ERA Daily Research - 15 July

S'pore economy remains on track for recovery: Experts

The Straits Times, 15 Jul 2021, Thu 5:50 am

By Ovais Subhani

The Singapore economy remains on the recovery track, economists say, despite past and recent restrictions making it harder to gauge its trajectory.

It grew at a record pace in the second quarter of this year, though this was in comparison with the same period last year when it had plunged into its worst-ever recession.

Gross domestic product (GDP) expanded 14.3 per cent year on year in the April to June quarter, the Ministry of Trade and Industry (MTI) said yesterday.

This was largely due to the low base in the second quarter of last year, when GDP fell by 13.3 per cent due to the circuit breaker measures implemented from April 7 to June 1, MTI said.

On the other hand, compared with the first quarter of this year on a seasonally adjusted basis, the economy contracted 2 per cent in the second quarter.

The dip was expected because of the curbs imposed during the phase two (heightened alert) period, which stretched from May 16 to June 13.

In absolute terms, GDP in the second quarter remained 0.9 per cent below its pre-pandemic level in the same period of 2019, MTI noted.

Economists say that the recovery continues apace, driven by manufacturing and exports that were less hurt by the curbs.

The flash figures for the second quarter, however, were lower than the median of economists' forecasts in a Bloomberg poll that projected year-on-year growth of 14.8 per cent and quarter-on-quarter decline of 1.8 per cent.

MTI has kept its full-year 2021 GDP growth forecast of 4 per cent to 6 per cent and will review it next month.

However, thanks to an accelerated pace of vaccination, private-sector economists last month raised their 2021 growth forecast to 6.5 per cent, according to a Monetary Authority of Singapore survey.

Ms Selena Ling, OCBC Bank's chief economist and head of treasury research and strategy, said the latest MTI data shows GDP growth in the first six months is likely to reach an annual pace of 7.4 per cent.

Full-year growth may come close to 7 per cent - up from her earlier forecast of 6.3 per cent, she said.

Ms Ling expects recovery to pick up speed amid a ramp-up in vaccination rates and continued manufacturing resilience.

The MTI data showed the key manufacturing sector expanded by 18.5 per cent year on year in the second quarter, up from 11.3 per cent growth in the first quarter.

Still, on a quarter-on-quarter seasonally adjusted basis, manufacturing contracted by 1.8 per cent.

Non-oil domestic exports rose 8.8 per cent in May, below the 16 per cent forecast in a Bloomberg poll.

Mr Prakash Sakpal, senior economist for Asia at ING Bank in Singapore, said manufacturing remains a key driver, but the quarterly contraction was a setback.

"That means the recovery will be mainly dependent on exports regaining strength," he said.

For construction, the MTI data showed the sector expanded by 98.8 per cent year on year.

But in absolute terms, the sector was 31.6 per cent below the level it was in the second quarter of 2019.

On a quarterly basis, construction shrank by 11 per cent.

The services sector grew 9.8 per cent on an annual basis and shrank 1 per cent on a quarterly basis.

Most segments within the services group also remained below their growth levels reached in the pre-pandemic second quarter of 2019.

Ms Ling said: "This is a reminder that despite the whippy annual and quarterly prints, there are still sectors that have not recovered to their pre-Covid-19 levels yet, although we are gradually getting there."

Some economists joined her in raising their full-year forecasts.

UOB economist Barnabas Gan raised his estimate to 6.5 per cent, from 5.5 per cent previously.

Maybank Kim Eng analyst Chua Hak Bin now sees 6.8 per cent versus his previous prediction of 6.2 per cent.

Mr Irvin Seah, senior economist at DBS Bank, said he will stick to his 6.3 per cent projection for now.

Mr Euben Paracuelles, senior economist at Nomura International, also decided to keep his full-year forecast unchanged at 7.5 per cent.

All these projections, however, suggest that an upgrade of MTI's 4 per cent to 6 per cent growth forecast range is possible next month.


Q2's GDP rebound hints at upgrade to official growth outlook in August, say economists

The Business Times, 14 Jul 2021, 6:30 pm

By Sharon See

AN upgrade to Singapore's official growth outlook could come as early as next month, now that the Republic has posted a stellar rebound in the second quarter, economists have said.

Gross domestic product (GDP) jumped 14.3 per cent year on year in Q2, benefiting from the low base last year, when the economy contracted a record 13.3 per cent due to the "circuit breaker" from April 7 to June 1, the advance estimates by the Ministry of Trade and Industry (MTI) indicated on Wednesday.

