ERA Daily Research - 7 June

Singapore retail sales rebound 54% in April, picking up from last year's lockdown

The Business Times, 4 Jun 2021, Fri

By Annabeth Leow

SINGAPORE retail sales grew for the third straight month in April, off the low base from last year's "circuit breaker" lockdown when most shops were shuttered.

Still, sales remained below pre-pandemic levels, the Department of Statistics (SingStat) said on Friday. Some 11.2 per cent of April's transactions came from online shopping.

Retail sales rose by 54 per cent year on year to S$3.3 billion, picking up from the increase of 6.3 per cent in March, according to SingStat data.

The rebound in till takings slightly underperformed the 58.6 per cent expansion forecast by private-sector economists in a Bloomberg poll.

And when the 261.3 per cent jump in big-ticket motor vehicle purchases was excluded, retail sales were up by a more modest 39.2 per cent on the year before.

Against the low base, most retail segments posted "significant year-on-year increases".

These ranged from growth of 17.3 per cent for computer and telecom gear and 31.2 per cent for cosmetics, toiletries and medical goods, to surges of 442.6 per cent for clothes and shoes, and 646.8 per cent for watches and jewellery.

But higher sales of groceries in the year-ago period - when Singapore residents had to stay at home - led to year-on-year declines in sales at mini-marts and convenience stores (-16.8 per cent) and supermarkets and hypermarkets (-30.2 per cent).

On a seasonally adjusted, monthly basis, retail sales slipped by 1.3 per cent against March, and declined by 0.8 per cent when vehicles were excluded.

Meanwhile, food and beverage (F&B) receipts grew by 73.4 per cent year on year, to S$693 million, with online purchases making up 24.4 per cent of sales.

Sales were up for fast food outlets (+34.8 per cent); cafes, food courts and other eateries (+59.6 per cent); and restaurants (+172.9 per cent)

But overall F&B sales still remained below pre-Covid-19 levels, SingStat noted.

Caterers also registered a 31.7 per cent drop in receipts in April, on lower demand from foreign worker dormitories, where catering companies had supplied meals during the lockdown in the year-ago period.

On a seasonally adjusted, monthly basis, F&B sales shed 1.3 per cent.


Retail sales increase in April but takings below pre-pandemic levels

The Straits Times, 7 Jun 2021, Mon

By Prisca Ang

Retail sales in Singapore rebounded in April, but the jump was largely inflated by comparison with the low base a year ago, when the Republic entered its circuit breaker period and physical stores were closed for most of the month.

Takings at the till continued to be below pre-pandemic levels, the Department of Statistics (SingStat) said in its report yesterday, and analysts say the outlook for the rest of the year is clouded by the likelihood of continued Covid-19 restrictions.

Retail sales surged by 54 per cent in April on a year-on-year basis, compared with a revised 6.3 per cent increase in March, according to SingStat data. It fell short of the 58.6 per cent increase expected by analysts polled by Bloomberg.

This made for a third straight month of retail sales growth after a 24-month year-on-year slide.

UOB economist Barnabas Gan said year-on-year growth has stayed positive for the quarter to April despite the absence of tourism-led demand, thus highlighting that domestic demand was behind the robust recovery.

He expects retail sales to recover further on the back of domestic demand, given that the labour market is likely to continue improving in the second half of this year.

The bank upgraded its full-year retail sales outlook to 10 per cent growth for 2021, up from 1 per cent previously.

OCBC Bank economist Howie Lee said retail sales are likely to continue posting double-digit year-on-year growth for the rest of the second quarter due to the low base in May and June last year amid the circuit breaker.

However, he expects sales to contract on a seasonally adjusted month-on-month basis due to measures under phase two (heightened alert).

"Even if Singapore manages to return to phase three as scheduled, the continued restrictions on movement as well as lack of tourist arrivals mean retail sales for the rest of 2021 will likely be sluggish," he said.

