SINGAPORE – Government land sales (GLS) transactions helped fuel a rebound in Singapore’s real estate investment activity to nearly $7 billion in the third quarter of 2023, reversing the past two consecutive quarters of decline.

Of the overall investment volumes, GLS deals accounted for nearly 60 per cent, or $4.1 billion, of investments. Excluding state land deals, total investment volume would come in at just $2.9 billion, a drop of 8.5 per cent quarter on quarter, according to a report released by Colliers on Monday.

The largest GLS deal in the third quarter was the sale of a commercial and residential site in Tampines Avenue 11 to a joint venture by a UOL-Singapore Land consortium and CapitaLand Development for $1.21 billion, or $885 per sq ft (psf) per plot ratio.  

In second place is the GLS site in Marina Gardens Lane, which was awarded to Chinese developer Kingsford Huray Development and two other partners for $1.03 billion, or $1,402 psf per plot ratio. 

Despite a strong showing in the third quarter, total investment sales are forecast to drop to between $22.5 billion and $25 billion in 2023, compared with nearly $30 billion in 2022.

This is due to higher interest rates, heightened uncertainty arising from the banking turmoil and tightened liquidity earlier in 2023, and higher interest rates and financing costs inhibiting larger investments, said Ms Catherine He, Colliers’ head of research, Singapore. The latest round of cooling measures in April also made investing in residential assets prohibitive for foreigners and entities, she added.

But she believes that with interest rates peaking and more GLS tenders coming up at the year-end, “investment volume may surprise on the upside”.

Five residential GLS sites were awarded in the third quarter alone, and the residential sector, driven by state land tender sales, is expected to lead 2023’s investment volumes, according to Cushman & Wakefield’s latest Singapore capital markets report.

For the rest of the year, sales will be driven by the upcoming tender closing of GLS sites, including Clementi Avenue 1, Pine Grove (Parcel B) and Lorong 1 Toa Payoh.

Amid still-low unsold inventory, developers are land banking even as they turn cautious due to higher borrowing costs and uncertain demand following several rounds of cooling measures.

“Developers are placing their bets strategically, with a preference towards smaller to medium-sized sites and/or sites with low future market competition. Meanwhile, the gap in buyer-seller expectations will continue to be a challenge for the residential en bloc market,” said Cushman & Wakefield head of research Wong Xian Yang.

But the mixed-use en bloc market is seeing some green shoots, with the $908 million collective sale of Far East Shopping Centre, a mixed-use project with retail and office components, to a company linked to Chinese businessman Du Shuanghua. The sale is pending approval.

For the hospitality sector, transaction volumes were driven by the sale of Parkroyal Kitchener Hotel for $525 million in July to Worldwide Hotels, and retail investment deals such as the sale of Changi City Point by Frasers Centrepoint Trust for $338 million.

The steady recovery of Singapore’s tourism market and increasing visitor arrivals also bode well for prime retail and hotel assets, Mr Wong added.

But the office sector remains challenging as office net yields remain significantly below borrowing costs, the Cushman report said. This sector saw a 78.5 per cent quarter-on-quarter drop in transaction volume in the third quarter.

But as Singapore works towards its smart and green building objectives, this could help fuel investment sales volumes in 2024. More assets could be put on the market as corporates adopt asset recycling strategies and monetise assets to streamline operations and meet sustainability targets, Mr Wong said.

Colliers’ Ms He expects total investment sales to be slightly higher in 2024 at between $25.2 billion and $27.6 billion as deal-making could still be hampered by weaker rental growth, higher-for-longer interest rates and tighter liquidity.

However, real estate investments in Singapore will remain attractive to private wealth investors for its safe haven status. With interest rates peaking, more investors may take positions in recovering sectors such as hospitality and retail, or redeploy capital into higher-yielding assets.

In 2024, the Government could continue its substantial rollout of residential and mixed sites to meet housing demand, which will also boost investment sales, Ms He said.

That said, there are also downside risks that could derail investment momentum, such as worsening geopolitical tensions or a prolonged recession in the developed economies, she added.