Investment in Singapore real estate is expected to jump 10 percent this year to as much as S$23 billion ($17.1 billion), driven by residential and retail transactions, according to Savills.
The bullish forecast takes into account rising activity in government land sales and the prospect of interest rates falling in the second half of 2024, the consultancy said Thursday in a release.
“The collective sales market for residential is likely to see another year where developers exercise caution and be more inclined to replenish their landbank from the GLS sites,” said Alan Cheong, research and consultancy head at Savills Singapore.
Retail assets, meanwhile, may attract more attention with yields hovering at 4 percent, Savills said in its latest sales and investment report for the city-state. The lack of new sites for retail development may even bring about a sale or two of landmark malls in the famed Orchard Road shopping strip, the agency said.
Big Deals Soften Q4 Slowdown
Fourth-quarter investment sales tracked by Savills fell to S$7.3 billion from the S$5.4 billion recorded in the prior three months. Factors cited for the slowdown included high interest rates and the pricing mismatch between buyers and sellers, as well as rigorous due diligence checks spurred by money-laundering concerns.
The public sector was the largest contributor to fourth-quarter investment value as six government land parcels totalling S$2.9 billion were awarded, led by a residential site at Lorong 1 Toa Payoh in District 12. A consortium of City Developments Ltd, Frasers Property and Japan’s Sekisui House won the right to redevelop the site, currently occupied by Singapore’s Police Security Command, with a bid of S$968 million.
Deal volume in the commercial market during the fourth quarter amounted to S$1.6 billion, easing 0.9 percent from the July-September reading, as three large transactions played an outsize role.
November saw the collective sale of Shenton House to a private company controlled by the vice chairman of Malaysia’s IOI Properties Group, with the commercial tower in the Marina Bay area changing hands for S$538 million. That same month, TE Capital Partners teamed with LaSalle to acquire the VisionCrest Commercial building in the Orchard Road area for S$441 million and Keppel Capital bought the Wilkie Edge mixed-use complex near Little India for S$348 million.
Hibernation Nearing End
Any recovery in the capital market for office buildings will depend on the trajectory of interest rates, the report said, as private equity’s all-in borrowing costs for acquiring income-producing real properties currently range from 5.2 to 5.7 percent — a non-starter when asking prices for prime office buildings carry a passing yield of 3.5 percent.
Despite the imperfect conditions, Jeremy Lake, managing director for investment sales and capital markets at Savills Singapore, expects 2024 deal volume to eclipse last year’s total as investors “come out of hibernation”.
“Inflation is falling, interest rates have peaked and ‘the glass is half full’ for some investors,” Lake said.
He foresees dealmaking across all the various asset classes in 2024, with developers, funds and ultra-rich private clients having notified the agency of their intention to buy.