Investment sales of property - or big-ticket transactions of at least S$10 million - are expected to shrink to about S$2 billion in the first quarter, according to Savills Singapore. This would be less than half the S$5 billion for Q4 last year and the lowest quarterly level since Q2 2009. Savills' Q1 2016 estimate also reflects a sharp dive from the S$3.6 billion of investment sales sealed in the same quarter of last year.
The property consulting group's estimate for Q1 this year is based on a tally of S$1.83 billion for the Jan 1 to March 22 period.
The main reason for the sharp quarter-on-quarter contraction was a lack of big deals in the commercial property segment, noted Savills' managing director (investment and residential services) Steven Ming. Agreeing, an industry observer highlighted the uphill task facing those trying to seal big office transactions: "Vacancies and substantial completions are weighing down investor sentiment." CBRE director (investment properties) Galven Tan said: "People are cautious, waiting for a pick-up in office leasing demand before they commit to a major purchase."
Despite the weak overall showing since the start of this year, Savills is holding off making any downward revision to its S$15-17 billion investment sales forecast for full-year 2016 made last December. The number for 2015 was S$17.5 billion.
"We will revisit our forecast for 2016 in the middle of this year because the general decline in global interest rates may resurrect interest in commercial property deals, particularly the mega ones," said Mr Ming. He also suggested that there is "a build-up of an armada of Chinese investors" that many local market watchers may not even have caught a whiff of. "These Chinese parties could be waiting to pick up assets here, and as we move through the quarters this year, they will start to appear on the investment radar scope."
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.
Based on figures up to March 22, transactions of commercial property of at least S$10 million in the first quarter totalled just S$202 million, down 92.5 per cent from S$2.71 billion in Q4 last year. Compared to Q1 last year, the decline was 84.8 per cent.
The absence of mega deals in the commercial property space this quarter contrasts with at least three major transactions in Q4 last year, noted Savills. One was the S$1.1 billion City Developments- Alpha Investment Partners profit participation securities transaction involving three of CDL's Singapore office assets. Another saw Keppel Land and Mapletree Investments swap shareholdings in Keppel Bay Tower and HarbourFront Towers 1 and 2. Then there was the S$550 million sale of the CPF Building in Robinson Road.
While sales of entire office buildings seem to be eluding the market for now, there are still transactions of strata office floors. Mr Tan of CBRE said that such buyers are mostly owneroccupiers. ''We brokered the sale of the 30th floor of Suntec Tower 2 for S$29 million last month. We're closing in on a floor at Prudential Tower now in addition to working on a few more floors in the building.''
On a brighter note, investment sales of residential properties rose 12.9 per cent to S$1.5 billion in Jan 1-March 22 this year over Q4 2015. Top bids by developers for three residential sites at state tenders in Q1 were at the high end of, or above market expectations.
''Besides the locational merits of sites and the need for developers to replenish land banks, the high prices may also reflect developers' optimism for 2017 when the projects are expected to be marketed. They may expect that by that time, the global economy would turn better or some property cooling measures would have been relaxed by the government,'' Savills said.
Savills also highlighted nine high-end condo units sold this quarter in projects such as Boulevard Vue; The Ritz-Carlton Residences, Singapore, Cairnhill; St Regis Residences Singapore and Urban Resort Condominium. Most of these deals were at significant discounts from the historical peaks in these projects - which could have enticed buyers back to the luxury condo market.
Market watchers predict a revival of interest in bulk purchases of high-end residential units. However, said CBRE's Mr Tan, potential buyers are being hindered by the additional buyer's stamp duty and the seller's stamp duty. Moreover, corporates who buy residential properties are faced with a 20 per cent loan-to-valuation limit.
''There are also limited opportunities to buy into a residential project development company that is left with some unsold units as you need an all-Singaporean ownership structure if the company is not to be encumbered by the Qualifying Certificate conditions, stipulating deadlines to finish selling the project,'' he added.
Cushman & Wakefield executive director of capital markets (Singapore) Shaun Poh told BT that he knew of two all- Singaporean owned groups that have been formed recently and which are gunning for unsold units by buying into the residential development company. ''They're keen on freehold projects in Core Central Region, including shoebox units. They hope to hold the units for one to two years, by which time they think the cooling measures may be removed or tweaked and they can sell for a relatively quick profit,'' said Mr Poh.
''Of course, the risk of buying into a development company is the tax issue. If a group of investors take over such a development company left with unsold units and the company later sells the units, it will be liable for tax at the corporate rate on the profit from the sale; so it is important to know what the company's cost base for the project is - to factor in this tax liability. I suspect we are going to see a fair bit of such transactions in the next three to six months,'' said Mr Poh. In the industrial segment, deals of S$10 million and above totalled S$122.6 million during Jan 1-March 22, down 84.4 per cent from the S$784.2 million in Q4 last year.
The chips may be down for the industrial property market, which is reeling from oversupply and weak demand but Mr Poh pointed to a couple of niche sectors that are much sought after: data centres and selfstorage facilities. ''However, while entry barriers are low in the self-storage market (since it is relatively easy to convert an existing industrial/warehouse facility to this use), it is far more challenging to find sites to develop into data centres or to convert an existing building into a data centre because of the stringent specifications including very high power usage,'' he added.
Source: Business Times, 26 Mar 2016