Big-ticket property deals ease in Jan-Feb

Big-ticket property deals ease in Jan-Feb

Covid-19 has dampened business sentiment but there are other factors such as a reduction in the number of sizeable properties available after a string of high-profile deals

Fri, Mar 13, 2020

Kalpana Rashiwala

BIG-ticket property transactions of S$10 million and above have slowed amid the Covid-19 outbreak though other factors have also been at play, including a reduction in the number of sizeable properties available for sale after a string of high-profile deals last year.

Despite Covid creating cautious business sentiment, the underlying investment interest in Singapore property remains strong from overseas private equity funds as well as family offices flushed with liquidity, said Galven Tan, deputy managing director of capital markets at Savills Singapore.

Market watchers are also counting on the low interest rate environment to spur deals when the uncertainty eventually begins to clear up, hopefully by the second half.

JLL said: "The impact on Singapore's overall investment sales market is expected to be limited unless the outbreak drags on deep into the second half of the year. In the meantime, investors are generally expected to take a wait-and-see approach and this could affect transaction volumes in the first half of 2020."

According to Cushman & Wakefield Research, based on data as at March 7, 2020, the property investment sales tally for the first two months of this year stands at S$1.56 billion, down from S$2.75 billion in the year-ago period. The final figure for Jan-Feb 2020 may be higher as information on more deals trickles in.

Except for residential properties, which saw a modest rise in investment sales to S$1.13 billion in Jan-Feb 2020 from S$1.02 billion in Jan-Feb 2019, the figures eased for all other property segments: commercial, industrial, hospitality, mixed/others. The uptick in big-ticket residential properties was bolstered by state land sales, as well as transactions of luxury condo units and bungalows in Sentosa Cove and Good Class Bungalow Areas.

Edmund Tie & Co executive director of investment advisory Swee Shou Fern said that amid the Covid-19 outbreak, the property selection and evaluation process of investment deals has slowed as travel plans and face-to-face meetings are disrupted.

"Nonetheless, alternative engagement modes between vendors and prospective buyers are keeping the discussions going, while some serious investors are proceeding with their property hunting process with business continuity plans in place."

CBRE senior executive director and head of capital markets in Singapore, Michael Tay, said that even without the Covid outbreak, the number of deals in motion would have slowed down from last year.

"Transactions take time to happen. If deals were not already in some sort of due diligence exclusivity stage towards end last year, then there is little chance that they could be concluded in the first quarter of this year. A key factor for the slowdown in momentum is the dearth of tradeable investment assets that are currently available."

Agreeing, Cushman & Wakefield executive director of capital markets Shaun Poh said: "The boom in investment sales between 2017 and 2019 has led to a reduction of investible assets, as many of these assets were purchased with a medium to long-term investment horizon."

Large transactions in 2019 alone include the sales of Duo Tower and Galleria, the Andaz Singapore hotel, phase 2 of Mapletree Business City, 71 Robinson Road, Bugis Junction Towers and a half-stake in Frasers Tower.

For office assets, another reason that big-ticket transactions are thin at the moment, explains Savills' Mr Tan, is the slowdown in the office leasing market in the second half of last year. "This means the office rental growth story is missing."

C&W's research head for Singapore and South-east Asia, Christine Li, said that amid the ongoing decline in market sentiment, most buyers are reluctant to pay high prices to acquire big-ticket assets. "Meanwhile, sellers are hesitant to lower prices and are taking a wait-and-see approach." However, there have still been a few transactions for assets with palatable quantum such as the strata office deals in Suntec City and Samsung Hub, she added.

In similar vein, Ms Swee of ET & Co too said: "We have been receiving enquiries from investors seeking opportunistic buys. Property owners, however, especially those with holding power and properties with strong attributes, are largely maintaining their asking price. Some owners have also pulled back their property from sale. "

While a wait-and-see attitude will slow down the volume of big-ticket property transactions on the whole this year, Mr Tay of CBRE highlighted the silver lining. "First, the low interest rate environment which is expected to be prolonged will be conducive for property investment. Second, the Singapore government's collective effort in handling the Covid-19 situation is likely to enhance confidence in Singapore as a destination for investments including real estate."

Mr Poh of C&W said: "Given that the low interest rate environment is expected to remain, institutional players, wealthy individuals and family offices will continue to favour Singapore real estate for its stability and growth prospect over the medium to long term."