Excluding motor vehicles, retail sales rose 39.2 per cent in April, compared with a 4.5 per cent increase in March.

All segments registered jumps in turnover except for supermarkets, hypermarkets, minimarts and convenience stores.

Takings at these places reversed their growth streak from last year, when more people stayed at home and bought groceries during the circuit breaker period.

Sales at supermarkets and hypermarkets plunged by 30.2 per cent from a year ago, while takings at minimarts and convenience stores dropped 16.8 per cent.

On a seasonally adjusted month-on-month basis, takings at the till in April fell 1.3 per cent or 0.8 per cent, excluding motor vehicle sales.

SingStat observed that most retail industries recorded a fall in sales in April compared with March. It also noted that food and beverage (F&B) sales continued to be below pre-pandemic levels.

F&B services leapt by 73.4 per cent year on year in April, compared with a revised 8.4 per cent increase in March.

This was due to the low base last year when dining in at F&B establishments was not allowed during the circuit breaker period.

The total sales value of F&B services in April was estimated at $693 million, with online sales making up about 24.4 per cent.

The estimated total retail sales value in April was $3.3 billion. Of this, online retail sales made up an estimated 11.2 per cent.


Price premium of HDB resale flats in mature estates may shrink further

The Business Times, 5 Jun 2021, Sat

By Fiona Lam

THE price gap between Housing Board (HDB) flats in mature estates and those in non-mature estates is likely to continue to narrow in the coming years, Huttons Research said.

This comes as buyers are shunning decaying leases despite amenities and accessibility, while some younger estates are also transforming and winning favour with residents, the real estate consultancy noted in a report on Friday.

If the trend persists, "it is possible that we will see a million-dollar flat in a non-mature estate soon", said Lee Sze Teck, director of research at Huttons Asia.

Last month, HDB resale prices rose more quickly in non-mature estates, climbing 12.4 per cent year on year and increasing 1.4 per cent from April, flash figures from property portal SRX showed. Mature estates, meanwhile, saw prices grow by 11.6 per cent year on year and 0.9 per cent month on month.

Singapore's mature estates include Ang Mo Kio, Bishan, Central Area, Clementi, Pasir Ris, Tampines and Toa Payoh. Non-mature HDB estates include Bukit Batok, Choa Chu Kang, Jurong East, Punggol, Sengkang and Woodlands.

With a more central location as well as numerous amenities and facilities nearby, flats in mature towns tend to command a premium over those in non-mature estates. Sellers also expect this because they too had paid a premium when they first bought their flats, Huttons wrote.

Generally, that should be the case, given real estate's "location, location, location" mantra. But the differentiation between mature and non-mature estates has blurred in recent years, with average resale prices in the latter areas climbing at a faster rate, the research team found from its analysis of price data from 2010 to May 2021.

One possible reason for the shrinking premium is the age or remaining land tenure of the flats that changed hands, Huttons said. "Even if your flat is in a mature estate, you will not be able to fight against a decaying lease, which seems to have a greater impact."

The gap narrowed for three-room and five-room flats in the past decade, partly because there was an increase in new supply of such flats being built and sold in non-mature estates. That meant the average age of these flat types transacted in non-mature estates came down more quickly than in mature estates.

However, four-room flats' price gap remained fairly stable as both mature and non-mature towns saw an influx of such homes. Their average ages therefore started to decline across the country at around the same time.

Executive and larger flats also saw the price premium thinning. Huttons attributed this to robust demand for bigger living spaces since the start of the Covid-19 pandemic, driven by work-from-home arrangements and movement restrictions. That helped prices rise more significantly in non-mature estates, even though the public housing authority had stopped building larger homes in recent years as family demographics changed.

Meanwhile, the reverse was seen for two-room flats, with their average transacted prices in non-mature estates fetching a premium over those in mature estates. This came as the former's transactions involved much newer flats; on average, they were less than 10 years old, versus mature towns' flats which were more than 35 years old.

