The last few weeks have been a trying time for Singapore as it has been enshrouded in haze from forest burning in nearby Indonesia. This has been occurring annually, but the haze in 2015 could be the worst so far. When haze reaches unhealthy and hazardous levels, people avoid outdoor activities so as to minimise health risks and schools are closed. The Pollutant Standards Index (PSI) has climbed from below 100 (moderate-to-good air quality) to briefly above 300 (hazardous) while being range-bound from 101 to 200 (unhealthy) much of the time.

On 1 October, the Urban Redevelopment Authority released its flash estimates for the Residential Property Price Index for 3Q15. This fell 1.3% during the quarter, a faster pace than the 0.9% decline in 2Q15 and, cumulatively, the index has slid 8% over eight quarters, i.e., since 4Q13. The decline was caused by the cooling measures imposed by the government to quell an over-heated residential market following the global financial crisis. The residential property market is now facing additional headwinds from an economic slowdown and rising interest rates.

The office property market is also feeling the effects of the weaker business conditions and these have resulted in slower leasing demand and a decline in CBD rents over the last two quarters. Vacancy rates are expected to rise, as 3.1 million sq ft of new office space from Marina One, Guoco Tower and 5 Shenton Way is expected to be completed from the latter part of 2016 to early 2017.

The retail property market, which has already been moderating due to a weaker economy and slower retail sales, could be dampened further by a prolonged period of haze. Businesses may have to cancel outdoor events and arrangements and the Association of Singapore Attractions (ASA) has reported a 5-10% decline in visitors at its members’ shows. Sentosa Island, with its many attractions and activities, reported a 20% fall in the number of visitors since the haze started. Tourist arrivals in Singapore could also decline, as travellers decide on alternative destinations and any loss in tourism earnings could only add further to the economic slowdown.

Two indices are moving in opposite directions but both reflect the hazy conditions – one, literally, featuring the environment and the other, metaphorically, the state of the property market. The haze has come at a time when Singapore’s real estate market is facing great uncertainty under the current economic conditions. However, just as the haze will eventually clear and a healthy environment restored, so it will be for the property market when the hazy outlook eventually dissipates, at the end of the current down-cycle.

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