Property Market in Singapore – for High-Rollers only?

From the Desk of Jennifer Chia

Well, real estate is always good, as far as I’m concerned.” – Donald Trump

Local property investors entered 2017 with the same heavy heart when the new year did not offer any fresh hopes. Weak tenant demand, increasing supply of available space, increasing interest rates and the predictions of limping economic growth all plague the property market here. Prices have continued to inch downwards and there are no signs of the easing of cooling measures such as the Additional Buyer’s Stamp Duty. Against the backdrop of macro-economic uncertainty and the political shockwaves from the UK Brexit and US Trump victory in 2016, it is no wonder that property investors are taking extremely calculated and watchful steps (and most just watching, really).

These negative headwinds have however seemed to have little impact on foreign property investors in the Singapore property market.

Locally, Singapore’s Central Business District has been the subject of interest by foreign investors. Asia Square Tower 1 was sold for $3.38 billion in June 2016 to Qatar Investment Authority’s sovereign wealth fund, setting the record of being the largest single-asset and office transaction in the Asia-Pacific region1.

The white site at Central Boulevard in Marina Bay was also sold for $2.57 billion to the Malaysian real estate tycoon Lee Shin Cheng in November last year, his bid being 16.4% above the second highest bid by a subsidiary of Mapletree2.

Indonesian tycoon Tahir has also offered to acquire the 28-storey Straits Trading Building for $560 million, which works out to a price of $3,250 per square feet, a record high for psf price in the area3.

Other figures also seem to prove otherwise. With foreign investors contributing S$5.68 billion, amounting to 59.5% of the total investment sales for the first half of 20164, the outlook of the Singapore property market may not be as gloomy as one would think.

So what is it about Singapore that is attracting these foreign investors to step into Singapore’s property market at a time when our local regulatory body (MAS) has also warned households to review their investments prudently, particularly before investing in property5.

It would seem that investors are looking beyond the short-term trends and going in for the long-haul where there will be a period of little supply due to Singapore’s land scarcity, which promises long-term gains in real property value (for e.g. higher rental growth)6.

Singapore is also seen as a safer investment location and a form of “defensive play”7. It is politically stable, with a comparatively pro-business environment and good infrastructure8. Compare this to Europe post-Brexit, and America with the new Trump administration, it is not difficult to see why investing in Singapore has been called a “defensive play”.

With Singapore being part of China’s “One Belt, One Road” policy, as well as the to-be built high speed rail to Kuala Lumpur, there are encouraging signs that the Singapore property market could pick up in the near future. Singapore’s attractiveness as a port city remains strong despite the global slowdown in the shipping industry. As a country, Singapore also showed tremendous resilience in avoiding a technical recession in the 4th quarter of 2016 as many had forecasted it potentially would.

However, Singapore does not seem to be the sole beneficiary of these investments as one looks around the ASEAN region.

As a result of the ASEAN Economic Community (AEC), the ASEAN economy is slowly transforming into a single integrated community with improved infrastructural and transportation links between the member countries which in turn incentivises foreign investors to invest in the entire region.

Astra Land Indonesia – a joint venture between Astra International and Hongkong Land – and Mitra Sindo Makmur, a subsidiary of Modernland Realty, have created a joint venture to acquire 70 hectares of land in Cakung, East Jakarta, worth 3.4 trillion rupiah (equivalent to USD 254 million)9.

In Myanmar, foreign investors are also expanding their investment in the Thilawa Special Economic Zone, with investments coming in from 13 countries, including Japan, Singapore, China, Thailand, the United Arab Emirates, Panama, Malaysia and South Korea10.

In Thailand, Japanese developer Mitsui Fudosan has invested over Bt20 billion (equivalent to USD 565 million), over the past three years via a joint venture with a local residential property company, Ananda Development11.

Globally, these investments should not even be surprising. In recent years, investors have channelled more funds into commercial real estate (“CRE”) markets. Global CRE investment has more than tripled since the global financial crisis, rising from US$190 billion in 2009 to US$670 billion in 2015. This trend has also been evident within Asia, where investment has risen from US$50 billion in 2009 to close to US$100 billion in 201512. The purchases in Singapore form only a small pie of the global real estate investments. Singapore still trails behind cities like Hong Kong, Sydney, New York City, and Central London13.

These slivers of hope may boost the property market for Singapore in 2017 which is still clouded in uncertainties. From the looming prospect of whether our terrexes will be returned at all, to further from home, whether Brexit will actually materialize (and when), to whether Trump really will “build a wall”. Property markets in many countries are uncertain, This may be the year that everyone turns to their crystal balls hoping that it is big enough for them to see it all.

 

*These information on property acquisitions investments has been taken from publicly available sources. This article does not purport to provide advice to potential investors on property investment in any jurisdiction, and investors should consult their own professional advisors should they wish to make any investment in Singapore or offshore.

1 The Straits Times, Investors confident of S’pore’s long-term potential, published on 22 December 2016
2 Ibid
3 Ibid
4 Singapore Business Review, Foreign property investors ploughed $5.68b in Singapore real estate in H1, published on 24 June 2016
5 MAS Financial Stability Review, November 2016
6 The Straits Times, Foreign investments in Spore property at nine year high, published on 4 December 2016
7 Ibid
8 The Straits Times, Foreign investors ‘still eye S’pore property’, published on 4 June 2016
9 The Nation, Foreign investment in Asean property expands, published 21 October 2016
10 Ibid
11 Ibid
12 See above, footnote 6
13 The Straits Times, Foreign demand driving largest real estate deals, published on 15 June 2016

STAY AHEAD WITH FOREFRONT: BY TSMP

TSMP law corporation