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Market for big properties on the hop

29 Sep, 2017

The third quarter of this year will go down as the most active one for big-ticket property transactions since the third quarter of 2013.

Such transactions, defined as those worth at least S$10 million, hit S$9.38 billion as at Sept 25, up 4.1 per cent from Q2's S$9.01 billion.

Q3 2013's record stands at S$13.84 billion.

The preliminary year-to-date tally is S$23.73 billion - higher than last year's whole-year figure of S$22.66 billion.

The final number for this year could be between S$26 billion and S$29 billion; this factors in, among other things, the award of the Beach Road reserve-list site on the Government Land Sales Programme, triggered by an unnamed developer which has undertaken to bid at least S$1.138 billion. The tender for that commercial site closes on Sept 28.

There is also the possibility that two plum 99-year leasehold residential sites on the reserve list - one each on Jiak Kim Street and Fourth Avenue - may be triggered for launch soon. They could fetch about S$1.37 billion in total, or about S$1,500 per square foot per plot ratio (psf ppr.

Collective sales and the possible sales of commercial buildings could take the final number for the year to as high as S$29 billion.

Deals originating from the private sector made up 81 per cent of the S$23.73 billion investment sales pie in the Jan-1-to-Sept-25 period.

The S$9.38 billion so far this quarter, a 90 per cent jump from the year-ago quarter, was supported by mega deals such as BlackRock's sale of Asia Square Tower 2's office and retail space at S$2.094 billion, and ExxonMobil's S$1.971 billion purchase of one of the world's biggest aromatics facilities - Jurong Aromatics Corporation's Jurong Island plant,.

Another major deal was the S$970 million collective sale of Tampines Court.

With the ExxonMobil acquisition, and that by a Chinese developer which paid S$430.1 million for a collective sale for Citimac near Tai Seng MRT station, the industrial segment has contributed S$2.82 billion in total investment sales thus far this quarter.

This is the highest quarterly figure since it set up its database in Q1 2008. The figure for Q2 this year was around S$100 million. In all, industrial properties accounted for a 30.1 per cent share of the property investment sales pie so far this quarter.

The residential sector continued to take a bigger share, at 41.2 per cent; this was despite a 2.9 per cent dip from Q2 2017 to around S$3.86 billion so far this quarter.

Between July 1 and Sept 25, developers acquired a dozen private residential sites. These include six collective sales. Besides Tampines Court, the others were Serangoon Ville, Sun Rosier, The Albracca, six townhouses at Seraya Crescent and Toho Green.

The prices offered by the successful bidders at collective sales were generally above owners' expectations, reinforcing the view that en bloc sale fever is rising in Singapore.

On the Government Land Sales (GLS) front too, the 99-year private housing sites along Woodleigh Lane and Serangoon North Avenue 1 garnered 15 bids and 16 bids respectively. The top bids were S$1,110 psf ppr and S$965 psf ppr respectively.

In summary, aggressive bids have now become the market norm, suggesting a much improved confidence among developers. Their appetite for replenishing land, together with limited supply from the GLS programme, will push them to look at the private sector, especially en-bloc sale sites. This in turn will intensify the competition and push up the land prices further in the near term.

Investment sales in the commercial (office and retail) segment hit S$2.56 billion so far this quarter, or a 27.3 per cent share of the total pie.

Despite the transaction at Asia Square Tower 2, the figure for the period is down 29.3 per cent from the high base in Q2 this year, which was buoyed by the S$2.2 billion Jurong Point transaction, and the sales of Sime Darby Centre and a half-stake in One George Street.

Looking ahead, expectations of interest rate hikes will be a key factor that will affect investment sales.

In the office property segment, high asking prices remain a challenge, though the price gap is narrowing.

Owners are emboldened to seek high prices - as they are not really under much pressure from interest rates yet, and at the same time, encouraged by the recovery in Singapore office rents.

Buyers still abound - including sovereign wealth funds, insurance and pension funds. Despite compressed yields, this group of buyers is able to look beyond current cycles as they have a longer investment horizon.

Moreover, the behaviour of the office market has become more predictable; rental cycles have become shorter, and peaks to troughs, shallower.

Compared to other key Asian gateways, generally Singapore property prices across both residential and commercial sectors have not gone up over the last five years. This is due to the office-supply situation and the government's effective enforcement of property cooling measures.

On the other hand, the likes of Sydney, Tokyo, Hong Kong and Shanghai have seen price increases of at least 20 per cent over the past five years in the office sector, for instance.

So comparatively, Singapore's real estate is looking attractive - particularly on the back of encouraging economic growth.

Adapted from: The Business Times, 27 September 2017