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Residential investment sales stoke the flames of recovery

8 January 2021

Real estate investment sales volume in Singapore totalled over $11.05 billion in 2020, according to estimates by CBRE Research. It marks the lowest investment sales volume since the Global Financial Crisis in 2008, at $7.7 billion in total. “As a result of the pandemic, it was unsurprising that investors preferred to sit on the side lines as they wait for value to emerge,” says Desmond Sim, CBRE head of research for Singapore and Southeast Asia.

Last year’s figure also reflects a 52.4% drop from the $23.22 billion registered in 2019, according to CBRE.
There was also an absence of deals above $1 billion, with some failing to materialise due to “a widening gap between buyer-seller price expectations” CBRE’s Sim says. In fact, 67.8% of total investment deals in 2020 were bite-sized transactions of less than $25 million, notes CBRE. Foreign capital inflows dropped by 53% y-o-y to $3.18 billion in 2020, owing to travel restrictions.

Residential investment sales led the way

Real estate investment sales were propped up by residential sales, which accounted for 40.4% of $11.05 billion in total deals (See chart). Government land sale (GLS) sites comprised 29.3% of residential sales, with the remaining 70.7% made up of private residential sites including collective sales, en bloc sales and Good Class Bungalow (GCB) deals above $10 million, according to CBRE.

“Encouraged by the strong sales in project launches, as well as the declining inventory of unsold units, developers have turned to government land sales and even the private market to acquire land,” says Sim. This is evident from the strong bidding seen for the GLS sites at Yishun Avenue 9 and Tanah Merah Kechil when their tenders closed in late October.

There was also a spate of single-owner and collective sales in November and December. They include the sale of 15 terraced houses on Guillemard Road for $93 million, the collective sale of Fairhaven and Sophia Ville for a total of $62 million and Advance Apartments at Geylang Lorong 25A, which was sold for $26.5 million towards the end of December. (See “Collective Sales: A ripple or a wave?”)

The biggest deal in December was the sale of the 752,015 sq ft site where the Caldecott Broadcast Centre once stood. The site sold by MediaCorp fetched $280.9 million, purchased jointly by Perennial Real Estate Holdings and Kuok Khoon Hong, Perennial Real Estate chairman.

Office remains attractive to investors

Meanwhile, offices accounted for 26.3% of total deals in 2020, with industrial making up 13.3%. Hotels accounted for 6.6% and retail, 10.1%. There were several office and industrial deals in December, for instance, the sale of Keppel Bay Tower, a Grade-A office building in HarbourFront, to Keppel REIT Management, the manager of Keppel REIT, for $657.2 million ($1,700 psf).

Despite telecommuting trends, prime office assets in Singapore remain attractive to investors for their stability and yield, notes CBRE. This is further strengthened by the redevelopment potential of core office assets under the CBD Incentive scheme, where properties are eligible for a bonus plot ratio of 25–30% if redeveloped into mixed-use projects.

For instance, Realty Centre, which was purchased en bloc by Singapore-listed company backed by Chinese conglomerate, The Place Investment Group, signed a framework agreement with Chinese developer and construction group, MCC Land in December. The intention is to redevelop the office building on Enggor Street, Tanjong Pagar, into a mixed-use development with commercial and residential space.

Just across the road from Realty Centre is Fuji Xerox Towers on Anson Road. Singapore-listed property giant, City Developments (CDL) has announced that it plans to demolish the office towers in 2H2021 to make way for a new 51-storey, mixed-use integrated development with residential, serviced apartments and commercial components.

Nearby on Anson Road is AXA Tower, where Chinese company, Alibaba, purchased a 50% stake in the $1.68 billion office tower. Alibaba is joining forces with a consortium led by Perennial Real Estate, to redevelop AXA Tower into a new integrated mixed-use development that could include commercial, residential and hotel components.

Next door to Fuji Xerox Towers, ABI Plaza was sold by Singapore-listed real estate investment firm, MYP for $200 million in September. The buyer, Artemis Ventures, is a Singapore-based entity linked to a private fund of CapitaLand Fund Management. If redeveloped, the new owner is likely to benefit from the CBD incentive scheme. Last August saw the sale of Robinson Point for $500 million by Tuan Sing Holdings to a BVI-registered company.

‘Just a blip’

The existing AXA Tower has 680,000 sq ft office space, while Fuji Xerox Towers has a total area of 345,271 sq ft. Combined, they have over 1.025 million sq ft of office space, notes Jeremy Lake, Savills Singapore managing director of investment sales and capital markets. The tenants in these two buildings will have to find alternative office space, he says. “The artificially created demand from the eviction of the tenants from these two buildings will more than offset the space given up by work from home [WFH].”

WFH may reduce overall leasing demand by some 10% to 20%, reckons Lake. However, he sees the short-term weakness in the office leasing market as “just a blip, rather than a major derailment”. He expects to see “decent rental growth” to resume by the end of 2021 or early 2022. “The general outlook is quite positive,” he adds. “If you look at the new supply pipeline due to complete in the next three to four years, we still expect demand to exceed supply, which will fuel rental growth.”

With interest rates being so low, a net office yield of 3% is attractive to most investors — whether they are looking for office buildings or strata office space to buy, adds Lake. “In November and December 2020, we started to notice a pick up in the strata office market and this trend is likely to strengthen in 2021.”

In August last year, PIL Building on Cecil Street, owned by shipping company Pacific International Lines (PIL), was put on the market for sale with a price tag of $350 million by expressions of interest (EOI). At the early stage of the EOI, interested parties were mainly property funds, looking at value-add opportunities, according to an industry source. However, the later stage of the EOI marked the entrance of residential property developers looking at redevelopment potential into residential with commercial space.

With the CBD incentive scheme attracting a wider pool of buyers, more owners of ageing office buildings on Cecil Street, Robinson Road and Shenton Way are open to putting their properties on the market for sale, says Shaun Poh, executive director of capital markets at Cushman & Wakefield (C&W).

Pick-up in activity

Industrial assets saw a surge in demand in 2020 due to stockpiling and e-commerce, notes CBRE. One of the biggest industrial deals was in December, when Perennial Real Estate exercised its option to purchase Big Box at Jurong Gateway precinct of the Jurong Lake District from the receivers and managers of the property, for $118 million, according to an announcement on Dec 4. Perennial has also obtained approval from JTC for the 606,660 sq ft site to be rezoned from warehousing and warehouse retail use to business park. Perennial intends to spend another $70 million to redevelop the existing property.

“The Singapore investment market has always been resilient, and it has demonstrated its ability to recover from past crises,” says Michael Tay, CBRE head of capital markets, Singapore. This was seen a decade ago when real estate investment volume grew 265.4% in 2010, from a year ago, in the midst of the global financial crisis.

Savills’ Lake agrees. “As sentiment improves in 2021, I expect investment sales activity to pick up as more properties are launched for sale and the price gaps narrows.”

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