Sequentially though, GDP in Q2 contracted 2 per cent on a seasonally-adjusted basis, undoing the previous quarter's gains of 3.1 per cent.

These numbers came below expectations for private-sector economists, who had predicted a 14.8 per cent year-on-year surge and a 1.8 per cent quarter-on-quarter contraction, a Bloomberg poll found.

In absolute terms, Q2's GDP is 0.9 per cent below its pre-pandemic level for the same period two years ago.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, said while the recovery from the depths of Q2 2020 is encouraging, "the upswing is exceptionally exaggerated by distortionary low-base effects".

"The double-digit growth print for Singapore's Q2 GDP is not a glamour shot of roaring, unfettered recovery, but rather glimmers of nascent pick-up extending, albeit subject to a bumpy path amid 'variant risks' and potential 'taper disruptions'," he said.

Still, Wednesday's data places Singapore's economic growth in the first half of 2021 at 7.4 per cent, and economists believe this is paving the way for an official upgrade to the full-year growth forecast, currently at 4 to 6 per cent.

Moreover, since flash estimates are based on data from the first two months of the quarter, several economists believe the final estimate for Q2 could be revised upwards, given that restrictions began easing from mid-June.

Barclays regional economist Brian Tan said he is expecting it to be raised to 6 to 8 per cent when the MTI releases its next Economic Survey of Singapore in August.

"This is partly due to the favourable base effects; our projections suggest that full-year GDP growth would be on track to hit 5.1 per cent, even if seasonally adjusted GDP remained flat at Q2 levels through the rest of this year," said Mr Tan, who is maintaining his 2021 forecast at 7 per cent.

Maybank Kim Eng economists believe the official growth forecast could be upgraded to 6 to 7 per cent. They are also raising their outlook from 6.2 per cent to 6.8 per cent, given the "stronger-than-expected manufacturing performance and rapid vaccine rollout".

UOB economist Barnabas Gan is upgrading his full-year outlook to 6.5 per cent, up from 5.5 per cent, owing to the "surprisingly strong performance in Q2 amid a rosier economic prognosis ahead".

Indeed, some economists saw the quarter-on-quarter contraction as a temporary setback caused by the tighter Covid-19 measures in April and May.

Sung-Eun Jung, an economist from Oxford Economics, said: "The vaccination rate has picked up, which will likely allow restrictions to ease further. The government has also switched gears from eradicating the virus to dealing with an endemic Covid-19."

Manufacturing is also likely to remain a key driver of GDP. The sector expanded 18.5 per cent year on year, but dipped 1.8 per cent sequentially.

HSBC economist Yun Liu said: "Manufacturing remains a bright spot, as a marginal pull-back in sequential growth needs to be put in the context of roaring industrial production in Q1. Thanks to elevated global demand for chips, both semiconductor and precision machinery production and exports continued to outperform."

However, economists from DBS and Maybank Kim Eng believe manufacturing momentum could begin to moderate in the second half of 2021.

Said DBS senior economist Irvin Seah: "Existing shortages of semiconductor chips will put a lid on the pace of expansion in the electronics cluster, even though global demand for high-end electronics parts and components remains strong."

HSBC's Ms Liu noted that the recovery in other sectors shows a divergent story, with services and construction activities hampered by tighter restrictions.

"Even before the recent outbreak, recovery in consumer-oriented services has been bumpy, given lingering labour market concerns. The recent outbreak has further stalled its recovery," said Ms Liu.

For now, economists are keeping an eye on Q3's economic indicators for a hint on the Monetary Authority of Singapore's (MAS) monetary policy review in October.

OCBC chief economist Selena Ling, referring to the Singapore dollar effective exchange rate policy band, said: "Any optimism spilling over to 2022 growth and core inflation dynamics may warrant at least a rolling back of dovish rhetoric, even if it may fall short of pulling the trigger for a recalibration of the S$NEER parameters just yet."

Citi economists believe policy normalisation could kick in in April next year, but upside inflation risks and cost pressures could push this earlier to October.

Agreeing, DBS' Mr Seah said MAS will be on "heightened alert" should inflation continue to "trend higher". "As economic recovery continues and external price pressure builds up, risk of a pre-emptive action by the authority in October should not be discounted."


HDB rents rise 1%, condo rents flat in June

The Straits Times, 15 Jun 2021, Thu 5:50 am

By Michelle Ng

Rents for private apartments were unchanged last month while those for Housing Board flats edged up by 1 per cent from the previous month, according to flash data from real estate portal SRX released yesterday.

