SGP – Is Retail Property Price Peaking?

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.

==================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

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