Property investment sales fall in Q4 '08

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Published January 8, 2009

Property investment sales fall in Q4 '08

It is the lowest level in five years, says a DTZ report

By UMA SHANKARI


(SINGAPORE) Property investment sales in the fourth quarter of 2008 fell to the lowest level since Q4 2003, with most players sidelined as prices weakened and credit tightened, a DTZ report shows.

Total transaction volume was just $352 million - a 74 per cent fall from Q3 2008. With sales falling rapidly towards the end of the year, total transaction value in 2008 plunged to $15.8 billion - a mere one-third of that in 2007 and two-thirds of that in 2006.

The investment market is expected to remain dormant in the first three to six months of 2009 as investors wait for prices to fall further and for tight credit conditions to ease, DTZ said.

Transactions will be confined to the private sector as government land sales through the confirmed list have been suspended and reserve sites are unlikely to be triggered.

'The second half of 2009 is likely to see more deals as the price gap between sellers and buyers closes,' said Shaun Poh, DTZ's senior director of investment advisory services.

'How much the investment market recovers will depend on the depth and length of the economic and property downturns.'

Although there was no major office deal in the second half of 2008, the office sector was still the main driver of investment sales during the year with $5.6 billion or 35 per cent of total sales - an increase from 24 per cent in 2007. All the major office transactions were in the first half of 2008. In the second half, all office deals were below $30 million.

The residential sector slowed tremendously in 2008 as interest in collective sales abated. Residential transaction value tumbled 82 per cent year-on-year to only $3.9 billion, accounting for 25 per cent of total sales, compared with 49 per cent in 2007.

There were only seven residential collective sales in 2008, compared with 150 in 2007. 'With high construction cost, financing difficulties and weak market sentiments, developers are shunning residential collective sales,' DTZ said.

Transactions in the industrial sector, by contrast, increased in 2008 as investors shied away from high office prices. Some $3.4 billion of industrial property was transacted, or double the amount in 2007.

About half of 2008's deals resulted from the divestment of JTC's industrial properties in Q2. And despite the restrained mood in Q4, several notable industrial transactions took place, including the purchase of Applied Materials Building by German fund manager Union Investment.

DTZ said that investment by real estate investment trusts (Reits) was subdued in the second half of 2008, as they shifted attention away from acquisitions and focused on refinancing and deleveraging.

There were only three purchases by Reits in Q3 2008 and just one in Q4, compared with 22 purchases in the first half of the year.