The combined favourable factors from capital flight due to the Ukraine/Middle East wars and HK's new national security legislation regime have massively pushed up investment demand for Singapore assets, thereby prompting headlines such as these of late:
>> Jack Ma's wife buys shophouses in ...Tanjong Pagar
for $37m (article 1);
>> Bridgewater
founder Ray Dalio joins
billionaires snapping up Singapore
‘shophouses’ (Article 3)
>> Singapore’s
shophouses — hotter than Fifth Avenue? (Article 4)
Whilst the first two
headlines might be interpreted as 'smart money' making early moves, the last
piece could be read as a sign of peaking market...
We continue to forecast
a new macro environment that is different from the good old days of near zero
interest rates and continued growth in global trade and productivity gains.
Instead, we believe the new reality is one of decoupling, deglobalisation, and
debt defaults, thanks to geopolitics and net zero / pandemic measures which not
only will drive further inflation, but will undermine high economic growth.
One of the consequences of the combined higher for longer inflation and debt default scenarios is rates staying high, or return to 90s highs, if not even 80s high levels:
Above SGP interbank
rates have already broken out of both the blue down trend as well as the lower
horizontal resistance over the past two years. If the worse outcome does pan
out as we feared, it might not be inconceivable to see rates hit 6.8% or thereabouts
in the next 2-3 years.
If Rent/Price moves can't match rate rises?
Using current trajectories in rent and price, we have modeled the near term yield increases, but sadly the rise in yields are not enough to offset the much more dramatic interest rate hikes, resulting in one of the more dramatic widening in retail yield discount vs deposit rates:
As a thought experiment,
we believe this is probably as bad as it gets, because we are not factoring in
the other capital flight which drove the rates higher - that from bonds.
Perhaps the initial crack in bond market (when yields go north of 6%) will be
negative for properties, but soon afterwards, the flight from bonds to real
assets (may unfold as early 2026) will completely reverse price performances to
the upside once more.
Based on this scenario,
we think not all investors need
to sell their safe haven assets (and indeed SGP shophouses are definitely safe haven in the
world we live in now), if
they can tolerate the price drops that happen before the final phase of the
upcoming yield expansion cycle...
In the meantime, the
very anaemic returns on retail property in SGP will continue to be a pain to
tolerate, especially for leveraged up owners:
Could SGP retail further
outshine HK in next few years?
The above wide gap
between yield and funding cost does indeed support our near term bearish
outlook on SGP retail assets, but if you look at the technicals vs HK retail
property, SGP retail has broken out of the green downtrend, and could be
hitting the blue channel top very soon (24% outperformance):
Should that level be
also breached, there could be even more upside to the top red resistance
(another 135% upside?).
Such a scenario probably
can only unfold if HK retail see another major leg down, and that could only be
driven by geopolitics rather than vanilla macro economics...
==================Article 1==================
Jack Ma’s Wife Buys Shophouses in Singapore’s Tanjong Pagar at Up to $37M
Beatrice Laforga | 2024/02/23
Despite stamp duties and
investigations, wealthy mainland investors are still banking on Singapore
properties, with the wife of the country’s best known tech tycoon having
purchased a row of shophouses in the Tanjong Pagar area last month for a
reported S$45 million to S$50 million ($33.5 million to $37.2 million).
==================Article 2==================
Shophouse sales surge and at higher prices in Q1 as high-net-worth investors return: Knight Frank
Samuel Oh | Fri, May 10,
2024 · 10:38 AM
In 2023, shophouse sales
came to 132 units worth S$1.2 billion. The number of units was 31 per cent
lower than the 191 units transacted in 2022 worth S$1.6 billion. Shophouse
sales have fallen from their peak in 2021, when a total of 254 units worth S$1.94
billion changed hands.
[...]
Knight Frank projects
the sales volume of shophouses to be between S$1.1 billion and S$1.2 billion
for the rest of 2024.
==================Article 3==================
Bridgewater founder Ray Dalio joins billionaires snapping up Singapore ‘shophouses’
Investor’s family office
bought two heritage properties for $19mn
Bridgewater Associates founder Ray Dalio’s family office has bought two multimillion-dollar “shophouses” in Singapore, as billionaires snap up the heritage properties in the city-state.
https://www.ft.com/content/9741784e-f69a-45cf-adf3-cc5b863c873f
==================Article 4==================
Singapore’s shophouses — hotter than Fifth Avenue?
Mercedes Ruehl / MAY 24
2024
Amid changing political
dynamics in South-East Asia, these colonial-era buildings have become some of
the world’s most expensive properties, home to Michelin stars and chichi
retailers — and a target for money launderers
https://www.ft.com/content/e1a53cb8-5bf0-408a-91a0-bcdd738c0f11
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