Colliers International, Singapore

Despite the deteriorating global economic conditions and financial market turbulence stemming from the United States, the Singapore property investment market which started the quarter on a subdued note went on to close some S$8.36 billion worth of deals, surpassing the S$8.13 billion accumulated in the preceding quarter.
 

Nevertheless, the S$8.36 billion worth of investment sales accumulated in 1Q 2008 was still some 36.6% below the peak quantum of S$13.17 billion amassed in 3Q 2007.z

Research findings by Colliers International revealed that, with the exception of the commercial and industrial sectors, all other key property sectors experienced a decline in sales volume in 1Q 2008.

The commercial investment sales market gathered momentum in the month of March, chalking up some S$3.22 billion worth of transactions or 38.6% of total investment sales. This was 42.9% higher than the S$2.26 billion recorded in the preceding quarter. The industrial investment sales market, on the other hand, registered S$730.66 million worth of sales, which was an increase of 10% from the S$664.49 million seen in 4Q 2007.

REITs purchases formed the majority of the industrial sales transactions. Ascendas REIT contributed to the bulk of the transaction with the acquisition of five industrial properties for a total of S$201.66 million. Mapletree Logistics Trust also added four industrial properties to its portfolio for a total of S$123 million and Cambridge Industrial Trust signed a memorandum of understanding to purchase an industrial property in Paya Lebar iPark for S$55.2 million. 

Ms Tay Huey Ying, Director for Research and Consultancy says, “The option obtained by CapitaCommercial Trust to acquire One George Street for S$1.165 billion or S$2,600 per sq ft was the most significant commercial transaction in the quarter, in terms of absolute sale quantum.  In terms of unit price, the most notable investment deal would be the acquisition of the 999-year Hitachi Tower by Goldman Sachs at S$811 million or S$2,901 per sq ft.  This price exceeded the recent benchmark price set by the sale of the 99-year Chevron House at S$2,700 per sq ft in 4Q 2007.” 

Residential investment sales experienced a drastic drop in sales value during the quarter. The sales value dipped by some 35.7% in 1Q 2008 to S$2.27 billion, from $3.54 billion achieved in the preceding quarter. The S$2.27 billion tallied was largely supported by the sale of the last condominium site at Sentosa Cove to Ho Bee Group and IOI Properties for S$1.10 billion.

The residential collective sales market stood almost at a standstill in the quarter, with one collective deal seen for Ban Guan Park, which was transacted for S$31.13 million. This was a substantial drop from the 10 collective sales sealed in 4Q 2007 for a total value of S$1.16 billion and a dramatic plunge from the 31 collective sale transactions totaling some S$4.12 billion seen in 1Q 2007.

En-bloc acquisitions of strata residential units, which saw increasing buoyancy in the last two quarters, also experienced weakened sentiment. In March, Kuwait Finance House backed out from an S$818.4 million transaction inked in December 2007 to buy 97 units at Goodwood Residence from Guocoland. This is likely to be the first time a foreign institutional investor in Singapore had pulled out of such a deal, thereby raising concerns in a muted property market.

Much activity was seen in the last two weeks of March, with investors and developers getting into the thick of acquisition activities. Some S$2.72 billion worth of investment sales deals were closed in the final two weeks of the quarter. This accounted for 32.5% of the $8.36 billion amassed for 1Q 2008.  

“There was a noticeable uplift in sentiment in the final week of the quarter when several government land sales tender drew keen interests with bullish top bids. The ‘white’ site at Serangoon Central was one of them, which drew a total of six bids, with the top three bids falling within the upper range of price expectations.

A non-landed residential land parcel at Yishun Avenue1/Avenue 2 attracted a total of four contenders, with MCL Land putting in an extremely bullish winning bid of S$350.48 per sq ft per plot ratio. Also, an industrial land parcel at Ubi Avenue 4/Road 2 drew participation from four bidders which saw 3-Link Development submit a top bid of S$88.74 per sq ft,” says Ms Tay.

Activities seen for the quarter were mainly from the private sector, which raked in S$5.55 billion. This was 10.8% higher than the S$5.01 billion tallied in 4Q 2007.

The public sector accounted for 33.6% of the total investment sales. A total of 10 sites were awarded by the Government to developers in 1Q 2008, which brought in a total of S$2.81 billion. This was a decline from the S$3.12 billion worth of sites sold by the Government in 4Q 2007.

“The drop in value was due to the initial weak sentiments that saw lower-than-expected bids being submitted for a string of public sector sale sites, leading the Government to reject the top bids for two sites.

They were Mezzo Development Pte Ltd’s bid of S$7.8 million or S$38.37 per sq ft per plot ratio for the transitional office site at Aljunied Road/Geylang East Avenue 1 and Boon Keng Development’s bid of S$11.8 million or S$77.75 per sq ft per plot ratio for the landed residential site at Westwood Avenue,” says Ms Tay.

Public investment sales in 1Q 2008 was led by the award of two key sites – a hospital site at Novena Terrace/Irrawaddy Road which was awarded to Parkway Holdings at S$1.25 billion and a ‘white’ site at Serangoon Central which was awarded to Gold Ridge Pte Ltd, a unit of Pramerica Real Estate Investors (Asia), at S$850.90 million.  

Outlook

The bullish participation by developers in the recent land tenders reinforces their continued confidence in the mid-term prospects of Singapore’s property market. This confidence should hold and would continue to underpin investment sales activities for the rest of 2008.  Institutional acquisitions should remain robust. This opinion is supported by the recent Asia-Pacific REIT Survey conducted by Trust Company and Law firm – Allens Arthur Robinson – which rated Singapore as the best location in Asia-Pacific for overall REIT potential.

Collective sale of residential properties is likely to remain lackluster for the rest of the year.  The current weak sentiment in the residential property market has led to many developers opting to delay their project launches, thereby slowing down the need to replenish their land bank.

“The tight supply in the construction industry, coupled with the less pressing need to replenish land bank, will curtail developers’ bids for residential development sites. Hence, if collective home sellers continue to maintain their high asking price, the mismatch in price expectation will continue to stall the collective sales market in 2008.

In addition, concerns on the effects of the global credit crunch, as well as the slowing US economy on the Singapore property market, are expected to stay.

As such, investment sales value for the whole of 2008 is unlikely to match that of 2007. It is likely to hover in the region of S$20 billion to S$25 billion, driven largely by sale of commercial properties on the back of Singapore’s growing prominence as a regional financial hub,” says Ms Tay.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

Doris Boo
Associate Director, Marketing and Communications
Tel: 65 6223 2323
Direct: 65 6531 8610

Tay Huey Ying
Director, Research and Consultancy
Tel: 65 6223 2323
Direct: 65 6531 8658 

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