After a slow start in the first quarter, investment sales of Singapore real estate gathered pace, with a year-to-date tally of about $9.4 billion, although CB Richard Ellis estimates the full-year figure will come in just above $10 billion when all the caveats for transactions done in November and December have been lodged. Still, that would only be about half of last year’s figure of $17.9 billion.
Property consultants expect
2010 to be a better year, with $15-20 billion worth of investment sales deals struck. These transactions are a gauge of developers and investors’ medium to long-term view of the property market.CBRE defines investment sales as transactions with a value of at least $5 million, inclusive of apartments and landed residential property, government and private sales of land and buildings, both strata and en bloc. It also includes change of ownership of real estate via share sales.
‘With 2010 expected to be a recovery year for the Singapore economy, investment sales could be in the region of $15 billion, similar to that of 2005. Economic fundamentals should start to catch up with the positive sentiments in the stockmarket and the residential market, with more stability in the financial and business sectors,’ says CB Richard Ellis executive director (investment properties) Jeremy Lake.
Jones Lang LaSalle managing director (South East Asia and Singapore) Chris Fossick says: ‘Investors are starting to focus on the recovery, and whilst still cautious about the short term, they are optimistic about mid and long-term outlook of the Singapore real estate market.’
Most market watchers expect the residential segment to lead the way for investment sales deals next year, with the Government scheduled to restart sale of residential sites through its confirmed list from next month. 2010 is also expected to be a more active year for the collective sales market, after just one major deal in 2009 (the $100.8 million sale of Dragon Mansion).
Investors’ appetite for suburban retail malls continues to be strong, says CBRE’s Mr Lake.
The jury is out on the appeal of the Singapore office market to investors. One camp is still concerned about the substantial supply of office space in the pipeline. ‘But you’ve got a growing number of people who feel the office market has bottomed out and they should be buying now,’ he adds.
‘So the appetite for office, which has been somewhat weak in the past 12 months or so, will pick up again. However, deal flow may be limited as many of the sellers who were keener to sell have probably already sold.’
DTZ senior director for investment advisory services Shaun Poh says there are funds that will be looking for office properties next year but deal sizes will be limited to $200-300 million per building. ‘Office investors are also more stringent, demanding initial property yields of at least 4-5 per cent, compared with 2-3 per cent during the 2007 boom. And they’ll only look at buildings that are substantially leased, given supply overhang issues,’ he added.
Credo Real Estate managing director Karamjit Singh says: ‘The office market would likely see more investment activity next year as the rental slide eases or rents even begin to recover. And with credit loosening further, major institutions like real estate investment trusts could be priming themselves for further acquisitions, having addressed refinancing concerns.’
The biggest transaction so far this year is the $541.9 million acquisition of Clementi Mall by a Singapore Press Holdings-led consortium. The Hong Leong Group (which includes listed City Developments) was the second biggest investor, paying a total $365 million for two residential sites at Serangoon Avenue 3 and Chestnut Avenue at state land tenders.
The residential sector made up 67 per cent of the total $9.43 billion investment sales year to date.
Close to 82 per cent of the $9.43 billion originated in the private sector.
Credo’s Mr Singh points out that despite the market starting 2009 in a ‘frozen state’ with credit being virtually non-existent in the aftermath of last year’s global financial slump, ‘there were very few panic or distressed sales of properties that cash-rich buyers were relishing for, as signs of hope appeared relatively quickly following the collapse of confidence when Lehman Brothers failed’.
Mr Singh tips the office sector as well as the mid-prime and luxury residential markets as next year’s star performers. ‘Owners in many en bloc sale projects have very recently reinitiated the exercise, sensing possibly a new window of opportunity next year. Having missed the boat earlier, some en bloc sellers are prepared to lower price expectations and align them with the market, while others are still pinning their hopes on another runaway in land prices for success.’
CBRE’s Mr Lake says: ‘The majority of collective sales that are coming to the market have fairly hefty price tags as most are revivals and there’s this attachment to previous reserve prices.’ Owners are also unwilling to reduce asking prices given the high cost of finding replacement properties, he added.
‘Perhaps for the next six months, developers will by and large find these en bloc sellers’ asking prices too high,’ Mr Lake suggested.
Source : Business Times – 8 Dec 2009
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