The investment in a Singapore Condo has become a desirable option for both locals and foreign investors, thanks to the country’s robust economy, stable political climate, and exceptional quality of life. With a thriving real estate market, condos have emerged as a popular choice due to their strategic locations, convenient amenities, and potential for lucrative returns. In this piece, we will explore the benefits, important considerations, and necessary steps to take when investing in a condominium in Singapore.
Global real estate returns have seen a positive turnaround in 2Q2024 after facing cumulative losses for two years, indicating a promising recovery ahead. The rise in real estate values was fueled by low interest rates, which helped push global total returns up to 5.0% in 4Q2021 and an impressive 17.8% in 1Q2022, well above long-term averages.
However, the tightening cycle that followed led to a decline in values, bringing them back to 2018 levels on a global scale. We believe that the real estate market correction is almost complete, making it an opportune time for investors to reconsider this asset class. In the long term, real estate has shown to provide a stable income return and diversification benefits, and has the potential to generate strong returns during recovery periods. For example, after the early 90s recession, investors saw a 76% cumulative return over the next five years.
Additionally, evidence of a turnaround in valuations can be seen as global value losses slowed to 0.74% in 2Q2024, the lowest quarterly adjustment in the past two years. With offsetting income returns of 1.07%, global real estate achieved a positive 0.33% return, marking the first positive quarter since 2Q2022. Out of the 15 global markets in the MSCI Global Property Index, a majority saw write-ups in real estate values for the first time since 2Q2022. Eight markets, including Japan, South Korea, Singapore, Southern Europe, the Nordics, the Netherlands, France, and the UK experienced value increases from the prior quarter. Six markets saw value losses between 0.3% and 1.5%, all of which moderated from 1Q2024. Only Australia recorded a larger write-down in the second quarter than in the first, with a 4.2% correction bringing valuations more in line with its peers.
However, changes in capital values are only one component of real estate returns. Historically, the larger component of total returns has been income. This trend highlights the importance of income returns in driving overall performance in the real estate sector, underscoring the need for investors to consider both capital and income aspects when evaluating real estate investments.
Overall, income returns were generally stable and contributed to the positive total returns in 12 out of 15 countries in the second quarter. They were flat in the US (-0.09%), slightly negative in Ireland (–0.22%), and significantly negative in Australia (–3.07%). According to preliminary NCREIF ODCE index data (a capitalisation-weighted, gross-of-fee, time-weighted return index), US total returns are turning positive (0.25%) as values begin to rebound, and we expect this positive trajectory to continue.
Looking ahead, although fundraising for real estate investment shows signs of a potential rebound globally after two slow years, China and Japan could face challenges. In 3Q2024, China and Japan accounted for 27% and 15% of the US$7.5 billion ($10.04 billion) in cross-border inflows in Asia Pacific. Over half of Japan’s inflows came from global sources, while most of China’s came from within Asia Pacific, particularly Hong Kong and Singapore. However, both countries face high debt costs and other factors hindering a strong rebound in real estate capital inflows.
China has faced a property crisis since 2021, with risks such as price dislocation, geopolitical risk, and lack of liquidity hindering its market. The collapse of Evergrande has exacerbated this crisis, making it unlikely for interest in Chinese real estate from the West to return anytime soon. Additionally, the domestic property crisis persists, with high office vacancies, low rental yields, issues with failing developers, and government interventions. These factors have caused many European investors to avoid China and Hong Kong, regardless of potential returns.
Meanwhile, Japan remains an outlier in terms of interest rates, as major markets like the US have cut rates in an effort to boost property investment. In July, the Bank of Japan raised borrowing rates for the first time since 2007 to control inflation, reducing market attractiveness. This hike has prevented cap rate compression, meaning property prices have not risen, forcing real estate holders to rely on historically low-income yields. However, the senior housing sector remains an attractive niche due to Japan’s ageing population, with 29% of its population aged 65 or over. These assets are small, requiring an amalgamation play by investors.
On the other hand, Australia’s purpose-built student accommodation (PBSA) market has huge potential due to a significant housing shortage. Currently, only 20% of students in Melbourne and Sydney can be accommodated by universities, forcing the rest to seek private rentals. Additionally, real estate debt in Australia offers appealing risk-adjusted returns. There are funding gaps in construction, with many developers unable to secure bank financing. Sectors like logistics or PBSA offer long-term growth opportunities.
As the economy stabilises, both valuations and transaction market pricing suggest that the real estate market is likely near its bottom. However, additional risks are inevitable in an uncertain economic and geopolitical environment, but this applies to all asset classes. Over the past two years, the weight of real estate in investors’ portfolios has significantly decreased due to resetting real estate values and a record stock market. Today, investors may consider making fresh allocations to the private real estate market to achieve a strategic weighting.
In the long term, private real estate offers low correlations to other asset classes, strong income returns, and inflation-hedging potential. While there may be bumps in the road, we believe the market is beginning to look up, presenting excellent investment opportunities for savvy investors.