Residential sales and the return of big-ticket transactions in the second half expected to drive Singapore’s real estate investment market this year
The optimism around the vaccine roll-out is giving a push for the overall economic growth for 2021. The risk-on mode bodes well for the recovery in the investment sales market in 2021 as investors stand ready to deploy more capital in anticipation of growth and better returns in the new year. Given the prolonged low interest rate environment, investors who are flushed with liquidity will continue to look out for opportunities to acquire assets in search of higher returns. More buzz is expected in the residential investment activity, as residential sales continues to keep pace. Older CBD office assets could therefore take advantage of the CBD Incentive Scheme to increase exposure to this market segment.
The projected $18-$20 billion sales tally for 2021 is in light of the vaccine optimism and economic recovery post-COVID-19. The total investment volume in Q4 2020 came up to $3.33 billion, and the full-year 2020 investment tally stood at $23.7 billion.
Wong Xian Yang, Associate Director of Research for Singapore and Southeast Asia at Cushman & Wakefield said, “Investors are now making up for time lost during the Circuit Breaker and subsequently in Phase 2 last year when sales activity was restricted. Big-ticket transactions are still challenging, but the market could see the return of these in the second half of 2021. Residential collective sales and older CBD office assets could see renewed interest given the resilient residential market segment.”
The residential investment volume doubled to $1.57 billion, up from Q3 2020’s volume of $0.82 billion. According to the URA’s advanced estimates, private property prices accelerated in the fourth quarter to end the full year with a price increase of 2.2 per cent, the highest since the recent peak in Q3 2013.
The uptick in the residential home sales saw an increase in residential investment sales, such as the Guillemard-Jalan Molek site at $93 million, as well as the sale of Sophia Ville and Fair Haven at $62 million. The success of these transactions has sparked a wave of interest by residential developers, particularly mid-sized ones, to look at sites that will help them ride the current cycle.
Good Class Bungalows (GCBs) also ended the year with healthy sales and higher transaction values despite the COVID-19 challenges. Transactions in the final quarter of 2020 included Tanglin Hill GCB at $31.5 million and Chatsworth Park GCB at $44.0 million.
The largest non-landed transaction during the quarter was the Wallich Residence superpenthouse, which was sold for $62 million. This was the unit bought by British billionaire James Dyson slightly over a year ago at $73.8 million.
Shaun Poh, Executive Director of Capital Markets at Cushman & Wakefield said, “At this point in the market, activity in the residential segment will probably dominate sales but there are several big ticket commercial deals that took a back seat at the height of COVID-19 in 2020, which are back on the drawing board.”
The commercial sector saw an overall decline of 93 per cent in transaction volume in Q4 to 0.92 billion in the absence of Reits mergers. Nevertheless, there is still some optimism in the office market against the backdrop of the imminent recovery. For instance, Keppel REIT is acquiring a 100% stake in Keppel Bay Tower from Keppel Land for $657.2 million (approximately $1,700 psf), as the prevalence of work-from-home trend post-COVID-19 is incentivising companies to look outside the CBD for regular touchpoints for staff who do not wish to commute to the CBD. This is the largest transaction in 2020 if REITs mergers are excluded. Keppel Bay Tower has a total net lettable area (NLA) of about 386,600 sf and comprises an 18-storey tower block and a six-storey podium block. The initial net property income yield is estimated to be 4%, taking into account rental support.
Shophouse Transactions Surged by More Than Four-Fold
There was a strong pick-up in the shophouse investment sales in the final quarter of the year, totalling $232 million, nearly a five-fold increase from the $44 million in Q3 2020. Q4 recorded 12 shophouse transactions above $10 million, up from only 3 in the preceding quarter. The wealth preservation theme to protect capital amidst heightened geopolitical uncertainties has continued to support the shophouse sector despite the rental weaknesses given social distancing measures and economic woes.
Nascent Recovery Seen in Industrial Sector
The Industrial sector showed some nascent recovery in Q4, despite a 34% decline in transaction volume compared to Q3. The biggest deal during the quarter was the acquisition of Big Box in Jurong by Perennial Real Estate consortium for $118 million. The property is expected to be redeveloped into a business park. In the second biggest industrial deal during the quarter, Metro Holdings is acquiring a 26% stake in a portfolio of 14 properties for an investment amount of up to S$76.6 million. The portfolio comprises 6 industrial properties, one business park, 4 high-spec industrial properties and 3 logistics properties located in various parts of Singapore and within proximity to transportation nodes. These two deals boosted the industrial transaction volume to $296.6 million in Q4. For the whole of 2020, industrial transactions were muted at $2.1 billion, a 64% decline from the $5.9 billion in 2019.
During the quarter, the former Caldecott Broadcast Centre in Andrew Road, currently zoned for civic and community institution use under the URA’s masterplan 2019, was also sold for $280.9 million. Mediacorp had been granted an outline approval by the URA to redevelop the site into two-storey bungalows with a minimum land area of 800 sq m per house. The site will have to be re-zoned to residential use.
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