The knock-on property effect in Singapore

Khoon Goh

Head of Asia Research, ANZ

Singapore’s move to cool activity in its property sector will add to factors expected to moderate the country’s economic growth in the second half of calendar 2018. These factors are less favourable base effects, some slowing in exports and heightened trade tensions.

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Pic: Parliament House, Singapore

ANZ Research still expects gross domestic product (GDP) growth of 3.5 per cent for the full year, – a fall of 0.1 percentage points from 2017 but at the top end of the government’s forecast range of 2.5 per cent to 3.5 per cent.

"The rebound has stalled since the government announced new property cooling measures."

Growth is forecast to slow to 3 per cent in 2019 due to less-favourable base effects and a further slowing in exports. The construction sector, however, will start to recover next year and make positive contributions to growth for the first time since 2016, as en-bloc development get underway.

Core inflation is forecast to exceed 2 per cent towards year-end, with modest price pressures coming from an improving labour market and higher global oil prices. This will prompt the Monetary Authority of Singapore to continue to normalise monetary policy.

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A drag

For the first half of 2018 Singapore’s GDP growth was solid at 4.2 per cent compared with the same period in 2017.

Manufacturing and services contributed strongly to overall growth, with the former expanding by 10.5 per cent year-on-year and the latter by 3.4 per cent. Data points to continued solid activity in the manufacturing sector in the near term.

However, the effects of US-China trade tensions are expected to result in a slowing in exports towards the end of the year, which will in turn impact on manufacturing production.

The construction sector remains a drag on activity, falling by 5 per cent over the first half of 2018

Since its peak in the second quarter of 2016 Singapore’s overall level of construction activity has declined 16 per cent.

ANZ Research had been expecting a recovery in the property market to spur a pick-up in construction activity, which may spill over into domestic demand.

However the rebound has stalled since the government announced new property cooling measures in early July, the first time cooling measures were announced since August 2013.

The measures have had an immediate impact on en-bloc property sales, with only one small transaction made since.

Even in the absence of new en-bloc deals, those that have been transacted since May last year (totalling $S16.9 billion) will eventually be built.

There has been a strong increase in private residential building plan approvals this year but the actual construction work may only commence from late this year or in early 2019. Construction activity is also expected to receive some support next year from an increase in government development expenditure.

Overall, Singapore’s fiscal position remains very strong. The government’s primary balance has returned to a surplus of 1 per cent of GDP for the four quarters to the second quarter of 2018, the strongest in three years.

Khoon Goh is Head of Asia Research, Institutional at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.