Our economy is showing some signs of softening. Growth was at its weakest in five years for the second quarter ending in June (1.9% as compared to 6.9% expansion in the first quarter), an indication that Singapore is not immune to high inflation and the global economic slowdown.
Manufacturing output in June rose 2.5 percent compared to last year but was lower than expected – economists from Dow Jones Newswires predicted a gain of 3.1 percent.
As investors (whether in stocks or properties), we have to examine such economic reports in order to gauge future trends with confidence. If we wait for the newspapers to report when the market is recovering, it is usually too late.
The manufacturing reports are significant as this sector accounts for a major chunk of Singapore’s GDP, which totaled 243 billion Sing dollars last year.
To summarize the report, marine and offshore engineering are still leading the way, followed by transport engineering and biomedical manufacturing. The volatile pharmaceuticals managed to reverse two previous months of contractions.
Other manufacturing industries comprising electronics, chemicals, general, food and beverage disappointed with weak to negligible growth.
As for the residential property market, sentiment remains weak, with private home sales down 40% in Q1. This will have a dampening effect on our construction boom in the coming months. As it is, private homes are taking a slower road to completion. With the construction sector less buoyant, I believe economic growth in 2009 will be moderated further.
Those who are vested in a property should also prepare for tougher times ahead. Next year is likely to be bad for landlords as a record 13,400 homes are expected to be completed. This will force down rentals, especially in prime districts and East Coast.
A fall in rentals has an adverse cyclical effect on home prices. Landlords, facing problems servicing their mortgages, may choose to let go of their units more cheaply while investors will base their offers on how much a home can command in rentals.
Hence, it is inevitable to see private home prices tumble. The silver lining is that the oversupply can be absorbed by our growing economy and jobs creation as well as a compensating effect from the demolition of en-bloc estates.