Thursday, June 21, 2012

Big-ticket property deals are bouncing back, and the trend is likely to continue


Business Times: Thu, Jun 21
[SINGAPORE] Investment sales of property - which cover big-ticket transactions - have rebounded to about $6.4 billion in the second quarter as at June 19, according to preliminary figures from Savills Singapore. Such deals had taken a hit in the first quarter, when the figure dived to $4.8 billion (from $7.9 billion in Q4 2011).

Q2's surge has been fuelled by the residential and office markets, including sales of Tower 15 on Hoe Chiang Road, KeyPoint on Beach Road and strata office units at Burlington Square, Tung Centre and The Adelphi.

Savills defines investment sales as deals of at least $10 million. It includes sales of Government Land Sales (GLS) sites, acquisitions by real estate investment trusts and residential collective sales below that threshold.

Taking into account outstanding state tenders - such as for the private housing sites at Farrer Drive and at Pheng Geck Avenue scheduled to close on June 21 and June 28 respectively - as well as other caveats for various sectors of the property market, the final Q2 investment sales tally could reach about $7 billion. This would take the figure for first-half 2012 to almost $12 billion.

Savills' executive director (investment sales) Steven Ming expects investment sales to continue apace in the second half, possibly resulting in a full-year total of $21-25 billion. "This assumes macro economic conditions improve and that financing continues to be available. Availability of debt is one of the main lifelines to the real estate investment market. Absence of debt will lead to falling investment volumes," he cautions.

As the government will continue to roll out the same quantum of private housing land in H2, the public sector is likely to dominate investment sales in H2. "Should concerns about the macro economy begin to fade and the bid-ask gap narrow, the second half of 2012 could see a resurgence of transactions in the private sector," Mr Ming added.

Last year, total investment sales hit $29.6 billion, down slightly from 2010's $31.4 billion, based on Savills' figures.

CBRE executive director (investment properties) Jeremy Lake forecasts that the full-year 2012 number will be double the first-half figure - with activity in all sectors."The eurozone's problems have been around so long that people are becoming used to it; and stock markets go up and down all the time. Those who believe the bottle is half empty will continue to sit on the sidelines or offer prices that are unacceptable to owners, whereas those who consider the bottle to be half full are likely to agree on price with sellers i.e. there is no price gap," he said.

Wealthy Asians continue to be interested in Singapore real estate, said Mr Lake, though big institutional players such as European and US funds have been quiet here. A noteworthy exception would be US-based private equity giant Blackstone Group, which made its first major Singapore property acquisition in Q2 - the $210 million purchase of StarHub Green, an industrial building at Ubi Avenue 1.

Investment sales reflect the confidence of major property players in the sector's mid to long-term prospects.

According to Savills' figures, investment sales in the residential sector so far this quarter have reached $3.6 billion - about $1.1 billion or 46 per cent higher than Q1 2012. A big chunk of this came from GLS sites, amounting to $2.5 billion, up 38 per cent from Q1.

The commercial segment too posted a $914 million or 91 per cent quarter-on-quarter jump to $1.9 billion. However, investment sales of industrial properties fell 32 per cent quarter on quarter to about $766 million.

In the collective sales market, figures from Credo Real Estate show that five deals totalling $328.8 million have been inked this quarter as at June 20, down from the six deals at $456.6 million in Q1.

Credo Real Estate managing director Karamjit Singh notes that all collective sales over the past 21/2 years have been below $250 million apiece. And the trend is set to continue.

"The 10 per cent ABSD has effectively killed off very large residential en bloc sales because a developer, in order to stave off paying ABSD, would be required to not just complete the new project on site but sell out the entire development within five years of the date of being awarded the site by the sales committee. After taking into account one year or so for legal completion and vacant possession, the developer would have only four years or so left to achieve this. For a big project, that is a risky proposition," he adds...
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