Wednesday, 3 January 2018

Big property deals surge to 10-year high in 2017

Bali news and views editor's comments: 

Perhaps a four-year downturn in Singapore real estate that I predicted four years ago has now ended or at least bottomed out .
Lawrence Bellefontaine writing weekly newsletter while on vacation in Macau


It's too early to predict a bull market and to issue a buy signal but below is positive news for the Singapore real estate market.

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Deals worth at least S$10m reach S$35.6b last year, up 57% from 2016, but tough act to follow, say observers
TUE, JAN 02, 2018 - 5:50 AM

KALPANA RASHIWALAkalpana@sph.com.sg@KalpanaBT



"Many developers are still trying to secure land for fresh private housing development... There is a risk that collective sale owners will become more optimistic in their price expectations while demand becomes increasingly satisfied as more sites are sold." - JLL Singapore's head of research and consultancy Tay Huey Ying

Singapore

SALES of big-ticket property transactions of S$10 million and above in 2017 surged to their highest level in a decade. This, however, was short of the record achieved in 2007, show latest figures from Savills Singapore and CBRE released separately to The Business Times.

According to Savills Singapore's preliminary tally as at Dec 27, investment sales of property reached S$35.64 billion, up 57.3 per cent from the S$22.66 billion in 2016. This was the best since the record S$41.1 billion during the 2007 property boom.

Based on JLL's figures, the surge in 2017 was supported by a strong revival in collective sales to S$8.6 billion from just over S$1 billion in 2016.
There were also large deals in the office, retail and industrial segments.
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Also boosting last year's investment sales tally were state land sales in choice locations. These included a coveted commercial and residential site in the new Bidadari Estate that went to a tie-up between Singapore Press Holdings and Kajima Development; and a residential site in Stirling Road clinched by a partnership between Logan Property from China's Guangdong province and Chinese conglomerate Nanshan Group.

However, property consultants think that 2017's stellar figures will be a tough act to follow.

For one thing, collective sale transactions are expected to ease amid an expected widening in price gap between owners and developers, said JLL Singapore's head of research and consultancy Tay Huey Ying.

She said: "Many developers are still trying to secure land for fresh private housing development. However, there is a risk that collective sale owners will become more optimistic in their price expectations while demand becomes increasingly satisfied as more sites are sold... "

Desmond Sim, CBRE Research head of Singapore and South-East Asia, said that in the commercial (office and retail) segment, a strong year of sales - which included Asia Square Tower 2's office and retail space; PwC Building in Cross Street; Jurong Point mall; and a half stake in One George Street - has reduced investible stock.

"So what we are likely to see in 2018 may be smaller deals."

Agreeing, Savills Singapore research head Alan Cheong said: "The prime office and retail assets that have been sold in the past couple of years are not likely to return to the market anytime soon because they have been acquired by long-term investors."

He predicted investment sales to ease to around S$25-27 billion this year - above the 2016 level of S$22.7 billion.

Mr Sim said that he would not be surprised if 2018's total investment sales tally returned to 2015-2016 levels of S$18-23 billion going by CBRE data.

He envisaged a trend of some property investors - local and foreign - looking for niche assets to seek higher returns.

For instance, if investors' area of interest is logistics, they could zoom in on a specialised segment such as cold-store. Similarly one stands to reap a higher return from investing in a data centre, which requires greater technical expertise, than a typical industrial property.

He cited rising interest rates among the risk factors for investment sales this year. "If the new Fed chair's reading of the US economy is more bullish than Janet Yellen's, then there will be more upward pressure on interest rates in the US, which will have a domino effect on Singapore mortgage and lending rates.

"This will have a greater impact on private home purchases as well as the investment sales market. We should also take heed of the Singapore government's warnings about rising private residential land bids by developers, and the market heating up."

On prospects in the en bloc sale market, JLL's Ms Tay said: "With the spike in potential supply of new homes arising from 2017's robust collective sales activity, developers might start to become more selective and exercise greater caution when evaluating large sites."

In any case, fewer large sites are likely to be transacted in 2018, given that many of the big ex-HUDC plots have already been sold.

CBRE director of capital markets Galven Tan said that as most en bloc sites transacted last year were in the suburbs, there may be more focus in the prime areas or Core Central Region in 2018.

Savills' Mr Cheong said that given the hoops that developers now have to jump through to secure big en bloc sale sites - including traffic impact studies and prospects of rising development charges payable to the state for some sites - large developers may be more willing to trigger the release of sites on the state's reserve list.

Savills' analysis shows that last year, the residential sector accounted for the biggest share - 48.7 per cent - of the total S$35.64 billion investment sales pie. The S$17.34 billion of big-ticket residential property transactions in 2017 was a jump of 134.2 per cent from S$7.41 billion in 2016.

The commercial property segment, comprising offices and retail space, had a 34 per cent share. The transaction value rose 30.4 per cent to S$12.1 billion from S$9.28 billion in 2016.

Said Mr Cheong: "The coincidental availability of rare and good-quality investible grade assets such as Jurong Point, Asia Square Tower 2 and One George Street made investors pounce on the opportunity."

The industrial property segment's contribution to investment sales rose 43.8 per cent to S$3.78 billion in 2017, giving it a 10.6 per cent share.

The mixed development segment had a 6 per cent share at S$2.14 billion, down from S$3.1 billion in 2016.

For more stories from BT Outlook 2018, visit bt.sg/outlook2018.

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