Rental volumes for both condominium units and HDB flats rose for a third consecutive month in June, after tighter Covid-19 curbs were eased in the later half of the month, the SRX data also showed.

By staying flat, condo rents broke their streak of five consecutive months of rising rates.

Year on year, condo rents were up 8 per cent from June last year, although still down 11.1 per cent from their peak in January 2013.

HDB rents, however, rose for the 12th consecutive month, with a 1 per cent rise in June over May.

While HDB rents were up 9.2 per cent from a year earlier, they were still 8.3 per cent off their highs in August 2013.

Month on month, rents for all HDB flat types increased last month, except for executive units, which remained flat. HDB rents in non-mature estates rose by 1.9 per cent, while those in mature estates inched up by 0.1 per cent.

Huttons Asia senior director of research Lee Sze Teck said the upward trajectory of the HDB rental market was likely supported by tenants who are waiting for the completion of their Build-To-Order flats, many of which have been delayed for up to one year.

"There may have been some spillover demand from the condo market as some tenants look for cost-competitive alternatives," he added.

Huttons Asia chief executive Mark Yip said condo rents remained flat last month as tenants are increasingly unwilling to pay higher rents in the private market.

However, more people rented condo units last month, as volumes increased by 7.6 per cent to an estimated 5,468 units compared with the 5,083 units in May.

Most of the units rented were located in the outside central region, which made up 39.2 per cent of total rental volume.

Mr Yip said: "Demand was robust probably due to tenants extending their lease while waiting for their new homes to be completed. Some owners could have cashed out of their home and are renting while waiting for an opportune time to re-enter the market."

Rental volume for HDB flats rose by 2.9 per cent to an estimated 1,910 units leased last month compared with 1,857 units the month before.

HDB rental volume last month dropped 6.8 per cent from the year before.

Four-room flats were the most popular, making up 36.9 per cent of the total volume. Three-room flats followed at 34.6 per cent.

ERA Realty head of research and consultancy Nicholas Mak said the start of local universities' new academic semester next month likely increased demand for rental flats and apartments among students, especially those from overseas.

Ms Christine Sun, senior vice-president of research and analytics at real estate firm OrangeTee & Tie, said both rental markets were propped up by strong demand from locals who were renting temporarily after selling their private homes or HDB resale flats in recent months.

"Prices for both HDB resale flats and resale condominiums have been rising and many people have sold their units quickly to capitalise on the price appreciation," she noted. Others may have sold their private units before buying a new one so that they can take a fresh loan for their new property and avoid paying the additional buyer's stamp duty, she said.


Singapore's new private home sales dip in June, but demand stays buoyant: analysts

The Business Times, 14 Jul 2021, Wed 10:43 am

By Lisa Kriwangko

THE absence of new launches in June on the back of heightened restrictions has moderated the month's new private home sales, but analysts remain optimistic about market demand.

Based on caveats lodged, analysts estimated that developers in Singapore sold 871 new private homes in June, inching down 2.2 per cent from May's 891.

Christine Sun, senior vice-president of research and analytics at OrangeTee & Tie, noted that most developers avoided launching new projects because of the reduced occupancy capacity for galleries during Phase 2 (Heightened Alert), which lasted until the first half of the month.

Nicholas Mak, head of research and consultancy at ERA, said: "Although no residential project was launched in June, the primary market sales is about the same as the level in May, which saw the launch of One Bernam, Provence Residence and Park Nova."

Christine Li, head of research for the Asia-Pacific at Knight Frank, added: "Given that there was no new launch in June and there is depleting new home sales inventories, the sales numbers might not fully reflect the strength of the underlying demand."

Comparing year on year, the estimates are 12.7 per cent lower than the 998 new private homes sold in June 2020.

Including executive condominiums (ECs), which are public-private housing hybrids, the tally reached 961, down 21.9 per cent from sales in the previous month and 6.8 per cent from that of June 2020.

Despite the lower estimates, analysts remain bullish on the residential market.

According to Ms Li, demand will stay resilient, largely driven by positive economic recovery, Singapore's safe-haven status and domestic buyers "playing catch-up" as travel restrictions limit foreign buying demand.

"The reassurance from the MAS (Monetary Authority of Singapore) has also nudged more buyers to commit now rather than later as it might not see the cooling measures coming into effect until a few more quarters down the road," she added.

