Optimism Abounds for Singapore’s Real Estate Investment Market in 2024
The landscape of January 2024 diverges significantly from that of January 2023. Interest rates have peaked, inflation is receding, and the S&P 500 is scaling new heights.
While the descent in interest rates may not be as swift as anticipated by some, the prevailing sentiment is optimistic, with investors gradually emerging from their hiatus.
Projections indicate that the volume of investment deals in 2024 will surpass the figures from 2023, as both buyers and sellers reenter the market. While activity is anticipated across all asset classes, certain sectors are expected to garner more attention, especially given the sustained elevation of financing costs.
Discovery Phase Continues for Commercial Investment Despite notable investment deals in 2023, many sellers were cautiously testing the waters and engaging in pricing discovery rather than committing fully to selling. Similarly, buyers often took chances by submitting low offers, not anticipating acceptance.
In 2024, a shift is expected with sellers becoming more assertive in their attempts to sell, and buyers showing a willingness to present more pragmatic offers.
Discussions with institutional and non-institutional investors in January 2024 reveal that certain markets and asset classes are more sought after. Japan, South Korea, Australia, and Singapore are identified as the top four markets.
In Singapore, hospitality, co-living, logistics, retail, and office spaces are the most favored asset classes. Niche assets such as data centers and self-storage, though rare, also attract interest.
Top 10 real estate deals in Singapore, 2023
| Property | Sector | Transaction date | Price (S$m) | Buyer |
|---|---|---|---|---|
| A portfolio of 5 assets at 21 Changi North Way, 6 Chin Bee Avenue, 4 and 6 Clementi Loop, 3 Pioneer Sector 3 and 30 Toh Guan Road | Industrial | Jun-23 | 313.5 | Hillhouse Capital |
| Changi City Point, 5 Changi Business Park Central 1 | Retail | Aug-23 | 338 | A private buyer |
| Far East Shopping Centre, 545 Orchard Road | Retail & office | Sep-23 | 908 | Glory Property Developments (Bright Ruby Resources) |
| Meyer Park, 81 and 83 Meyer Road | Residential | Feb-23 | 392.2 | UOL Group and Singapore Land Group joint venture |
| Nex (50% stake), 23 Serangoon Central | Retail | Jan-23 | 1,038.90 | Frasers Centrepoint Trust and Frasers Property |
| Parkroyal on Kitchener Road, 181 Kitchener Road | Hotel | Jul-23 | 525 | Worldwide Hotels Group |
| Robinson Point, 39 Robinson Road | Office | Mar-23 | 399 | Yangzijiang Realty |
| Shenton House, 3 Shenton Way | Retail & office | Nov-23 | 538 | Shenton 101 (owned by Lee Yeow Seng, group CEO of IOI Properties Group) |
| VisionCrest Commercial, 103 Penang Road | Retail & office | Nov-23 | 441 | Metro Holdings, TE Capital Partners and LaSalle Investment joint venture |
| Wilkie Edge, 8 Wilkie Road | Retail & office | Nov-23 | 348 | Keppel Capital |
Non-institutional investors, drawn by Singapore’s safe-haven status, political stability, and resilient economy, remain active, despite a slowdown following money laundering arrests last year. While a few Chinese investors may have exited, a significant pool of investors from Indonesia, Malaysia, Thailand, Europe, and Taiwan persists, primarily as long-term investors.
Challenges in the Residential Collective Sale Market A distinctive segment in Singapore’s real estate is the collective sale market, where individual strata title owners unite to sell all their units to a developer en bloc. Although the collective sale market has seen numerous residential deals worth billions over the past 30 years, it recently encountered a standstill, with only two or three successful residential collective sales last year.
The residential en bloc sale market is anticipated to grapple with challenges due to a significant mismatch between owners’ expected selling prices and developers’ willingness to pay. Sellers face the high cost of acquiring replacement property and increased transaction costs due to higher Additional Buyer’s Stamp Duty rates.
Developers’ lower prices reflect higher construction and financing costs, coupled with reduced saleable floor areas in new developments due to harmonized floor area definitions by government authorities.
This pricing mismatch was evident in the recent Orchard Boulevard Government Land Sales (GLS) tender, with UOL’s highest bid at S$1,616 per square foot per plot ratio (psf ppf), 38% lower than the reported guide price for prime condo Orchard Bel Air.
While challenges persist in the residential collective sale market, commercial collective sales remain active, with notable transactions like Tanglin Shopping Centre, Ming Arcade, and Shenton House. The upcoming collective sales of Delfi at Orchard and Concorde Hotel & Shopping Centre are anticipated to be successful.
As market liquidity returns, some asset prices are likely to have dropped by around 10%, presenting a potential challenge. However, this decline is modest compared to real estate price falls of 20 to 30% or more in Europe and North America.
As we navigate through the first quarter, optimism prevails. The volume of investment deals in Singapore is expected to increase this year, with pricing playing a crucial role. Sellers are advised not to be overly optimistic, considering that interest rates remain high and are unlikely to return to the record low levels seen two years ago.
Jeremy Lake, Managing Director, Investment Sales and Capital Markets at Savills Singapore, provides insights into the promising outlook for Singapore’s real estate investment market in 2024.
