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Investment property sales drop in Q1

FROM a high base in the fourth quarter of last year, big-ticket property transactions of at least S$10 million declined substantially in the first quarter.

However, the mood in the market is decidedly positive – with much anticipation of the imminent mega transactions of Jurong Point mall, and Asia Square Tower 2 in the CBD.

“Investment market sentiment is positive and the price gap has mostly disappeared except for hotels,” said CBRE executive director, capital markets, Jeremy Lake.

In particular, the tone of investors towards the office sector seems to have reversed dramatically. “The oversupply in the Singapore office market is yesterday’s story, and today’s story is all about the recovery and rental growth,” said Mr Lake.

Figures compiled by Savills Singapore showed that S$5.2 billion of investment sales of property, as these big deals are known, were sealed in Q1, down 34.8 per cent from S$8 billion in Q4 last year. However, the Q1 number is double the S$2.5 billion in the same year-ago period.
Photo: The Business Times
Photo: The Business Times

Both Savills and Cushman & Wakefield (C&W) estimate that some S$2.7-2.8 billion of deals in the commercial property segment were transacted in January to March this year – giving it a share of slightly over 50 per cent of total investment sales.

Major transactions include the S$881 million sale of a 70 per cent stake in TripleOne Somerset by a consortium led by Perennial Real Estate Holdings to Stanley Ho’s Hong Kong-listed Shun Tak Holdings, and Manulife’s S$747 million purchase of PwC Building at 8, Cross Street, from DBS.

Savills said the S$2.8 billion of commercial property investment sales in Q1 was a 41.9 per cent increase from the nearly S$2 billion in the previous quarter.

The residential sector saw S$2.1 billion of big-ticket sales in the first quarter, giving it a 40.2 per cent share. On a quarter-on-quarter basis, however, the Q1 tally was down almost 12 per cent, according to Savills.

C&W Singapore research head Christine Li highlighted the flurry of bulk residential sales in Q1 as some foreign housing developers sought to offload their remaining unsold units ahead of regulatory sales deadlines imposed on them under the government’s Qualifying Certificate rules – to avoid paying hefty penalties.

A string of last-minute deals were also inked on the night of March 10 – including TwentyOne Angullia Park, The Line @ Tanjong Rhu, Robin Residences and The Lumos – before the new Additional Conveyance Duties (ACD) took effect the next day.

The ACD plugged a loophole that some bulk buyers in Singapore residential projects had been using to enjoy significant savings in stamp duties.

Savills Singapore managing director Steven Ming said: “Unless annual residential prices are expected to rise significantly in the coming years, it is unlikely that institutions will return to the bulk residential sales market as the hefty 18 per cent stamp duty cuts deep into their required rates of return.”

The effect of this would be the shift of interest by institutional investors to other sectors of the real estate market here, he added.

Industrial properties posted S$344.2 million of investment sales in the first quarter, down 67.8 per cent quarter-on-quarter.

CBRE and Savills expect the total investment sales for 2017 to be in the S$18-20 billion region – down from around S$23 billion last year. C&W expects the number to remain in the S$20 billion range.

Mr Ming of Savills commented that with institutional investor interest expected to be diverted from residential towards the office, retail and hospitality sectors here, investment sales are expected to continue despite yield compression.

“As both private equity funds and ultra high net worth individuals have either raised new money or have a need to diversify to reduce concentration risk, yields have potential to remain low and go lower as prices will either hold firm or even edge up,” he reasoned.

Ms Li of C&W noted office asset prices are already starting to trend upwards, with rents expected to bottom this year.

In similar vein, CBRE Research’s head of Singapore and South-East Asia, Desmond Sim, argued that as the office recovery story gets more real in terms of rising commitment rates for new projects such as Marina One, this will push more institutional investors to be ready to commit.

CBRE predicts that by the end of the year, seven out of 10 institutional investors who are looking at the Singapore office sector will be ready to buy – up from five out of 10 investors now, which in turn is a higher ratio than just one out of 10 investors a year ago.

Regina Lim, JLL’s head of capital markets research, South-east Asia, observed that in the past four years, Singapore has seen a gradual decline in office demand, retail sales, food and beverage receipts, and gross domestic product growth.

As a result, the republic’s attractiveness to overseas institutional investors has waned, and they have gravitated to Australia, Japan and China commercial property, which have stronger growth stories.

“However, capitalisation rates in these markets have compressed and now Singapore looks less expensive in comparison to these markets.”

Mr Sim of CBRE said that on the residential sector front, while bulk purchases of units from developers have now become harder to do, there may be a bright spot in collective sales. “We should see more interest in en bloc sales from land-hungry developers, especially in the face of limited supply through the Government Land Sales Programme.”
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Strata Offices running out of fizz?