Ms Sun also said: "Sales will likely pick up in the coming months as there are a number of projects slated to be launched."

The official monthly sales data for June will be released by the Urban Redevelopment Authority on July 15.

Last month's top selling project was Hyll on Holland, likely due to the apartment complex's price cuts, according to Mr Mak.

He noted that from January to May this year, just two units were sold at a median price of S$2,458 per square foot (psf). However, after prices were lowered in June, 87 units with a median price of S$2,387 psf were snapped up.

Treasures at Tampines, which according to PropertyGuru has consistently made the top 10 best sellers list since its launch in 2019, sold another 80 units at a median price of S$1,411 psf.

New home sales in June, excluding ECs, were led by the outside central region, which accounted for some 38.7 per cent of sales, closely followed by the rest of central region with 37.8 per cent, according to data from OrangeTee & Tie.

Meanwhile, the core central region made up 23.5 per cent of the month's new home sales.

In terms of price, homes in the S$1 million to S$1.5 million range led the month by making up 36.6 per cent of transactions, excluding ECs. Some 30.8 per cent of homes were between S$1.5 million and S$2 million, while 21.6 per cent of transactions were for new homes in the S$2 million to S$3 million bracket.


Future of the office: where a fist bump beats the punch clock

The Business Times, 15 Jul 2021, Thu 5:50 am

By Tay Huey Ying

JLL's Worker Preferences Barometer 2021 provides a strong indication that offices will be more important now than before as the centre of the work ecosystem, and that an outstanding office environment will remain a critical strategy to engage employees who now prioritise a work-life balance over salary.

JLL's global barometer comprises a series of three surveys conducted in April 2020, October 2020 and March 2021. Employees in companies with staff strength of 100 or more and spanning all major industries across ten countries, including Singapore, were questioned on their feelings about working from home (WFH) and how it impacts their priorities at work, performance and well-being.

The following insights drawn from the responses of over 300 employees based in Singapore will be key in shaping the nation's future of work.

Firstly, physical offices are here to stay as WFH fatigue sets in. Workers say they are experiencing an increased amount of virtual fatigue, or burnout, and want to return to the office more.

They are craving face-to-face human interactions with colleagues, and are missing the change of scenery that comes from working and living in different places.

This has led to an increase in the ideal number of days that Singapore-based employees would like to work from the office - from just 1.7 days in the October 2020 survey to 2.3 days in the March 2021 survey.

At the same time, the ideal number of days that Singapore-based employees would like to WFH has fallen to 2.0 days in the March 2021 survey, down from 2.4 days in the October 2020 survey.

Secondly, purpose-led offices are the new future. People are more demanding about what the office should offer them in the future. The proportion of respondents who are satisfied with their current offices has dropped significantly, from 60 per cent in April 2020 to 45 per cent in March 2021.

This is a clear signal that offices need an in-depth redesign to meet employees' new expectations.

To this end, our survey suggests that offices of the future will have to be more humane and resilient. Of the employees based in Singapore, 71 per cent want to be working in an environment that puts health and well-being at the forefront.

One in two employees based in Singapore also want to be in workplaces that are resilient, in that they are able to innovate and adapt to future crises.

The survey also revealed that the future office has to cater to new working practices developed over the course of the pandemic, such as the option to work remotely and observing safe distancing.

Two in five employees expect to continue to leverage digital interactions whenever possible.

Similarly, two in five expect less density and more physical separation in their workplaces of the future, while one in four does not want to share their desk anymore.

Finally, flexible work is set to become mainstream. Work-life balance is the new employee motto, overtaking a comfortable salary as the number one priority of today's workforce. On this note, the appetite for flexible work has grown significantly, with nine in 10 respondents finding it an attractive flexibility option, up from eight in 10 in October 2020.

The office will be the primary place of work again. Long-lasting WFH practices are taking a heavy social and mental toll. At least one in two Singapore employees today is struggling to achieve boundaries and manage the mental load.

In particular, young parents (those with children aged 12 years or less), the 25- to 35-year-olds, and caregivers (employees living with an elderly family member) are most at-risk.

The office appears to be a tool to structure people's lives through bringing back social interactions which are most important to people living with an elderly family member, offering managerial support and learning opportunities to the younger generations.

The office environment can also recreate a more balanced working life anchored in healthy routines, with opportunities to socialise, break times and more clearly defined working hours - all aspects that young families are sorely missing at the moment.

We are convinced that the office will become the primary place of work again, but on the condition that it upgrades to meet the new priorities of the workforce.


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