Property investment sales in Q2 come to $6.9b

Property investment sales in Q2 come to $6.9b

Investment sales of property - or big-ticket transactions of at least S$10 million - have hit a high note this quarter, with the figure touching S$6.94 billion as at June 21.

This is 2.88 times the S$2.4 billion in the first quarter of this year and the highest since the S$13.84 billion achieved in Q3 2013, according to Savills Singapore. The latest tally is also 16.4 per cent more than the S$5.96 billion in Q2 of last year

Investment sales since the start of this quarter have been buoyed by a BlackRock-managed fund's S$3.38 billion sale of Asia Square Tower 1 to Qatar Investment Authority (QIA) - this transaction alone accounted for almost half the tally so far this quarter. Also giving a boost is CapitaLand Commercial Trust's proposed purchase of the remaining 60 per cent interest in CapitaGreen in a deal that values the office tower (100 per cent interest) at slightly over S$1.6 billion, or S$2,276 per square foot (psf) on net lettable area, and the S$638 million collective sale of Shunfu Ville near Marymount MRT Station to Qingjian Realty.

Factoring in the weak showing in Q1, the tally for the first half (up to June 21) is S$9.35 billion and Savills Singapore's managing director for investments and residential services Steven Ming is raising his forecast for the full year to S$17-19 billion from S$15-17 billion earlier.

"The handful of mega deals concluded may win over more investors who have been deliberating for too long as to whether to allocate more capital to Singapore or elsewhere," he said.

The office sector has been the star performer this quarter. Besides the transactions at Asia Square and CapitaGreen, another major transaction announced was that of the 999-year leasehold Straits Trading Building in Battery Road, at S$560 million or S$3,524 psf. This is a record psf price for a Singapore office building. Indonesian tycoon and philanthropist Tahir is making the acquisition through listed MYP Ltd.

Savills said that the commercial (office and retail) segment saw S$5.1 billion worth of investment sales from April 1 to June 21 this year, accounting for 73.6 per cent of total investment sales for the period, and 8.5 times the S$598.2 million in Q1 this year.

CBRE executive director of investment properties, Jeremy Lake, said: "We could see two or three office buildings transacted in the second half, though not of the size of Asia Square Tower 1.

"The stand-off that existed in the office market for some time has been bridged because of the Asia Square, Straits Trading Building and CapitaGreen deals as they provide more data points. So potential investors now have a better handle on the Singapore office market. In addition, there has been more activity in the office leasing market - which also gives investors more confidence. These two factors combined bode well for the second half."

Mr Lake also thinks that QIA's purchase of Asia Square will "make it easier for one or two more groups of similar ilk - a sovereign wealth fund or a major foreign insurance company - to come to the Singapore office market".

JLL regional director of Singapore capital markets Anthony Barr too said: "The latest office transactions have consolidated the minds of interested parties not to try and time their purchase at the lowest point of the office cycle - as they may miss the boat.

"There are a lot of core and core-plus focused funds that have successfully raised monies to invest in Singapore and other Asian markets and who are looking for suitable opportunities for office and retail assets."

Mr Ming of Savills commented that with the two headline office deals of Asia Square T1 and Straits Trading Building sealed, capitalisation rates in the sector have compressed and he expects further compression in the quarters ahead.

"Two factors are likely to drive this trend. One is large investors seeking the safety of capital and the other is capital chasing after positive nominal yields; at a time when major global economies are sporting negative interest rates for benchmark government bonds, even a lower rental yield here can be deemed attractive."

The residential sector has seen a 13.8 per cent share of investment sales this quarter. The S$959.5 million of big-ticket residential sales is down 43 per cent from the S$1.7 billion in Q1.

The industrial real estate sector has seen S$201.6 million in deals so far this quarter - up 50 per cent from the previous quarter's S$134.7 million. The most notable deal has been Soilbuild Business Space Reit's recent purchase of Bukit Batok Connection for S$96.3 million .

There has been only one major property of S$10 million and above in the hospitality segment this quarter - Hong Kong-listed Shun Tak Holdings' S$145 million purchase of a hotel-zoned freehold site at 9 Cuscaden Road. The mixed development category has seen S$526.2 million of deals, the biggest of which was Qingjian Realty's S$301.2 million purchase of a commercial and residential site in Bukit Batok at a state land tender. No transactions of hospitality or mixed development properties were recorded in either Q1 this year or Q2 last year.

The private sector has accounted for 94.2 per cent of investment sales from April 1 to June 21.

Despite the surge in investment sales value this quarter, Savills' analysis also showed that there have been only 42 big-ticket property deals of at least S$10 million in this quarter. This is lower than the 47 in Q1 this year and 59 in Q2 last year; the recent high was 69 deals in Q4 2014.

Savills Singapore research head Alan Cheong said: "In some way, these numbers suggest that the investment market has not yet fully turned around. A possible reason could be that amid the global economic uncertainty, volatile financial markets and property cooling measures, there is still a substantial number of institutional and high net worth investors who remain cautious, and with sellers holding out for the best price, the negotiation process may take a longer time.

"In addition, some of the transacted prices are at significant discounts to the sellers' original asking prices. For instance, Shunfu Ville was put up for sale last September at an asking price of at least S$688 million, while BlackRock sought to divest Asia Square Tower 1 in June 2015 with a price tag of S$4 billion. Ultimately, these were transacted at discounts to what was asked."

This article was first published on June 23, 2016.
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