"It appears that age plays a more important role in the value of flats in recent years, rather than the location in a mature or non-mature estate," the Huttons analysts wrote.

"This is a valid concern, as no one likes the thought of their home depreciating to zero as the lease runs down," they said.

Some homebuyers may also be turning to newer estates as the prices of available HDB resale flats in mature estates have surged beyond their budgets, said ERA Singapore head of research and consultancy Nicholas Mak.

In addition, Huttons noted that as connectivity and amenities improve in non-mature estates, some of their resale flat prices have inched close to mature estates'.

For example, a five-room flat in non-mature Punggol fetched S$910,000, approaching the S$1.095 million price tag for a five-room flat in Clementi.

Punggol is one of several non-mature estates that underwent a "huge transformation" over the last 10 years; it now houses Punggol Waterway Park, Waterway Point mall and numerous schools, with the upcoming Punggol Digital District likely to make the estate even more attractive, Huttons said. The town is also well-planned with a "unique character", and some flats there do not have the typical cookie-cutter designs seen in certain mature estates, it added.


Developers, contractors battle labour crunch, supply shortage to meet deadlines

The Business Times, 7 Jun 2021, Mon

By Nisha Ramchandani

AS Singapore's construction industry grapples with a shortage of foreign workers, amid other headaches, further disruption to project timelines cannot be ruled out, construction firms said.

Already, some construction companies allege their workers have been poached by other firms offering fatter pay cheques, even as they've hiked salaries to retain their workers.

Recently, the wave of Covid-19 cases in India and a tightening of border control measures have restricted workers from South Asian nations such as India and Bangladesh from entering Singapore.

"The tighter border controls, especially for South Asian countries, has a big impact on the labour shortage," said Allan Tan, managing director of United Tec Construction, which is operating at 80 per cent of its workforce capacity compared to pre-pandemic levels.

In a bid to alleviate the labour crunch, the government has introduced various measures including a temporary relaxation of a rule requiring Chinese work permit holders to fulfil their skills certification in China before coming to Singapore.

But one developer, who declined to be identified, said: "Feedback received (from our contractors) is that numerous workers from China now prefer to work in their own country due to China's growing construction sector. They also prefer to stay home and not be confined to dormitories."

The construction industry has been besieged by other operational headwinds since the pandemic broke out, including rising costs, a shortage of materials as well as logistics delays, said contracts director of Unison Construction, Goh Boo Kui.

Last year's circuit breaker to stamp out the spread of Covid-19 had already thrown off timelines. Safe-distancing measures have hit productivity by 30 per cent compared to before the pandemic, added Mr Goh.

To complicate matters further, the lockdown in Malaysia, which has forced most factories to shut for two weeks, could disrupt imports of construction materials into Singapore

"Some of us are still consuming the stock that we have but if this continues, we may have workers but not materials," said Kenneth Loo, chief operating officer of Straits Construction.

Some developers say they are working with their contractors to prevent potential delays. Others say they are on track to meet their individual TOP schedules despite the disruptions.

Last year, the government had extended the project completion period for residential, commercial and industrial development projects as well as the timeline to the remission of the additional buyer's stamp duty (ABSD) for housing developers by 12 months - delivering some breathing room.

Unison Construction has asked for an eight-month extension that will see a revised project completion date of end-December for its Meyer House project. The 56-unit freehold project, a joint development between UOL and Kheng Leong, was previously slated for completion in end-April.

CapitaLand's integrated development in one-north, Rochester Commons, has adjusted its completion timeline to H1 2022 from Q4 2021, after delays caused by manpower shortage, supply chain disruptions and safe management measures at worksites.

A spokesperson for Rochester Commons said: "We are working closely with our contractors to mitigate the delay. We have informed our tenants of the updated project timeline and are working closely with them to minimise any disruptions to their business plans."

