Investment sales market extends robust performance by another quarter

Dominated by the enbloc residential market, Singapore’s investment sales market extended its robust performance by another quarter. CBRE, the the largest commercial real estate services and investment firm in the world, said its preliminary investment volume for quarter 2 (Q2) of 2018 was S$10.308 billion, which is an increase of 11.4 per cent year-on-year (y-o-y0. This brings the 1st half 2018 (H12018) investment tally to S$20.318 billion, which is about half (57 per cent) of the annual investment sales achieved in 2017.

A total of 15 residential collective sale sites were transacted in Q2 2018, bringing the H12018 tally to 32 deals worth S$9.689 billion. This has already exceeded the 26 collective sales worth S$8.120 billion transacted in the whole of 2017. After three quarters of subdued purchasing activity, Hong Kong developers resumed land acquisitions in Singapore in Q2 2018, setting their sights on the residential sector.

Investment sales for 2nd half of 2018 is likely to be buoyed by enbloc residential transactions, Government Land Sales sites, as well as a couple of plausible enbloc office deals in the pipeline.

Commercial investment volume will likely make a comeback in the next six months. While most of the office transactions in Q2 2018 were bulk purchases of strata-titled units, the outlook for enbloc office assets remains favourable. Despite the existing low yields, investors remain positive about the growth prospects in the office market in 2018.

Mr Desmond Sim, Head of CBRE Research Singapore and South East Asia, will “not be surprised that the total investment sales volume for 2018 may be in the same region as 2017.”

Office rental growth accelerates in Q2 2018

With strengthening market fundamentals, islandwide office vacancy held at a healthy level of 5.9% in Q2 2018, unchanged from the previous quarter, in spite of the introduction of Frasers Tower’s 700,000 sq ft into the office stock. Frasers Tower enjoys a healthy pre-commitment rate of close to 80% which includes tenants such as Total, Microsoft, ABN and Sumitomo Corporation.

Moray Armstrong, Managing Director, Advisory & Transaction Services, CBRE Singapore commented, “The fairly tight vacancy environment in the Grade A office market, has encouraged office landlords to continue to press for higher rents as they seek to gain benefit from the market upswing.”

He added: “Grade A Core CBD office rents as tracked by CBRE Research registered a fairly robust quarterly increase of 4.1% in Q2 2018, the fastest pace of growth since Q1 2014. In spite of improving office sentiment, leasing enquiry levels and expansion requirements have not been quite as positive over the past couple of quarters as tenants grapple with a rising rental market environment. Key demand drivers have thus far been concentrated in flexible space operators and technology firms and to a lesser degree insurance companies.”

The flexible space sector continues to be particularly active with a number of new locations announced by existing market players. IWG’s lifestyle co-working brand, Spaces, committed to lease over 35,000 sq ft of space at TripleOne Somerset while JustCo’s newest location spanning 17,000 sq ft will be in MacDonald House.

Growth momentum from this sector has yet to show signs of slowing with a strong pipeline of new lease deals under negotiation. Homegrown insurance firms also expanded their operations, with Great Eastern and NTUC Income having leased space at the upcoming Paya Lebar Quarter development which has enjoyed strong take-up in the 1H2018.

Added Mr Armstrong, “The medium term outlook for rents remains positive, aided by the tapering supply pipeline. Potential risks remain, particularly on the demand side, in light of recent escalations in trade disputes and the possible dampening effects on global economic growth. Both providers and end users of space will need careful navigation through the next 6 to 12 months as the actual strength of the market advancement is tested.”

Everyone wants to know how to make money from investment sales. For those interested in real estate investments, the decision is between jumping in and buying (and perhaps overpaying for reading the market wrongly), and a long, hard wait where one might potentially lose a lot of capital in the process.

Understanding the property cycle and current market conditions would help those interested in investment sales to determine if it is a good time to invest. In order to correctly understand the market, buyers of real estate investment properties need to properly model the market to capture all the inputs and outputs.

Those interested in real estate investment should only go for high quality properties in good location with historical strong rental demand. One important thing such prospective buyers should ask is, “if money is not an issue, where would you rent?”

The prospective buyer would only know where the rental demand is after speaking to 30 – 50 people. So, always buy in those areas where people want to rent (because when times are good, one can get good rentals and when bad, it is still rent-able at a lower rent), you will still be able to find tenants because of the desirable locations.

Look for units that have some price distortion or buy good facing units that are going for less premium during high market. (Note: Some more speculative projects have a price difference of 20 -30 per cent between good facing and average facing units. For example, between 2800 psf versus 2200 psf, during a low cycle, the difference could narrow to 5 to 10 per cent.)

Where possible, those interested in real estate investment should always go for landed residential housing for store of value (though yields for such investments are very low). Investors should, however, be mindful of your monthly installment load. Go also for condominiums in prime districts well known for rental demand if you are investing, and understand your tenant market so that you can target them well.

Always make sure you have the necessary skills to negotiate well to buy a property. Those interested in real estate investment, but do not have the time to do do proper homework before investing, may obtain a full detailed Property Research Report by writing to us at  www.iCompareLoan.com/contact.

If you are hunting for investment proeprties, our Panel of Property agents and the mortgage consultants at icompareloan.com can help you with affordability assessment and promotional loans. The services of our mortgage loan experts are free. Our analysis will give industrial property loan seekers better ease of mind on interest rate volatility and repayments.

Just email our chief mortgage consultant, Paul Ho, with your name, email and phone number at paul@icompareloan.com for a free assessment.