Singapore property investment sales may dive up to 70% in 2020

Deals this quarter likely to tumble further, though distressed sales have yet to emerge

Tue, Apr 14, 2020

Siow Li Sen


SINGAPORE property investment sales will take a hammering in 2020, and could plunge as much as 70 per cent.

With a looming global recession, full year 2020 investment sales could dive to S$10-S$15 billion, a 54 to 70 per cent drop from 2019's S$32.9 billion, said Christine Li, Cushman & Wakefield head of research for Singapore and Southeast Asia.

Investment sales in the past 10 years reached a high of S$36.8 billion in 2017; the low was S$17.6 billion in 2015.

It already fell sharply in Q1, by 37 per cent, though the fall was mitigated by a surge from the residential segment.

Deals this quarter will likely tumble further as buyers remain cooped up, though distressed property sales have yet to emerge, said a Cushman & Wakefield report.

Total investment volume in 1Q 2020 was S$3.02 billion, a 37 per cent drop from the S$4.81 billion achieved in the fourth quarter of 2019, amid the Covid-19 pandemic, the report said. Total investment sales in 1Q 2019 was S$4.5 billion.

Investment transactions include all awarded state land tenders and private property sales of at least S$10 million.

The investment sales tally of the first three months of 2020 was dominated by the residential sector with S$2.02 billion, double the previous quarter. The surge was mainly due to numerous residential government land sales (GLS) sites being awarded during the quarter, resulting in the public sector accounting for 68 per cent of the total residential volume.

Of the five top GLS sites awarded in Q1, the two biggest were Irwell Bank Road for S$583.9 million and Fernvale Lane, which fetched S$286.5 million.

The land tenders closed before the Covid-19 situation deteriorated and at that time, the residential market had good sales momentum, said Ms Li.

These sites were on the GLS programme for 2H 2019, and spilled over due to the long tender period.

The industrial sector recorded the second highest volume of S$606.8 million, a smaller fall of 22 per cent quarter-on-quarter. The commercial sector followed at S$183.4 million, plunging 81 per cent on quarter. The hospitality sector clocked no deals during the quarter.

"Big ticket commercial transactions (over S$100 million) were absent in the first three months of 2020, a direct result of the Covid-19 pandemic and the rapid sell-off in stock markets across the globe," said Ms Li.

Sellers were unwilling to lower prices significantly, hoping that the impact on the economy would be temporary and that market confidence would recover rapidly after the pandemic was contained, she added.

"Meanwhile, buyers were waiting on the sidelines to enter at more attractive prices as it is appearing increasingly likely that the reduction in economic activity from lockdowns will trigger a global recession," Ms Li said.

Still, there were some highlights with one office sale hitting a record price.

In the largest office deal of the quarter, a South Korean high net worth individual acquired the 11th floor of Samsung Hub from Sun Venture for S$49.8 million. The S$3,800 per square foot (psf) achieved was a record price for the 999-year leasehold property, exceeding the previous high of S$3,550 psf in 2018.

Sun Venture is a property investment group backed by Taiwanese and Singaporean investors.

Another notable strata deal was Hong Realty's divestment of the 10th floor in Suntec Tower One to the Hong Kong-based Rosa family for S$37.1 million or S$2,580 psf. This represented a 26 per cent gain from Hong Realty's purchase price of S$29.5 million back in 2018.

Hong Realty is a privately held vehicle of the Hong Leong Group controlled by the Kwek family.

Despite the general caution in market sentiment, Ascendas Reit (Real estate investment trust) was active during the quarter. In the largest private sector deal, Ascendas Reit acquired a 25 per cent stake in business park Galaxis for S$102.9 million or S$629 psf. As the balance stake of Galaxis is currently held by sponsor CapitaLand, there could be a future injection of the remaining 75 per cent into the Reit in subsequent quarters.

Meanwhile, Ascendas Reit sold Wisma Gulab to Heap Seng Group for S$88.0 million and 25 Changi South Street 1 to Hao Mart for S$20.3 million. These divestments were part of its strategy to recycle capital into better performing assets.

Shaun Poh, Cushman & Wakefield's executive director of capital markets, said there will probably be more bite-sized investment deals in the second quarter and into the second half of 2020.

"Fundamentally, there is still appetite particularly for office, hotel and logistics assets. We have not seen any distressed assets at the moment.

"This is largely because of the various stimulus packages by the government to help the hospitality as well as the retail-related industries, and sound financial position of most asset owners."