2024 Outlook for Singapore’s Property Sector and S-REITs to Look Out For

In what was described as a “pre-emptive measure”, the authorities imposed yet another round of property cooling measures in April 2023. The most salient change was the doubling of Additional Buyer’s Stamp Duty (ABSD) to a hefty 60% for foreigners purchasing residential property in Singapore, while tax rates were also stepped up across the board (although to a less drastic extent).

The cooling measures seem to finally be having some effect. According to the URA, Q2 2023 saw private residential property prices remaining largely flat amidst lower sales transaction volumes. Rental prices also continued to moderate.

Will the slowdown continue into 2024, or is it just a temporary pause as investors regroup?

Related: Guide to Buying Your First Private Property in Singapore (2023)

Singapore’s Property Market – Recap and Outlook

2023 was characterised by a seemingly never-ending upward march in housing prices – a remarkable anomaly, considering that many other major cities are facing real estate downturns. Case in point, Hong Kong has been on a spree of slashing housing taxes to stimulate property demand.

Home prices and rentals continued climbing even as the economic outlook dimmed on the back of stubbornly high inflation and sluggish global economic recovery. Have a look at these two charts published by the URA, showing private residential property prices, and rental rates.

Yet, as 2023 comes to a close, the residential property sector seems to be slowing down. But the real question is, will we see the market continuing to cool into 2024?

Property investors in Singapore seem to be taking the hike in cooling measures in their stride. To be fair, the latest measures were really aimed at keeping out foreign speculators, with Singaporeans and Permanent Residents only having to deal with smaller increases of between 3 and 5 percentage points.

Indeed, the PropertyGuru Singapore Consumer Sentiment Survey H2 2023 showed that appetite among local property investors remains strong. Despite the latest cooling measures, fewer Singaporeans are delaying their property purchases (24% in H2 vs 29% in H1).

Interestingly, among those who identify as property investors, a greater number of survey respondents (47% in H2 vs 36% in H1) indicated they intended to acquire additional properties – without selling their current ones.

Yet, this exuberance is not mirrored by analysts, with at least two banks expecting property prices to continue falling well into 2024.

Citing a reversal of the demand-supply imbalance, Morgan Stanley reckons that the seven-year rally in Singapore’s real estate sector will come to an end soon, marked by a 3% decline, and with the cooldown lasting up to two years.

Meanwhile, earlier in October, RHB said it expects private residential home prices to fall till Q1 2024.

Related: HDB Housing Grants Available for Different Types of Flats in Singapore (2023)

What Should Property Investors Do?

If you belong in the category of investors who see the increased ABSD as simply the cost of doing business, the price reductions predicted by Morgan Stanley and RHB would be welcome news. After all, lower home prices means lower costs, and therefore higher margins for investment returns.

The consideration here is whether residential real estate prices will recover and start growing quickly enough to meet your yield expectations.

If you’d rather not risk it, consider commercial real estate as an alternative. Offices, warehouses, restaurants and other properties used for non-residential purposes do not incur any ABSD.

There’s only the Buyer’s Stamp Duty (BSD), which was raised earlier this year from 3% to 4% for commercial properties with valuations exceeding S$1 million, and 5% (for valuations over S$1.5 million).

Related: A Step-by-Step Guide to Property Investing in Singapore

Where Do S-REITs Fit Into The Picture?

Well, they don’t – unless as an alternative channel for real estate investments.

You see, residential properties are not included in S-REITs (Singapore real estate investment trusts). Instead, these trusts only hold commercial properties such as offices, shopping malls and hospitality properties like hotels and serviced apartments. Thus, you will not be able to participate in the private property market by investing in S-REITs.

Another advantage of S-REITs is that despite their name, some of them diversify their holdings beyond Singapore’s geographical borders, allowing investors to potentially tap into returns from commercial property located overseas.

Of course, investing in S-REITs and directly purchasing and owning real estate on your own are two distinct styles of investing, each with its own pros and cons.

S-REITs are much more affordable, as you do not need a large capital to start investing. You also do not have to deal with repairs, maintenance and other landlord responsibilities. However, you will have to pay a management fee, and may have limited say over what type of properties are invested in.

In contrast, being a private property investor on your own will require a significant starting capital (or at least the ability to manage multiple, often costly mortgages), as well as attending to the needs of your tenants and the upkeep of your properties. In return, you receive 100% of the rental and/or capital gains generated.

Related: Everything You Need to Know About Investing in REITs Safely & Efficiently

3 S-REITs to Watch in 2024

Admittedly, S-REITs had a rough year in 2023, taking a beating from high-interest rates and a sluggish business environment. However, things have made a turn for the better, and there are signs an inflection point may be coming in 2024.

In that vein, here are three S-REITs worth keeping your eye on.

Prime US REITUSD (OXMU)

S-REITs with holdings in the United States have stood out in recent weeks, mounting double-digit rebounds in December so far.

Among the top performers is Prime US REITUSD (OXMU), which holds 14 prime office properties across the United States, with a combined total of 4.4 million sq ft of net lettable area. Prices per share rose from USD 0.09 on 1 November to USD 0.22 on 19 December, an increase of 2.4x.

With the US Fed widely expected to hold off on further interest rate hikes in 2024, this S-REIT is expected to hold strong in the near term.

Digital Core REIT (DCRU)

Data centres have come into the spotlight for REIT investors, powered by ever-increasing demand for digital services. One such S-REIT that is poised to ride this trend is Digital Core REIT (DCRU), sponsored by global listed data centre owner and operator, Digital Realty.

This is a pure-play S-REIT, meaning that it only holds data centres and no other type of commercial properties. This strict approach has paid off; year-to-date, the S-REIT outperformed the broader market, furnishing 23.7% total returns.

Mapletree Industrial Trust (ME8U)

If a pure-play data centre S-REIT is a little too concentrated for your liking, but you still have high conviction on the potential of the sector, consider an S-REIT with significant data exposure balanced with other holdings.

One standout is the Mapletree Industrial Trust, which on a year-to-date basis, generated total returns of 16.6%. Besides Data Centres, the trust holds a variety of commercial buildings, including Hi-Tech Buildings, Business Park Buildings, Flatted Factories, Stack-up/Ramp-up Buildings and Light Industrial Buildings.

As an added bonus, this trust is well-positioned to capture lift from the United State’s economic recovery on account of the 56 properties held in North America. Other holdings include 85 properties in Singapore and one property in Japan.

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