The strata office sales market could be starting to run out of fizz – due to toppish prices and concerns about a future office oversupply and rising interest rates. The total debt servicing ratio also continues to clip appetites of mom and pop investors.

At the much-hyped GSH Plaza, sales have pretty much stagnated at 60-plus office units – around the level announced six weeks ago by the consortium that is doing a major revamp of the building.

Talk in the market is that the commission rate for agents to find buyers in the strata project has been doubled to 3 per cent by the owner in a bid to drum up sales.

A consortium led by GSH Corporation last year paid S$550 million for the 28-storey building, which was known as Equity Plaza at the time, and is undertaking an extensive refurbishment estimated to cost S$118 million (or S$400 per square foot based on the 295,000 sq ft gross saleable area).

When contacted on Thursday, a spokesman for the consortium, Plaza Ventures Pte Ltd, confirmed that there had been not much change in the sales status “because we are now focused on negotiating whole-floor sales”.

On average, there will be 10 strata office units per floor in the project. In all there will be 259 strata office units on Levels 3-28 of the building. Units range from 480-1,700 sq ft. Buyers have the option to buy entire floors (10,000 to 12,000 sq ft), thus enjoying additional discounts and floor space utilisation, according to promotional material on the development.

The spokesman declined to comment on market talk that some of the consortium members or their related parties/associates might have bought a chunk of the 60-plus units that have been sold.

Besides GSH, which controls 51 per cent of the consortium, Plaza Ventures’ other shareholders are TYJ Group, a private investment vehicle of GSH chairman Sam Goi (with a 14 per cent stake) and Vibrant DB2 (35 per cent stake). Vibrant DB2 is a 51:49 partnership between listed Vibrant Group and niche property developer DB2.

GSH Plaza’s attractions include its prime Raffles Place location and the bite-sized investment it offers individual investors with units as small as 480 sq ft, said observers.

So far, four caveats have been lodged based on URA Realis data. The units range from around 480 sq ft to 807 sq ft and are priced between S$1.57 million and S$2.49 million. The prices of the four units translate to S$3,009 psf to S$3,257 psf.

In early March, Plaza Ventures had said prices for the office units will range from S$2,850-3,500 psf, depending on the size of the unit and the floor it is on.

It is understood that most potential buyers found the average price of S$3,000-3,100 psf too demanding for a project with a balance lease term of only 73 years. “A price of S$2,700-2,800 psf would have been more reasonable,” said one party.

Moreover, the total debt servicing ratio framework continues to make it hard for individual investors to secure big loan quantums for property purchases.

Plaza Ventures is expected to retain the first two levels, which will have 21 retail units.

At Crown at Robinson – a brand new freehold strata office project coming up on the former Chow House site at 140 Robinson Road – sales are also said to have been slow. Prices of office units in the development range from S$3,348 psf to S$3,634 psf based on the seven caveats reflected in URA Realis so far.

As early as next month, SEB could begin strata sales at Anson House. The 13-storey building is on a site with a balance lease term of 81 years. Word on the street is that SEB is awaiting approval for strata subdivision from the authorities.

The strata units are expected to mirror existing tenancies with the minimum size exceeding 1,000 sq ft. Full-floor units will be 7,600-plus sq ft. Asking prices are S$2,900 psf and above.

The offices are located on Levels 5 to 13. Car park lots fill Levels 2, 3 and 4. On the first level are three retail units, which will also be made available for sale at prices exceeding S$4,000 psf.


Investment sales up in Q3

Q3 investment salesQ3 investment sales2

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.

Slowdown in big-ticket property deals

Investment sales of real estate are often seen as a gauge of developers and property investors’ confidence in the medium to long-term prospects of the property market. Investment sales of Singapore property – big-ticket deals of at least $10 million –  continued to languish at around $3.5-3.6 billion this quarter so far . The year-to-date tally of around $8 billion is down from around $12-plus billion in the first-half of last year.

Industry player CBRE predicts that this year will end with around $12-15 billion of transactions, while Savills’ forecast is $16-18 billion — significant declines from last year’s $30 billion.

Industry players attribute the lacklustre showing in the first half to the overall cautious sentiment in the Singapore property market following the introduction of the total debt servicing ratio (TDSR) framework. As well, both foreign and local investors are being drawn to overseas markets. The cut-back in Government Land Sales (GLS) also contributed to the pullback in investment sales here.

See: http://www.businesstimes.com.sg/specials/property/investment-sales-slow-down-year-20140624