DTZ Holdings plc : Real estate investments in Singapore in 2011 surpasses 2010’s S$27.9bn Singapore | 04 January, 2012

• Total investment sales higher in Q4 2011 and in 2011
• Property companies and REITs accounted for bulk of real estate investments in 2011
• Real estate investments expected to be more subdued in 2012

Despite the global economic uncertainties in 2011 compared to healthier economic conditions in 2010, real estate investment sales in 2011 managed to surpass the investment amount in 2010. $28.6bn of investment deals was recorded in 2011, slightly more than the S$27.9bn concluded in 2010. This is based on deals tracked by DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL).

Investment figures compiled by DTZ Research comprise transactions that are more than S$5m each and exclude S$1.1bn of transactions in single residential units and lots that cannot be redeveloped/subdivided into more than one plot.

The increase in real estate investment sales in 2011 was largely due to an increase in sales of land sites and properties by the government, as government sales increased by 28.8% year-on-year (YOY) which more than offset the 12.7% YOY fall in investment sales originating from the private sector.

For Q4 2011, investment sales by both the public and private sectors registered a quarter-on-quarter (QOQ) increase. Total investment sales in Q4 2011 recorded a QOQ growth of 67.5% to reach S$7.2bn. Nevertheless, investment sales in Q4 2011 were still lower than the S$8.1bn in Q1 2011 and S$9.0bn in Q2 2011 as the slowing economy which impacted investor sentiment in Q3 2011 continued to affect investors in Q4 2011.

Residential sector

Similar to 2010, investment activity in the residential sector was the highest in 2011, accounting for 37.5% of investment sales. Residential investment sales reached S$10.7bn in 2011, the highest amount since 2007. However, in contrast to 2007 when residential investment sales were dominated by collective sales, investment sales in the residential sector in 2011 were driven by the sale of government land sites, similar to 2010.

The Government Land Sales (GLS) programme accounted for almost 70% of all residential investment sales, largely due to the ramp-up in the supply of GLS sites since H2 2010. A total of 34 land sites for residential development were on the Confirmed List under the H1 and H2 2011 GLS programmes, while there were only nine residential sites on the Confirmed List under the H1 and H2 2007 GLS programmes. Collective sales accounted for about 65.6% of residential investment sales in 2007, compared to 26.9% in 2011. Investors were more cautious in 2011, with no takers for collective sales sites with asking prices above S$200m. The largest collective sale in 2011 was the sale of Henry Park Apartments for S$175.9m in December 2011. This is in contrast to the record S$1.3bn sale of Farrer Court, the largest collective sale back in 2007.

The collective sales market is expected to be slower in 2012, especially after the introduction of the Additional Buyer's Stamp Duty (ABSD) measures. Developers have to develop and sell all the units in the developments within five years to avoid paying the ABSD of 10%. Developers will be more interested in the smaller collective sale sites with above 95% owners' consent to meet the five-year timeline comfortably.

Office sector

Investments in office properties were the second highest in 2011, amounting to S$6.9bn. This is 10.5% lower than the S$7.7bn registered in 2010, as investors stayed away in H2 2011 due to the global economic uncertainties arising from the eurozone crisis. Investment in office properties in 2011 are even lower if the injection of properties into REITs by their sponsors is excluded. Such transactions in the office sector comprised the sale of Keppel Land's 87.5% stake in Ocean Financial Centre to K-REIT for $1.6bn and the acquisition of PSA Building and the Bank of America Merrill Lynch HarbourFront building for $788.0m by Mapletree Commercial Trust when it was listed in April 2011. Excluding such transactions, investments in the office sector in 2011 will be S$4.5bn, 5.1% lower than the S$4.8bn in 2010 (similarly excluding the sale of Marina Bay Financial Centre to Suntec REIT and K-REIT).

Investments in office properties totaled approximately S$2.4bn in Q4 2011, more than triple the S$743.2m in the previous quarter. The jump is due mainly to the sale of Ocean Financial Centre to K-REIT. Other major deals included Royal Group Holdings' purchase of Commerce Point and Lippo Building for S$282.8m. All the office investment deals in Q4 2011 originated from the private sector, except for one transitional office site at Mountbatten Road sold by the government.

Investor profile

For 2011, property companies continued to dominate among other groups of investors. Their share of real estate investment sales increased from 50% in 2010 to 60% in 2011 due to the active GLS sales.

REITs were the second most active purchasers in 2011, accounting for a total of S$4.4bn of investment deals. However, their share of investment sales fell from 22.8% in 2010 to 15.5% in 2011. Excluding injections of properties into REITs by their sponsors in both 2010 and 2011, REITs' share of investment sales in 2011 is only 7.2%, still lower than the 12.3% in 2010.

The number of purchases by funds were noticeably low in 2011, similar to the last two years. Purchases by funds accounted for about 4.2% of investment sales in 2011, slightly lower than 2010's 4.9%.

Shaun Poh, head of DTZ Investment Advisory Services and Auction, commented: "Mindful of the weakened market sentiment, funds have become net sellers of properties in 2011 as they exited the market to realize their capital gains."

Ms Chua Chor Hoon, Head of DTZ Asia Pacific Research, said: "Real estate investments in 2012 are expected to be more subdued, due to the uncertain global economic outlook. Investments in offices are expected to fall due to the slowdown in occupier demand and projected fall in rents while residential investments will be shored up by the sale of GLS sites as long as there is still healthy response to launches."