This year’s tally of property investment sales, as these transactions are also known, is the highest in three years and has been supported by two mega deals – BlackRock’s S$3.38 billion sale of Asia Square Tower 1 to Qatar Investment Authority and the government’s S$2.57 billion sale of a white site slated for mostly office use along Central Boulevard to a unit of IOI Properties Group.
There were S$10.1 billion of office investment sales deals this year (up to Dec 20). This gave the sector the lion’s share or 44 per cent of overall investment sales.
This was followed by the residential segment, accounting for 33 per cent or S$7.5 billion worth of transactions (supported by the Shunfu Ville and Raintree Gardens collective sales and City Developments’ profit participation securities transaction of the completed Nouvel 18 condo).
With some key major deals out of the way in 2016, the pipeline for 2017 seems to be a shade lesser. Property pundits say next year’s pipeline of big transactions includes Jurong Point mall and Asia Square Tower 2, each expected to fetch around S$2 billion.
The office and residential sectors will remain key drivers and analysts generally expect the overall investment sales next year to remain in the region of 2016’s level or to soften, citing the rising interest-rate environment and slowing trade in Asia if incoming US president Donald Trump fulfils his promise of pursuing a protectionist stance.
However, 2017’s investment sales could possibly be 10 per cent higher. Residential could account for a bigger proportion of deals in 2017 than office – the reverse of this year – driven by developers’ voracious appetite for replenishment land via both state land tenders and private-sector collective sales.
Moreover, residential developers that face looming sales deadlines stipulated under the government’s Qualifying Certificate conditions will be motivated to divest their unsold inventory through bulk sales of units or structured deals for their projects – to avoid paying hefty penalties to the state. Investing in high-end residential properties remains appealing given the probability of investing at below replacement cost.
Meanwhile, Singapore’s office sector remains on the maps of global and regional investors because of the high quality of buildings completed over the past decade and the covenant strength of tenants in these developments.
However, further interest-rate hikes are on the cards while office rents and occupancies will continue to come under pressure next year, so investors will demand higher yields – but owners may not be willing to let go of their assets at lower prices, at least in the near term.
This mismatch in pricing and yield expectations between buyers and sellers was already evident in office deals this year.
Private-equity funds, which had been the more active buyers of commercial property in the past, took a backseat as a result. Instead, non-traditional buyers such as the ultra high net worth families and sovereign wealth funds (SWFs) led the buying this year.
In a similar vein, SWFs and insurance companies are likely to dominate big-ticket office purchases in the next 12 months. This is because of the expected protracted compressed yield environment which makes them more competitive investors given their lower capital costs, and the continued attraction of Singapore as one of Asia’s safe harbour markets to be invested in.
As office rents generally are expected to continue softening in 2017 as the sector faces the brunt of an oversupply and a weakened economic outlook, this could draw new capital into the sector in anticipation of lower prices.
But the resultant intensified buying competition amid a finite saleable inventory will likely keep capital values stable.
Total investment sales in 2017 is likely to be in the S$18-S$20 billion region.
The Chinese government’s general policy to discourage outflow of capital to stem a further fall in the yuan may slow Chinese investment into Singapore real estate. Further interest-rate hikes are also seen as a dampener on property deals in 2017, which may result in some investors adopting a wait-and-see position, especially if they wish to first see whether Mr Trump will actually implement the protectionist policies he championed during his election campaign.
On the flip side, Mr Trump’s policies are also expected to create a more inflationary environment – during which typically, people tend to go into real estate for a hedge.
A weakening Singapore dollar is also expected to attract foreign investors to Singapore properties.
So far this year, investment sales of office properties have more than doubled to S$10.1 billion from S$4.2 billion last year. Residential property deals have expanded 42.7 per cent to S$7.5 billion from S$5.2 billion. Investment sales of industrial property have also climbed 42.8 per cent to S$2.7 billion from S$1.9 billion previously.
On the whole, investment sales that originated from the public sector have dipped 0.7 per cent to S$5.8 billion this year while transactions originating from the private sector have risen 41 per cent to S$17.1 billion.
As a result, the public sector’s share slipped to 25.4 per cent in 2016 from 32.5 per cent last year.
This was due to a cutback in Government Land Sales sites.