Singapore investment property sales lose steam in Q1 under macro cloud

APR 17, 2023

REAL estate investment activity in Singapore slowed considerably in the first quarter of 2023, as investors retreated in the face of higher financing costs and mounting macroeconomic uncertainties.

First-quarter figures compiled by Knight Frank Singapore showed that total investment sales were down 61 per cent to S$4.2 billion, from S$10.8 billion chalked up in the year-ago period.

This is the lowest quarterly total since Q2 2020, which included Singapore’s “circuit breaker”, Knight Frank noted. Just S$1.7 billion investment sales were recorded then.

Analysts noted that investment sales for Q1 2023 were largely driven by the sale of suburban mall Nex in January. Frasers Centrepoint Trust and Frasers Property jointly acquired a 50 per cent share in the mall, valued at just over S$1 billion, from NTUC unit Mercatus Co-operative.

Another key transaction in the quarter was the acquisition of 39 Robinson Road – a 21-storey freehold commercial building in the Central Business District – by mainboard-listed Yangzijiang Shipbuilding for S$399 million.

Beyond these deals, most others were smaller in quantum. In the office sector, for instance, CBRE pointed out in an earlier market report that most transactions were mainly of “smaller strata office units purchased by non-real estate companies or private individuals for (their) own use or investment”.

Office investment volumes were 20.1 per cent lower than in Q4 2022, and 83.6 per cent down year on year, to S$558.8 million. This came on the back of “a lack of big-ticket deals”, CBRE said. “Comparatively, Q1 2022 was bolstered by large office transactions such as Twenty Anson and 79 Robinson Road,” it added.

Edmund Tie’s head of research and consultancy Lam Chern Woon attributed the drop in investment sales to the “high base effect” from the sale of suburban mall Jurong Point and Swing By @ Thomson Plaza, the latter of which occupies the first and third levels of Thomson Plaza. The two were bought by Link Real Estate Investment Trust from Mercatus in December 2022 for S$2.16 billion.

Stripping out the mega Mercatus divestments, investment volumes were 18.3 per cent lower than in the previous quarter, CBRE noted.

Industrial investment volumes shrank 58.6 per cent, while retail investments were held up by the Mercatus asset sales. Residential deals rose 14.5 per cent quarter on quarter, with three freehold collective sales totalling S$583.8 million “offsetting declines in GCB (good class bungalow) and luxury apartment sales”, CBRE added.

Shophouse transactions of more than S$10 million also fell 38 per cent to S$222.2 million, after values spiked upwards in 2022, CBRE data showed.

Investor sentiment has turned cautious with the collapse of Silicon Valley Bank and the takeover of Credit Suisse by UBS Group, said Edmund Tie’s Lam.

Knight Frank said that in the wake of those two incidents, “the pace of investment activity in Singapore is expected to get worse before it gets better”.

JLL head of research and consultancy Tay Huey Ying said that investors remained drawn to Singapore for its “safe-haven reputation and sound economic and property market fundamentals”. But she noted that the market uncertainties and high interest rates might “continue to temper their risk appetite and hamper the conclusion of big-ticket deals”.

With the “cautious domestic mood”, Knight Frank observed that outbound investment from Singapore remained active in the first quarter of 2023.

Major deals included the acquisition of the St Katherine Docks development in London by City Developments Ltd for S$636 million, as well as the purchase of Suning Life Plaza in Beijing by CapitaLand Investment for S$553 million.

The total recorded value of outbound investment transactions in the quarter came to S$19.3 billion, an increase of 76.7 per cent quarter on quarter and 201.6 per cent year on year.

“The increase could be attributed to emerging opportunities from assets in gateway locations becoming attractively priced due to the stormy global economic situation,” Knight Frank said.

Looking ahead, analysts said the real estate market will eventually pick up – but mainly in the longer term.

“Financing has become more challenging for buyers, investors, developers and banks, and will remain so until there are visible signs of the global economy and financial conditions stabilising,” said Knight Frank.

Alan Cheong, Savills Singapore executive director of research and consultancy, said that private investors – especially those who do not need to borrow money – are unlikely to be deterred by rising interest rates.

“(They) are still active in smaller bite-sized transactions, such as conservation shophouses and strata titled offices,” he noted.

“Their budget is probably in the range of less than S$200 million, with the highest probability of closing in the S$5 million to S$40 million band.”

Edmund Tie’s Lam noted that the sharp deceleration in economic growth in Q1 2023 to just 0.1 per cent year on year, based on latest flash estimates, “alludes to downside risks to the growth outlook, which will likely further curtail investor sentiment”.

But much of the “economic weakness” is concentrated on the manufacturing front, he pointed out, and “end-user leasing demand and sales activity are likely to exhibit some resilience in the near-term in the other commercial and hospitality sectors”. He added that inflationary pressures have been “abating somewhat in recent months”.

Likewise, CBRE predicts that transaction volumes will remain low in the nearer term, as investors adopt a wait-and-see approach.

“As interest rates stabilise and (the) bid-ask spread narrows, we expect Singapore to remain attractive to global investors seeking a safe haven and long-term growth,” it said.

Volumes should therefore pick up in H2 2023, with full-year volumes expected to be comparable with those in 2022, CBRE added. Even with the recent gloomy economic data, the consultancy noted that investments are “long term” and Singapore should still “stand out as a safe haven” for investors.

Meanwhile, Knight Frank predicted that investment sales will range between S$20 billion and S$22 billion for the whole of 2023, below its earlier projection of S$22 billion to S$25 billion.

https://www.businesstimes.com.sg/pro...er-macro-cloud