Singapore property investment activity slows on higher interest rates, US bank turmoil

Singapore’s safe-haven appeal remains due to its sound economic and property market fundamentals. ST PHOTO: DESMOND FOO

SINGAPORE – Real estate investment activity in Singapore shrank to about $4 billion in the first quarter – the lowest quarterly volume registered since the fourth quarter of 2020 at the height of the Covid-19 pandemic, according to a Colliers report released on Wednesday.

Despite a number of residential collective sales and industrial deals, overall real estate investment volume plunged more than 63 per cent in the first quarter – from $10.9 billion in the same period in 2022.

Analysts cited the volatile interest rate environment and recent turmoil in the United States banking sector following the collapse of Silicon Valley Bank, and the merger of Credit Suisse and UBS Group.

But despite more investors taking a wait-and-see posture, Singapore’s safe-haven appeal remains due to its sound economic and property market fundamentals.

On a quarter-on-quarter basis, residential investment sales in Singapore gained 17.4 per cent to nearly $1.6 billion. This is due in part to three freehold condo collective sales going through – Meyer Park in Marine Parade, Bagnall Court in Upper East Coast Road and Holland Tower in Holland Heights – which amounted to $583.8 million.

This is the highest quarterly volume for residential collective sales since the fourth quarter of 2021. It suggests that developers are looking to acquire freehold sites, according to Ms Catherine He, head of research for Colliers, and Ms Tang Wei Leng, its managing director and head of capital markets and investment services. In the second quarter, residential investment activity will likely be dominated by the sale of government land sites, and luxury properties, whose buyers are less affected by the higher mortgage rates, they noted.

Knight Frank Singapore in its investment sales report said investors were interested in freehold properties in choice locations in the first quarter.

It noted that Holland Tower was the first successful residential collective sale in the prime district since the December 2021 round of property cooling measures.

“This suggests a nascent return of interest for prime location development sites after China opened its borders. Nevertheless, the en bloc environment remains challenging with a seeming gulf in sellers’ and developers’ price expectations,” Knight Frank said.

As for commercial sales, Colliers said these dropped 53.4 per cent quarter on quarter at around $1.3 billion due to macroeconomic uncertainties and higher interest rates, which make larger assets less digestible.

Two major deals supported this segment – the sale of 39 Robinson Road, a 21-storey freehold commercial building, to mainboard-listed Yangzijiang Shipbuilding for $399 million, and the sale of a 50 per cent stake in Serangoon mall Nex for $652.5 million to Frasers Centrepoint Trust and Frasers Property.

Industrial sales jumped 91.9 per cent in the first quarter to $0.8 billion, with deals such as the sale and leaseback of Jardine Cycle & Carriage’s warehouse/showroom portfolio for $333 million, and Ho Bee Land’s disposal of 12 Tannery Road and 31 Tannery Lane for $115 million. The J’Forte Building at 26 Tai Seng Street was sold for $98.8 million to the Boustead Industrial Fund.

Despite the cautious mood, Knight Frank noted that outbound real estate investment from Singapore was active in the first quarter, hitting $19.3 billion, up 76.7 per cent quarter on quarter.

This could be because of “assets in gateway locations becoming attractively priced due to the stormy global economic situation”, it said.

Between January and March 2023, notable deals included City Developments’ acquisition of the St Katharine Docks development in London for $636 million and the purchase of Suning Life Plaza in Beijing for $553 million by CapitaLand Investment.

Nonetheless, Knight Frank said financing has become more challenging for buyers, investors, developers and banks, and will remain so until there are clear signs of the global economy and financial conditions stabilising.

It lowered its projections for Singapore’s investment sales to between $20 billion and $22 billion for 2023, compared with earlier estimates of $22 billion to $25 billion.

Colliers sees a recovery in overall transaction volumes towards end-2023, should more certainty emerge around interest rates.

Ms Tang said: “Although the current volatility will tighten liquidity amid the higher risk aversion, as more assets approach their refinancing and exit timelines, there are likely to be more motivated sellers and opportunities emerging.”

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