A spokesperson for SingHaiyi Group told The Business Times that its projects - the 80-unit The Lilium and 250-unit The Gazania - are on track to achieve TOP in Q3 2021 and Q1 2022, respectively. However, it is "too early to tell" if the 1,468-unit Parc Clematis will see any delay in its TOP date, owing to the dynamic situation and longer runway till the TOP date in 2023.

Executive director (property services) of Far East Organization Augustine Tan said that the group, together with its contractors and partners, is "carefully assess(ing) impact to timelines whilst adhering to strict safe management measures imposed on construction sites".

Far East's projects under development include Cashew Green, a 999-year leasehold landed development consisting of terrace and semi-detached houses, which is slated to TOP in Q1 2022.

Meanwhile, the 450-unit Martin Modern will be handed over to buyers by Q3 this year. At present, 25 units remain available for sale.

GuocoLand's general manager (residential) Dora Chng said: "There is no new delay in the TOP for Martin Modern, which is 95 per cent sold." Prior to the circuit breaker, the TOP was slated for Q4 2020.

Ms Chng said the group has been exploring ways to increase productivity through innovation and the digitalisation of its business processes.

Over at City Developments Limited (CDL), construction has resumed at all of its development projects, but activities have not returned to pre-pandemic levels due to the labour shortage, as has been the case for the rest of the industry. CDL's various projects under construction are slated for completion from mid-2022 to 2023.

Meanwhile, Frasers Property's two residential properties under construction - Riviere and Parc Greenwich - are on track for completion in end-2022 and end-2023 respectively.

A spokesperson for Frasers said: "In this period of heightened alert and tighter measures, any further extension to the ABSD remission deadline and project completion periods will certainly be welcomed."

Estimates from real estate consultancy Knight Frank suggest that developers should be able to clear their units in time to meet their respective ABSD sales deadlines.

According to Knight Frank's head of research Leonard Tay, unsold private homes that have reached or will reach the ABSD deadline this year are slightly over 100 units, while the tally for 2022 is just under 700 units.

Mr Tay reckoned that these unsold units would either be sold or largely sold by their respective deadlines, given the brisk clip of sales in the primary residential market.

He added: "Come 2023, it is estimated that more than 10,000 currently unsold units will have their ABSD deadlines due that year. At the present rate of take up in developer sales - 3,493 primary sales in Q1 2021 - new sales could possibly reach 10,000 transactions in 2021."

Mr Tay said that there was a "good chance" that the majority of these unsold units would be sold, given the two year buffer until the deadline in 2023.


Lian Beng aims to stay conservative as pandemic hits construction sector

The Business Times, 7 Jun 2021, Mon

By Olivia Poh

CONSTRUCTION company Lian Beng Group has been in business for close to 50 years, and has weathered several storms - including the Asian financial crisis, the Sars epidemic and the Lehman Brothers collapse. But chairman and managing director Ong Pang Aik said those downturns can't hold a candle to the challenges brought about by the current pandemic.

The main difference is the pandemic's crippling effect on the company's workforce. He told The Business Times (BT) that its construction sites have not been operating at full capacity since the Covid-19 crisis started - which means project timelines will inevitably be extended and margins eroded.

Some projects were paused for as long as six months, as they lacked enough workers to continue work.

Thankfully there was the Jobs Support Scheme, Mr Ong said, referring to the government's wage subsidy scheme. "The various government support schemes during this Covid-19 period have definitely been helpful for the construction industry as the work stoppage meant that we were not able to book any revenue for construction progress."

But it doesn't look like the labour crunch is easing anytime soon. New restrictions to curb the inflow of employment pass holders from high-risk regions have choked off supply for most construction players, including Lian Beng. The majority of its workers hail from India or Bangladesh.

Mr Ong said on average, there are about 30 per cent fewer workers on its sites now, compared to before. Work is also subject to delays from safety restrictions. "Every day we have workers going for swab tests, and that takes about half a day, so it's very difficult to have a full force at the site on any single day," said Mr Ong.

