChernDirector & Head of Residential (Prime Sales & Corporate Leasing)linda.chern@sg.knightfrank.com

Alice TanDirector of Residential Project Marketingalice.tan@sg.knightfrank.com