SG property investment sales to rebound in 2021

Singapore’s property investment sales could rebound in 2021 on sound market fundamentals.

January 27, 2021

The economic uncertainties due to COVID-19 and the travel restrictions affecting the practicality to execute transactions, hampered deals in 2020. Still, investors injected SGD 17.3 billion into Singapore’s property investment sales market, comprising all private sector deals worth at least SGD 5 million each and all public sector sales. This is nearly double the SGD 9.2 billion recorded during the Global Financial Crisis in 2009. For this to occur despite Singapore entering its worst post-independence recession in 2020 underscores investor confidence in the city state’s current property market compared to that of a decade ago.

The residential sector was the most active asset class in 2020, with sales driven by the landed homes segment. SGD 4.0 billion worth of landed homes (priced at least SGD 5 million each) were transacted in 2020, exceeding the SGD 2.7 billion accumulated in 2019. Retail was the second most active sector, with sales falling the least in 2020, at just -12.8%.

Figure 1: Singapore property investment sales by sector in 2020

Source: JLL Research

Major deals in 2020 include Frasers Centrepoint Trust’s billion-dollar acquisition of the remaining 63.11% stake in AsiaRetail Fund Limited which holds five suburban retail malls and one office development, and Alibaba’s purchase of a 50% stake in AXA Tower commercial development in the CBD for SGD 840 million.

With the economy expected to rebound, coupled with optimism surrounding the availability of the COVID-19 vaccine, ample liquidity and the pressure to deploy, Singapore’s property investment sales market is poised for a pickup in 2021.

Low supply to keep investors keen on office assets

Barely one month into 2021 and the market has witnessed the conclusion of a major office deal — Allianz Real Estate secured a 50% stake in OUE Bayfront, a premium grade office asset located in the Singapore CBD, for SGD 633.8 million.

Singapore’s CBD office assets are attracting keen investor interest as the low pipeline supply supports a wider margin of safety in the light of uncertainties surrounding office demand post-COVID. Specifically, the city-state’s investment-grade CBD office inventory is estimated to grow, on average, at a slow rate of 0.5 million sq ft, per annum between 2021 and 2025. This is just half of the 1.0 million sq ft average annual net absorption recorded between 2010 and 2020 and should buffer the sector well against the impact of any potential increase in occupier adoption of work-from-home strategies.

Besides offices, investors can be expected to continue to be on the lookout for retail and industrial assets, although selectively and especially for the latter, given the generally short land tenure and strict government regulations governing their use.

Depleting unsold inventory rekindling residential collective sales activity

Demand for homes should continue to gather pace, underpinned by the expected economic recovery and the gradual reopening of borders that could facilitate foreign purchases of high-end homes.

Healthy demand for homes in 2021 would reduce unsold inventory, which has already dropped significantly to 24,341 units as of 4Q20, from a peak of 37,799 units in 1Q19. This has rekindled developers’ interest in residential development land and could drive a nascent recovery in the residential collective sales market in 2021.