Singapore Economy 2001

With the US and Japanese economies mired in recession and the economic slowdown in Europe, Singapore, which is heavily dependent on these export markets, experienced a sharp downturn as well. All sectors were affected with manufacturing being the worst hit. Amid recessionary pressures, the manufacturing and financial services sectors were forced to undertake massive job cuts and retrenchments during the year. In the face of its worst recession since independence in 1965, the unemployment rate reached a 15-year high of 4.7% in December 2001 which was higher than the 4.4% recorded during the Asian financial crisis in 1998, but lower than the peak of 6% in March 1986.

For the whole of 2001, the Singapore economy shrank by 2%, a sharp contrast to the robust 10% growth in the previous year. This sharp reversal in growth was primarily due to the slump in external demand although weak household consumption and business investments also contributed to the contraction. The economy saw an improvement in the fourth quarter of 2001, with a growth of 5.6% on an annualised quarter-on-quarter basis. This has prompted the government to revise its 2002 GDP target to 1-3%, on the back of an anticipated rebound in the US economy.

Asian Property Markets 2001

Weak demand as a result of a worsening global economic climate continued to drive office rentals and capital values down, and vacancies up in most Asia-Pacific cities. Market sentiment and business confidence worsened following the September 11 attacks in the US. An increase in supply from sub-lease and surrendered spaces has also created downward pressure on the rental in most of the markets.

Australia and China continued to experience robust growth in the office market. With the entry of China to the World Trade Organisation (WTO), the demand for prime office space, especially in Shanghai, is expected to grow. Vacancy in Shanghai Puxi fell 7.3% while rental rose an impressive 23.7%.

The Singapore economy grew 5.6% in fourth quarter 2001.

Most residential markets in Asia were also not spared by the global economic slowdown. Capital values for the luxury residential segment in Hong Kong Island (1.2%), Makati CBD (7.5%), and Kuala Lumpur (2.6%) fell. Nevertheless, there were some relatively bright niches in the Asian residential markets. Prospect for middle-income residential housing remain sound in Philippines, especially around the major business districts. In Bangkok, sale of landed houses increased with strong end-user demand. Shanghai’s residential market remained buoyant, supported by the sharp rise in foreign investments coupled with favourable property policies and promising economic outlook. The sales market also remained strong, with the average capital value rising by about 9%. In 2001, the Sydney residential property market continued to defy predictions of impending downturns. Demand has been fuelled by interest rate cuts, an extension of the First Home Owner’s Grant and a general under-supply of stock.

The Singapore office market reversed in 2001, after a bumper year in 2000. Take-up fell to 1.12 million sf in 2001 from 4.22 million sf in the previous year.

In Singapore, demand for private residential properties, especially those in the mid- and low-end segments, surged in the last quarter of 2001, in response to price cuts, deferred payment schemes offered by developers, and attractive mortgage rates. The government also removed almost all of the anti-speculation measures implemented in 1996 including capital gains tax for property sold within three years of purchase. Foreigners are allowed to take Singapore dollar loans for residential properties.

Asian Economic and Property Outlook 2002 Prospects for 2002 will depend largely on the timing and magnitude of a recovery in the US economy. Economists forecast that the US economy will recover in the second half of 2002. Recent economic data in the US suggests that the upturn is coming on more powerfully at the start of 2002. The first quarter growth in 2002 has been estimated at 4.2%, the fastest in almost two years.