Total investment sales volume decline in 1H 2019, Research

Despite the decline in total investment sales volume in H1 2019, there was a 12.9% increase in commercial transactions compared to H2 2018, says a new research report by Knight Frank Singapore.

The report noted that the uncertainties emanating from geopolitical tensions continued to weigh down global economic growth prospects, which inadvertently affected Singapore’s economy. It added that there were many twists and turns in the US-China trade war in H1 2019.

A trade deal was reportedly imminent before the United States imposed more tariffs and placed Huawei on the blacklist. Both countries then agreed to continue talks to have a trade deal during the G-20 summit. As a result, the financial markets have been volatile and investment sentiments weakened.

The recent tanker attacks at the Strait of Hormuz further heightened uncertainty in the global economy as the potential conflict between US and Iran will have likely pose risks to global oil markets. Slower global economic growth also prompted possible cuts in interest rates by the Central Banks across major economies.

Mr Ian Loh, Knight Frank’s Head of Investment & Capital Markets, said: “the uncertain external environment and the low interest rates, hence, encouraged investors to seek real estate assets in gateway cities that offer political stability and long run economic growth.”

He added, “in Singapore, office rents are projected to increase due to limited supply while hotel room rates and occupancies are expected to improve due to projections of robust visitor growth.”

The report noted that correspondingly, total investment sales volume for commercial properties were up by 12.9% to S$6.1 billion in H1 2019 from S$5.4 billion in H2 2018.

The largest commercial transaction in H1 2019 was the sale of Chevron House. Mainboard-listed property group Oxley Holdings Limited filed to SGX in March 2019 that its wholly-owned subsidiary accepted an expression of interest from Golden Compass, a US real estate fund, and inked the deal in April 2019. Chevron House was sold for S$1.0 billion, translating to approximately S$3,923 per sq ft based on existing NLA of 261,280 sq ft, or S$2,739 per sq ft based on a proposed increase in NLA to 374,165 sq ft.

The Knight Frank report said that separately, the investment sales of residential properties stayed largely the same in H2 2018. It noted that most of the residential investment sales came from the Government Land Sales (GLS), and the supply from the GLS programme tend to be similar.

“Residential sales in H1 2019 went up slightly to S$3.7 billion from S$3.6 billion in H2 2018. The Government Land Sale residential sites awarded in the first half of 2019 included the land parcels Kampong Java (S$418.4 million), Middle Road (S$492.0 million), Pasir Ris (S$700.0 million), Sims Drive (S$383.5 million) and the Executive Condominium site at Tampines Avenue 10 (S$434.5 million). We anticipate residential land sales to be stable over the year, as the government continues to provide a stable supply of land parcels for sale through GLS.”

Knight Frank Singapore noted that activity in the luxury residential market has stayed largely consistent, and that in H1 2019, 75 caveats were lodged amounting to S$1.1 billion. In H2 2018, there were 64 caveats lodged of luxury residential properties transacted, with the sales amounting to S$1.1 billion.

Separately, industrial total investment sales volume in H1 2019 was down to S$874.6 million from S$2.2 billion in H2 2018, as the investment sentiments weakened due to a slower electronics sector, which saw a drop in demand for output.

Mr Loh said that “despite the uncertain external environment, the low interest rate and Singapore’s stable exchange rate are likely to encourage both Singapore and overseas investors to rationalise their portfolio to improve returns while managing the risk.”

The report said that commercial properties are likely to account for the bulk of the total investment sales volume, with several properties in the market. Separately, the sales of land parcels through the GLS Programme is likely to account for the bulk of residential investment sales.

Mr Loh noted that”despite the additional buyers’ stamp duties, foreign buyers continue to be attracted to Singapore properties due to its political stability and its potential upside. The trend is likely to continue, as more investors seek a safe haven.”

He expects cross border investments from Singapore-based investors to continue, especially for those who already have a substantial portfolio in Singapore.

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