"We've been trying to find more people from Vietnam or Thailand to come and work for us on site, but there is short supply. Plus, the cost of labour now is significantly higher."

Lian Beng's financial performance for H1 FY2021 reflects some of the pandemic impact, although the full extent is yet to be seen. For the half-year ended Nov 30, the company posted S$17.6 million in net profit - down 5.2 per cent from a year ago. Its revenue fell 36.6 per cent to S$197.5 million.

Conservative management

Despite these challenges, Mr Ong believes that the company - armed with a war chest of S$194.2 million in cash and cash equivalents as of November 2020 - can power through this storm.

The company has also built up other revenue streams through its dormitory business, property development and investment holdings, which it hopes can help to prop up cash flow during this difficult period.

Despite a somewhat robust balance sheet, Mr Ong prefers to take a conservative approach. He tells BT Lian Beng is choosing to hunker down - focusing on fulfilling existing projects in its order book of S$1.5 billion - while keeping a firm hand on costs. This alone should support the group's activities through FY23.

This strategy was not put in place lightly. Mr Ong has learnt, from bitter experience, the perils of overstretching finances. He saw firsthand how, during the Asian financial crisis, several of his peers in the construction industry were quick to drop their prices in a bid to secure projects from a dwindling pool. But, they downplayed the impact these projects might have on their cash flow.

Mr Ong then decided to err on the side of caution. "We could have ended up in a worse position by taking on projects with such razor thin margins," he said. The company did not take up any new projects for two years.

As the crisis stretched on, construction timelines were extended and payments delayed. The industry started to implode. Construction companies struggled to fork out the cash to pay for materials, labour and operations. He recalls how there were so many main contractors that ran into financial difficulties that they had to queue up just to file for liquidation.

This presented an opportunity for the company. Lian Beng took on some of the abandoned projects, which yielded better margins, since initial costs were already accounted for. Lian Beng's cautious stance paid off.

"I learnt then that cash flow is king. You can secure all these big projects, but if your cash flow is not healthy, you can still crumble."

Diversification game

Such problems from the past are eerily similar to what the industry is facing now. What is a construction company to do?

In Lian Beng's case, Mr Ong accepted early on that the company "cannot rely on construction alone" because of the industry's inherent volatility. He chose to diversify Lian Beng's revenue streams to build up a cash pile - hopefully one strong enough to sustain it through any storm.

He said Lian Beng in the first half of FY21 recognised more development profit and sales at some of its private-home projects. Its dormitory business and investment holdings, meanwhile, benefited from lower interest rates.

The construction business is, however, still its golden goose. For FY2020, its construction segment brought in S$460.5 million in revenue, compared to S$46.2 million for property development, S$26.1 million for investment holdings and S$23.3 million from its dormitory business.

But the pandemic has exposed the flaws in the construction industry's dependence on foreign workers. As Singapore actively looks to reduce its reliance on low-wage foreign labour, players such as Lian Beng face tough questions about the future of their industry.

Mr Ong said it is difficult to reduce this reliance, especially since technological innovations have not caught up.

"A lot of the work on site can't be completed without some component or input of manual labour.

"In terms of execution, certain skilled trades like laying tiles, electricity cables and water pipes can only be done manually."

In any case, Lian Beng has looked for ways to improve efficiency and costs. These include investing in engineering capabilities, technologies, machinery and new processes.

The company is in the midst of building what is said to be the tallest prefabricated building in the world: 56-storey twin towers located in Singapore's Bukit Merah district. This will be done through a relatively newer method known as prefabricated prefinished volumetric construction (PPVC), Mr Ong said, adding that there are "only a handful" of players with PPVC construction capabilities in the city-state.

The individual modules are first factory-made in Senai, Malaysia. These units are then transported to a facility in Singapore to be fitted out and furnished before being moved to the construction site where they will be be fit together - like "Lego", said Mr Ong.

"This way of building requires less labour and can help reduce waste and noise pollution," he added.


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