Published December 12, 2008

Property investment sales slow to a trickle

Players wary of big bang deals amid weaker sentiment, tighter financing


(SINGAPORE) The weak property market sentiment and tight financing have combined to compress the total investment sales of Singapore real estate to just $17.8 billion, year-to-date. This is a third of the record $54 billion achieved for the whole of last year, according to CB Richard Ellis data.

Just $290 million of investment sales have taken place in Q4 this year (up to Dec 9).

Investment sales are a gauge of developers' and investors' medium- to long-term confidence in the property sector.

CBRE defines such deals as transactions with a value of at least $5 million, comprising 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.

Market watchers are not upbeat about the investment sales climate in the near future. CBRE forecasts the tally for next year could come in at a modest $5-10 billion, a level last seen in 2004.

CBRE executive director Jeremy Lake says: 'With market uncertainty and economic risks appearing to be on the downside, many investors will remain on the sidelines of the property market, waiting for signs of price stabilisation before investing. With the global economy likely to enter a protracted downturn on the back of the deepening financial crisis, transaction volumes in property are expected to remain low over the next few quarters.'

Agreeing, DTZ senior director Shaun Poh says: 'I would not be surprised if we don't see any major transactions for the next three to six months. Potential investors are waiting for property prices to come down. Even property funds that have raised money can't make acquisitions because of the difficulty of raising the debt component to pay for the purchase - despite trying to source for financing in overseas markets like Hong Kong and London in some instances.'

CBRE's Mr Lake too notes that 'as credit market conditions worsen and lenders further reduce their risk appetite, capital available for property investment would become even scarcer'.

'In addition, cheap investment opportunities may arise in other asset classes, diverting capital away from property,' he added.

The property consultancy group's quarterly breakdown of investment sales shows that they have been sliding since Q3 last year, when a whopping $16.5 billion of deals were sealed. The performance in each quarter of this year has been lower than the corresponding periods of 2007, sliding to $290 million this quarter.

While the residential sector still accounted for the lion's share or 35 per cent of total investment sales deals so far this year, this was lower than the 61 per cent share last year. Also, the $6.25 billion transacted value of residential investment sales year-to-date (as of Dec 9) was 81 per cent below the full-year 2007 figure.

The collective sales market was dormant as developers remained mindful of the lukewarm response to new residential launches, rising construction costs and tighter credit measures, CBRE observed. Only seven collective sales worth a total $371 million have been sealed so far this year, against the record $12.4 billion from 111 transactions in 2007.

The Good Class Bungalow (GCB) market has also slowed considerably in 2008. A total of 48 GCB transactions worth $763.7 million have been done this year, down from $1.2 billion from 90 deals in 2007.

Office investment sales of $5.4 billion so far this year are 62 per cent below the $14.3 billion for full-year 2007. Ongoing turmoil in the global economy contributed to further deterioration in business sentiment, which subsequently had an impact on the office leasing market and capital flows in the local office sector.

'This resulted in no major en bloc office transactions in the second half of 2008. Hence, the office investment market is expected to remain quiet in the next few months,' CBRE said.

Sizeable office investment deals in the first half of this year included One George Street ($1.7 billion or $2,600 per square foot of net lettable area), Singapore Power Building ($1.01 billion or $1,836 psf), The Atrium @ Orchard ($839.8 million or $2,249 psf), Hitachi Tower ($811 million or $2,901 psf) and 71 Robinson Road ($743.75 million or $3,125 psf).

Bucking the trend was the industrial property sector which contributed $3.32 billion of investment sales deals this year, 66 per cent higher than last year and also the best showing since 2002. About half of the tally for this year was accounted for by JTC Corporation's $1.7 billion divestment of its industrial portfolio to a joint venture involving Mapletree Investments, Arcapita and Mapletree Industrial Fund.