Price mismatch expected to keep volume of deals low
Total investment sales of Singapore real estate, a gauge of developers' and investors' medium- to long-term confidence in the property sector, have dipped to $3.7 billion so far this quarter (up to June 20), or 58 per cent lower than the Q1 2008 figure of $8.9 billion, according to figures compiled by CB Richard Ellis.
The Q2 showing is the lowest quarterly number in three years, and brings the total so far in the first-half to around $12.6 billion.
CBRE executive director (investment properties) Jeremy Lake predicts the full-year figure could come close to around $20 billion - or less than half the record $54.4 billion of investment sales deals clocked last year
Putting things in perspective, Mr Lake reasons that 'last year was arguably a one-off year, so even if we hit $20 billion this year, it would be a very active year and the third highest performance in a decade'.
'We'll continue to see the sale of office, retail and industrial income-producing assets and possibly hotels during second-half 2008 but the volume will be lower (than the first half) because of a price mismatch between sellers and buyers.
'There's still plenty of institutional money ready to invest but pricing sought by institutional investors, including property funds, is lower than that being asked by most sellers. This means the volume of deals is low,' Mr Lake says.
The property consultancy defines investment sales as deals with a value of at least $5 million, comprising government and private sales, buildings and land, strata and en bloc. It also includes change of ownership of real estate via share sales.
Public-sector land sales accounted for 34 per cent or $4.3 billion of total investment sales so far this year.
The office sector contributed about $5.2 billion or 41 per cent of year-to-date investment sales. Major transactions include The Atrium @ Orchard bought by CapitaMall Trust for $839.8 million or $2,249 psf of net lettable area and 71 Robinson Road's purchase by Germany's Commerz Grundbesitz Investmentgesellschaft for $743.75 million ($3,125 psf). 'Investment activity in the office sector will continue to be healthy, albeit at a slower pace. The more active investors in the short- to-medium term would be the core and core-plus investors which underwrite acquisitions with lower debt levels, given the current climate of tighter bank lending and moderate increases in office rentals going ahead,' Mr Lake reckons.
The $5.2 billion of office investment sales struck so far in H1 2008 is roughly 36 per cent of the $14 billion-plus achieved for the whole of last year.
In contrast, the residential sector has seen a much bigger slowdown. The $4.2 billion of deals in H1 2008 (up to June 20) is just 13 per cent of the $33.3 billion achieved for full-year 2007.
Residential investment sales done this year include around $2.1 billion of sites sold either through the Government Land Sales (GLS) programme or at Sentosa Cove; around $141 million of collective sales sites (compared with some $14 billion for the full-year 2007); $817 million of landed home sales (including Good Class Bungalows); and around $1.1 billion of apartment/ condo sales (units costing at least $5 million each).
Market watchers note that developers' appetite for residential sites has weakened considerably in the first-half of this year against the backdrop of weak home sales.
Looking ahead, CBRE's Mr Lake says: 'The delay of new residential launches by developers, coupled with rising construction costs and tighter credit terms, would continue to curtail developers' interest for residential sites. Hence, activity in the collective sales market is likely to remain lacklustre in H2 2008.'
Agreeing, Credo Real Estate managing director Karamjit Singh says: 'There is a lack of availability of prime residential sites in the en bloc sales market at prices reflective of today's sentiment. Most of the reserve prices set by owners for en bloc sites available for sale today were agreed last year, when the market was still buoyant.'
'Residential sites are more likely to be sold in H2 from the GLS slate, by virtue of the fact that the GLS Programme is the only source of supply of sites at prices that reflect today's market. Of course, if prime private-sector sites at current market-adjusted prices are available, there should be takers for those too.'
The industrial property market chalked up $943 million of investment sales deals between Jan 1 and June 20 this year. Ascendas Reit, Mapletree Logistics Trust and Cambridge Industrial Trust were among the major buyers.
Colliers International managing director (Singapore and North Asia) Dennis Yeo estimates that up to yesterday, the tally so far this year would have crossed the $1 billion mark and that a further $1 billion or more of industrial property investment sales deals are likely to be announced in H2 2008. 'Some of the big overseas funds that have been buying office properties in Singapore in the past few years are now also looking at industrial, logistics and business park assets.
'With tighter bank financing these days, smaller office blocks and industrial or business park buildings costing $20-200 million each are in greater demand among funds. Industrial property is also more in favour now because it offers higher yields than offices and is a better match for these funds' lower risk appetite in the current climate,' Mr Yeo added.
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