Singapore real estate investment rose for the first time in nearly two years in the third quarter with deal volume jumping 75 percent from the previous three months to S$6.9 billion with help from robust government land sales.
A Knight Frank report shows last quarter’s upturn snapped five consecutive quarters of declining investment, in large part due to a surge in government land sales which generated S$4.1 billion in activity. Year on year, property investments were up 19 percent from the S$5.7 billion booked in the third quarter of 2022.
With interest rates rising, however, the agency predicts that investors will turn to “buy, fix and sell” opportunities as capital conditions tighten up, with the market likely to return to slower activity in the coming quarters.
“In the coming months, the capital markets space will be characterised by investors on the search for assets being primarily focused on adding value to the properties to achieve higher returns,” Knight Frank said in a statement accompanying the report.
State Land Sales Keep Coming
Knight Frank said the scale of government land sales from July through September is testament to developers’ sustained determination to replenish their land banks despite tepid macroeconomic conditions. The upswing in successful state tenders comes at the same time that collective sales of existing complexes for redevelopment have all but dried up.
A tie-up between property heavyweights CapitaLand Development and UOL Group recorded last quarter’s largest land buy with their S$1.2 billion winning bid for a mixed commercial and residential site at Tampines Avenue 11 last month. The land parcel allows for the development of up to 1,190 new homes and 13,600 square metres (146,390 square feet) of commercial space.
In another state tender that closed last month, a consortium led by Chinese builder Kingsford paid S$1.03 billion for a site in the southernmost portion of Marina Bay, where they can developa 790-unit residential tower with commercial space on the ground floor.
In July, local private builder Sim Lian Group won a Jalan Tembusu residential plot in eastern Singapore for S$828.8 million, allowing it to build up to 840 new condos near the future Tanjong Katong MRT station.
“As a result of increasing costs, the attention of developers have generally turned towards the GLS (government land sale) confirmed list, even though the number of participants has fallen and the bid rates on a per square foot per-plot-ratio basis have turned conservative during recent tender exercises,” said Chia Mein Mein, head of capital markets for land and collective sales at Knight Frank.
Chinese Drive Commercial Market
With Chinese billionaire Du Shuanghua’s Bright Ruby Resources having agreed last month to purchase the Far East Shopping Centre on Orchard Road for S$908 million, commercial property deals also rebounded with S$1.5 billion of assets changing hands last quarter, which was up 27 percent from the S$1.2 billion total from April through June.
Adding to the Chinese investment total was a family surnamed Zhao from China’s Guangdong province purchasing the Changi City Point mall from Frasers Centrepoint Trust in August for S$338 million. In all Chinese investors accounted for more than S$1.2 billion of the S$1.5 billion in commercial deals last quarter. The commercial total for the quarter was up from the S$1.2 billion in office and retail deals in the preceding three months.
With the burst of government land sales, residential deals last quarter rose 94 percent from April through June levels to reach S$3.3 billion, according to Knight Frank.
The hospitality sector made a comeback with the sale of the Parkroyal on Kitchener Road hotel to Worldwide Hotels Group for a record S$525 million in July, marking the city-state’s first major sale of a hospitality asset this year.
“This may be a sign of things to come, with more investor interest directed towards the recovering hospitality and retail sectors,” the property agency said.
While other sectors showed signs of recovery, the industrial segment recorded just S$252 million worth of transactions in the third quarter to dip to its lowest volume since the S$174 million total logged at the height of the pandemic in the second quarter of 2022.
Despite the past quarter’s upturn, Knight Frank expects investment activity to stay muted for the last three months of the year.
“Given the tentative pace of investment activity and prevailing challenges in the Singapore property market, a continued slowdown will likely feature in the remainder of 2023,” the property agency said, noting that the full-year tally could drop by 40 percent to S$18 billion this year from S$30.7 billion in 2022.
After starting 2023 with a prediction of S$22 million in deals this year, the firm now predicts deal volume of from S$18 million to S$20 million.