http://www.businesstimes.com.sg/arch...ivity-20140415

Published April 15, 2014

Residences dominate Q1 investment activity

Colliers and DTZ see total real estate investment volume falling 13-20% in '14

By lee meixian

[email protected] @LeeMeixianBT


RESIDENTIAL investments made up a significant 41 to 45 per cent of real estate investment activity in Q1, according to various property consultants' research reports, but overall this is expected to come in lower this year.

This is because of a number of factors. Firstly, the combined effects of cooling measures and the Total Debt Servicing Ratio framework have softened demand and led to weaker transaction volumes in the private residential market, which have dampened the residential en bloc sales market. Secondly, the government has moderated its supply of residential sites in H1 2014 due to the large pipeline supply - though the cut in land sales is across the board, extending also to commercial and hotel sites.

The third factor is the interest rate increases, expected to kick in when the United States begins tapering its quantitative easing programme next year, which could raise financing costs and become a drag on investment activity.

According to a DTZ Research report released yesterday, in the first three months of this year total real estate investments rose 24 per cent quarter on quarter to $4.7 billion, with residential and office investments accounting for $3.7 billion, or nearly 80 per cent of the overall volume.

Much of the residential investments were driven by government land sales, which trebled from a quarter ago. Eight residential sites (including five executive condominium sites and a reserve list site at Geylang East Avenue 1) were awarded for $1.9 billion. DTZ included only transactions that were at least $5 million. It also excluded $708 million of transactions in single residential units that cannot be redeveloped or subdivided into more than one plot. The statistics vary among consultants because of different criteria used to define investment sales.

As for private land sales, according to Colliers, only two residential land parcels changed hands in Q1: 700 Beach on Beach Road from a consortium comprising Hirsch Bedner Associates and Fine Grain Property Consortium (Singapore) which sold for $120 million; and Tee Ventures' acquisition of a plot that houses Longhouse Food Centre on Upper Thomson Road for $45 million.

The three major office deals in Q1 were OUE Commercial Reit's acquisition of OUE Bayfront for $1 billion for its listing; CapitaLand's sale of Westgate Tower to a joint venture between Low Keng Huat (Singapore) Ltd and Sun Venture Homes for $579 million; and an acquisition of a 50 per cent stake in Finexis Building on Robinson Road by Singapore-based Sin Capital Partners for $124 million.

This year, the commercial and hospitality sectors are expected to gain more traction among investors, buoyed by an uptick in office rents and the high occupancy rates and healthy room rates that hotels enjoy. The opening of the Singapore Sports Hub this year is also likely to draw more tourists. Among offices, rents for Grade A office space particularly are rising, benefiting from limited new office supply in the central region of Singapore and a generally improved global market outlook.

But some consultants caution that interest for private commercial and hotel land parcels could be affected by the government's upward revision in development charges for land approved for intensification or higher-value use.

The Ministry of National Development earlier this year assigned the steepest upward adjustment of 14.6 per cent on average to the commercial sector, with rate increases for hotel use following closely behind at 13.4 per cent.

Against this backdrop, Colliers and DTZ Research expect total real estate investment volume in 2014 to be between $20 billion and $25 billion, about 13-20 per cent lower than last year's $28.6 billion.