Liquidity amid low-interest environment continues to support transactions even as overall property market remains subdued
As real estate markets contracted across the board due to the Covid-19 pandemic, ample liquidity amid a low-interest environment has continued to support investments in the commercial sector and spur residential activity in late Q2 2020.
Overall property market and investment sale
With investors adopting a wait-and-see stance, compounded with no significant land tender under the Government Land Sales (GLS) programme, Q2 2020 saw investment sales plummeting 53.5 per cent quarter-on-quarter (q-o-q) to S$1.9bn, down from nearly S$4.0bn in Q1.
Despite the subdued overall property market sentiment, a spark of optimism remained in the office sector, which saw S$1.3bn changing hands, up 68.9 per cent from the previous quarter.
The sale of 30 and 50 per cent stakes of TripleOne Somerset and AXA Tower, respectively accounting for S$155.1m and S$840m, will lead to Shun Tak Holdings, a Hong Kong-Macau based company, holding 100 per cent stake of the former building, while China-based Alibaba Group will own 50 per cent stake of AXA Tower. In another commercial transaction, Olayan Capital, a Saudi Arabian-based fund, acquired the retail podium and three office floors at 30 Raffles Place for S$315m.
EDMUND TIE’s executive director of investment advisory, Ms Swee Shou Fern, said: “These substantial foreign investments indicate sustained investor confidence in Singapore’s economy and real estate to weather shocks and eventually rebound.”
EDMUND TIE’s CEO, Ms Ong Choon Fah, added: “Singapore has long-established itself as a gateway city and safe haven in Southeast Asia, which are all important considerations for capital seeking to hedge against de-valuation and geopolitical uncertainty elsewhere.
“Notwithstanding the current pandemic and the fallout it has caused, investors still have access to ample liquidity amid a low-interest environment, so real estate with good site and locational attributes in land-scarce Singapore will continue to attract investors seeking stable assets that will maintain their value well over the long term.”
A combination of factors – including economic contraction and telecommuting – have exerted downward pressure on occupancy rates and rents in the office sector. Based on EDMUND TIE Research estimates, occupancy rates of office developments islandwide contracted by 0.8 percentage points q-o-q to 92.8 per cent in Q2, while rental rates across all locations slipped between 0.4 per cent to 2.0 per cent, with the Shenton Way/Robinson Road/Tanjong Pagar subzone bearing the brunt of the rental contraction.
Despite the soft market and prevailing sentiment of caution, there were still several companies that moved into new premises. Over the quarter, Envysion Wealth Management, a multi-family wealth management firm, and MCTC, an international maritime catering management and training business, opened new offices here.
Industrial and retail
Both the industrial and retail sectors were among those hardest hit by the pandemic and the subdued sentiment in the overall property market. The implementation of the Circuit Breaker from 7 April to 1 June earlier this year, together with the disruption of global production and supply chains worsened an already weak industrial market.
On the other hand, temporary closures earlier in the year and sales volume impeded by social distancing requirements, combined with plummeting visitor arrivals and residents spending more time at home, have presented an unprecedented challenge for retailers.
Nonetheless, demand for warehouse space in Q2 has remained resilient, and as e-commerce further gains traction among consumers and businesses continue to stockpile groceries and other essentials, this subsector is anticipated to expand in the months to come.
Based on Q2 2020 Urban Redevelopment Authority (URA) statistics, private home prices registered a slight q-o-q uptick of 0.3 per cent, after a decline of 1.0 per cent in Q1 2020.
Amid a low-interest environment, housing loans continued to grow for the third consecutive quarter by 49.2 per cent y-o-y in Q1 2020, alluding to a robust latent demand for homes. As showflats and sales galleries reopened in June, transaction volume doubled from May’s 486 units to hit 998 transactions.
Ms Margaret Thean, EDMUND TIE’s executive director of residential sales, said: “With physical viewings by appointment and interactions now able to take place, we anticipate pent-up demand, supported by supply coming on-stream in H2, to catalyse buying activity.”
“While it may be premature to expect activity to bounce back to pre-Covid levels, developments that are well-located, attractively priced and possessing strong project attributes will continue to attract buyers,” she added.
Mr Paul Ho, chief mortgage officer at iCompareLoan, said: “Q2 2020 private residential property prices in Singapore surprisingly rose, despite the quarter bearing the full brunt of two months of ‘circuit breaker’ in April and May that came about due to the COVID-19 outbreak. But this alone is not a good enough sign to uplift the subdued sentiment in the overall property market.”
He added, “But still the property market here is under-girded by strong fundamentals and it is highly unlikely that the overall property market will go into a free fall. There is also a lot of liquidity in the region and Singapore is viewed as a safer destination for investors who want to park their monies until the horizon for investment diversification is clearer.”
“It may take several Quarters, or even up to middle of 2022 for the overall property market to recover from the negative sentiments which first started during the time of trade tensions between China and the USA. It just got much, much worse during the Covid-19 pandemic. The light at the end of the tunnel seems really far away at the moment.”