Investment sales of property – big-ticket transactions of at least S$10 million – have risen this quarter, on the back of a more than tripling in the value of hospitality assets sold, mainly in connection with the listing of Frasers Hospitality Trust.
Moreover, office transactions have continued to post stellar performance with rental recovery firmly in place and expected to continue amid tight supply.
According to figures from Savills Singapore, nearly S$5.4 billion of investment sales were transacted this quarter up to Sept 23. This is 13.6 per cent higher than the Q2 figure of S$4.7 billion and the best showing in four quarters. However, the Q3 number is 61.2 per cent down from a year ago.
CBRE too has a similar figure so far this quarter, reflecting 10.7 per cent expansion from its Q2 number. This takes the year-to-date number to S$15.3 billion and the group’s executive director, Jeremy Lake, predicts that the year would end with S$18-20 billion.
Savills’ figure for the first nine months is slightly over S$14 billion and its managing director, Steven Ming, expects S$17-19 billion for the full year.
Both houses’ forecasts would be significantly lower than the annual figures hovering around S$30 billion for each of the past four years. Investment sales are often seen as a gauge of developer and property investor confidence in the medium to long term. Overall sentiment in the property market has been dented by the total debt servicing ratio framework announced in late June 2013.
That said, the office market continues to shine. About S$1.94 billion of office deals have been sealed this quarter, up from S$1.25 billion in Q2, going by Savills’s analysis. This quarter’s number marks the best performance since Q4 2012, when the figure was S$2.75 billion. Major transactions in Q3 include Straits Trading’s divestment of its namesake building in Raffles Place, and Keppel Land’s sale of its one-third stake in Marina Bay Financial Centre Tower 3 to Keppel Reit.
CBRE’s Mr Lake noted that office buildings have continued to be sold this quarter at higher prices, reflecting the optimism that the market has for offices due to the recovery in rents, which is well in place – driven predominantly by shrinking vacancy and tight supply. “There are only two major office projects to be completed from now till late 2016,” observed CBRE research head Desmond Sim.
Mr Lake expects additional demand to be generated by the impending displacement of tenants at Equity Plaza, which has around 250,000 square feet of net lettable area, as the building’s new owners have served notice to tenants to vacate the building by March 2015 ahead of an extensive renovation.
Despite the quarter-on-quarter rise in office investment sales, transactions of commercial properties as a whole (including retail) have slipped 14.6 per cent to S$1.97 billion, said Savills. “The fall is due to no commercial sites released under the Government Land Sales Programme as well as lack of retail block transactions for the quarter.”
Commercial property made up the largest share, 36.7 per cent, of this quarter’s total investment sales.
Meanwhile, the residential sector saw a 31.7 per cent drop in transaction value to S$1.14 billion. It accounted for 21.3 per cent of total investment sales.
Savills Singapore research head Alan Cheong said: “As long as the residential cooling measures are in place, home sales will suffer from inertia, which in turn will restrain developers in land bids at state tenders.”
Transactions of hospitality real estate jumped to S$834 million this quarter, from S$248 million in Q2. The bulk is due to the InterContinental Singapore in Bugis and Frasers Suites Singapore arising from the listing of Frasers Hospitality Trust in July.
Looking ahead, Mr Ming said: “We anticipate continued interest in the Singapore investment market as there are some signs of bid-ask gaps closing in the private sector. This is the result of investors who need to deploy their capital and sellers who are seeking to divest for various reasons – whether fund-maturity concerns or to recycle their capital into other opportunities.”
Besides continuing interest in the office sector, Mr Ming highlighted interest in bulk purchases of residential units, especially in the high-end segment. “Although the near-term outlook remains hazy, the thesis for a strong capital value recovery over the mid-to-long term is gaining credibility.”
Both Mr Ming and Mr Lake said that a key challenge to Singapore real estate deals these days is competition from overseas property.