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Nikkei Markets

Singapore's safe-haven lure boosts home prices in prime areas

Office rents, prices fall unexpectedly, quality spaces fare better

Prices of apartments in prime areas increased by 2.0% in the third quarter.   © Reuters

SINGAPORE (Nikkei Markets) -- Private home prices rose more than expected in the third quarter, driven by demand for apartments in prime districts, but office rents and values posted a surprising fall after steady gains over the past two years.

The contrasting data from Singapore's Urban Redevelopment Authority come amid growing uncertainty in Hong Kong and the slowdown in China, which has hit transactions in cities such as Shanghai. Analysts say there is a shift in demand from Hong Kong, where four months of unrest have deterred visitors and shaken investor confidence. By contrast, Singapore is attracting more investments in residential property with its safe-haven appeal.

"There were more foreigners buying luxury properties," in the last few quarters, said Tricia Song, head of research for Singapore at real-estate consultancy Colliers International. They may have been attracted by the stability and safety of Singapore property amid global volatility, Song added.

The trend could pose a challenge for the government, which aims to keep a lid on home prices.

Besides an uptick in luxury home sales, Singapore has also seen record occupancy levels in hotels as well as a spike in foreign currency deposits.

In a report earlier this week, Colliers said transaction values in Singapore's residential and office sectors increased by about 90% in the third quarter compared to the April-June period.

Total real-estate investment sales in the city-state, which includes government land sales as well as other property segments such as retail and hotels, jumped 53.7% to 11.2 billion Singapore dollars ($8.2 billion) in the three months to September, Colliers said.

According to URA, private home prices rose 1.3% in the third quarter from the previous three months, faster than the flash estimate of 0.9% released earlier in October. The increase followed a gain of 1.5% during the second quarter.

Prices of apartments in prime areas increased by 2.0% in the third quarter following a 2.3% gain in the previous quarter, while prices in the city fringes and suburbs rose by a smaller 1.3% and 0.8%, respectively.

Rents across the island remained relatively flat, however, edging up 0.1% on quarter during the July-September period after increasing 1.3% in the preceding period.

The government last introduced measures to check property prices in July, last year. These were aimed at discouraging purchases by wealthy foreigners and locals seeking to buy second properties. For example, foreigners who buy homes now have to pay an additional buyer's stamp duty of 20% of the property's value, up from 15% previously.

Private homes make up about 20% of all residences in Singapore where the majority live in government-built apartments.

The bigger surprise in URA's data for the July-September period was the 0.6% quarter-on-quarter decline in office rents and the 3.9% drop in prices, which stood in contrast to bullish reports by private sector analysts as well as the improved performances by office real estate investment trusts.

On Wednesday, CapitaLand Commercial Trust, Singapore's biggest office landlord, reported higher income from most of its properties and said leases signed during the third quarter exceeded the value of expiring rental contracts.

Desmond Sim, CBRE's head of research for Southeast Asia, said the URA data reflected the divergence between demand for higher quality, category one office spaces preferred by international investors and that for smaller and older commercial buildings.

The growth in median rents for top-category space "could be attributed to occupiers' focus on flight to efficiency," he said. Shrinking vacancies have exacerbated it, Sim added.

According to URA, median rents for category one offices grew 3.0% quarter-on-quarter, an acceleration from the 1.2% increase in the preceding period. By contrast, median rents for category two spaces fell 0.5%, reversing from the previous quarter's growth of 0.4%.

In the case of retail property, rents rose 2.3% on quarter while values gained 1.1%, indicting strong interest despite lackluster retail sales.

CBRE said URA's rental index may have been propped up by the strong performance of newly completed projects near major transportation nodes, and that finding tenants will remain a challenge for owners of retail spaces in secondary locations.

--Kevin Lim

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