Property investment sales slow to a trickle

Players wary of big bang deals amid weaker sentiment, tighter financing

THE weak property market sentiment and tight financing have combined to compress the total investment sales of Singapore real estate to just $17.8 billion, year-to-date. This is a third of the record $54 billion achieved for the whole of last year, according to CB Richard Ellis data.

Just $290 million of investment sales have taken place in Q4 this year (up to Dec 9).

Investment sales are a gauge of developers’ and investors’ medium- to long-term confidence in the property sector.

CBRE defines such deals as transactions with a value of at least $5 million, comprising government and private sales of land and buildings (both strata and en bloc). It also includes change of ownership of real estate via share sales.

Market watchers are not upbeat about the investment sales climate in the near future. CBRE forecasts the tally for next year could come in at a modest $5-10 billion, a level last seen in 2004.

CBRE executive director Jeremy Lake says: ‘With market uncertainty and economic risks appearing to be on the downside, many investors will remain on the sidelines of the property market, waiting for signs of price stabilisation before investing. With the global economy likely to enter a protracted downturn on the back of the deepening financial crisis, transaction volumes in property are expected to remain low over the next few quarters.’

Agreeing, DTZ senior director Shaun Poh says: ‘I would not be surprised if we don’t see any major transactions for the next three to six months. Potential investors are waiting for property prices to come down. Even property funds that have raised money can’t make acquisitions because of the difficulty of raising the debt component to pay for the purchase – despite trying to source for financing in overseas markets like Hong Kong and London in some instances.’

CBRE’s Mr Lake too notes that ‘as credit market conditions worsen and lenders further reduce their risk appetite, capital available for property investment would become even scarcer’.

‘In addition, cheap investment opportunities may arise in other asset classes, diverting capital away from property,’ he added.

The property consultancy group’s quarterly breakdown of investment sales shows that they have been sliding since Q3 last year, when a whopping $16.5 billion of deals were sealed. The performance in each quarter of this year has been lower than the corresponding periods of 2007, sliding to $290 million this quarter.

While the residential sector still accounted for the lion’s share or 35 per cent of total investment sales deals so far this year, this was lower than the 61 per cent share last year. Also, the $6.25 billion transacted value of residential investment sales year-to-date (as of Dec 9) was 81 per cent below the full-year 2007 figure.

The collective sales market was dormant as developers remained mindful of the lukewarm response to new residential launches, rising construction costs and tighter credit measures, CBRE observed. Only seven collective sales worth a total $371 million have been sealed so far this year, against the record $12.4 billion from 111 transactions in 2007.

The Good Class Bungalow (GCB) market has also slowed considerably in 2008. A total of 48 GCB transactions worth $763.7 million have been done this year, down from $1.2 billion from 90 deals in 2007.

Office investment sales of $5.4 billion so far this year are 62 per cent below the $14.3 billion for full-year 2007. Ongoing turmoil in the global economy contributed to further deterioration in business sentiment, which subsequently had an impact on the office leasing market and capital flows in the local office sector.

‘This resulted in no major en bloc office transactions in the second half of 2008. Hence, the office investment market is expected to remain quiet in the next few months,’ CBRE said.

Sizeable office investment deals in the first half of this year included One George Street ($1.7 billion or $2,600 per square foot of net lettable area), Singapore Power Building ($1.01 billion or $1,836 psf), The Atrium @ Orchard ($839.8 million or $2,249 psf), Hitachi Tower ($811 million or $2,901 psf) and 71 Robinson Road ($743.75 million or $3,125 psf).

Bucking the trend was the industrial property sector which contributed $3.32 billion of investment sales deals this year, 66 per cent higher than last year and also the best showing since 2002. About half of the tally for this year was accounted for by JTC Corporation’s $1.7 billion divestment of its industrial portfolio to a joint venture involving Mapletree Investments, Arcapita and Mapletree Industrial Fund.

Source : Business Times – Dec 2008

Funds waiting to grab cheap Asian properties

They are raising funds for direct property investments in the region as values slide

AS property values in Asia slide, hedge funds, private equity funds and pension funds are waiting in the wings to swoop in on good buys, according to KPMG’s global head of real estate, Jonathan Thompson.

‘We’re aware that some (hedge funds and private equity funds) have been raising money for distressed situations,’ Mr Thompson told BT.

Investors have been on the lookout. Just last month, Merrill Lynch completed fundraising for its Asian Real Estate Opportunity Fund, collecting some US$2.65 billion to invest in real estate assets and companies.

Reuters also reported on Wednesday that AMP Capital Investors is trying to raise up to S$2.9 billion for direct property investments in Asia. The Australian fund manager hopes to purchase Japanese shopping malls at a bargain as falling sales hit retailers and credit tightening squeezes landlords. Industrial buildings and offices beyond the main financial district in Singapore are other potential targets.

Pension funds are also showing more interest in Asian real estate, said Mr Thompson. According to him, these investors are drawn to growing economies with a structural shortage of properties. The economies would also have to be politically stable, with transparent and sound regulatory systems.

‘(Singapore and Australia) are the easiest countries to invest in,’ he said. But he added that China will attract considerable attention.

Across Asia, Mr Thompson believed that ‘the fundamentals for real estate are better than they are in Europe or America’. But because of the global economic slowdown and tighter credit, property values in Asia will continue to fall.

Savills Singapore predicted in a report on Thursday that prices for high-end and super-luxury private homes could drop more than 20 per cent in the next five quarters.

The property consultant also estimated that Grade A office rents could ease 5 to 10 per cent in Q4 this year and a another 15 to 20 per cent next year.

Source : Business Times – 22 Nov 2008

AMP Capital eyes funds for S’pore, Japan property

AMP Capital Investors wants to raise A$2 billion to A$3 billion (S$1.97 billion to S$2.96 billion) for Asian property in the next couple of years, hoping that bargain Japanese malls and Singapore offices will appeal to investors despite tough markets.

The Australian fund management firm, a unit of AMP Ltd, is starting a push into direct property in the region, touting its record of managing some 40 shopping malls in its home market.

But because most Australian institutional investors are overweight property after the securities portion of their portfolios has tumbled in value, AMP is looking further afield for capital.

‘It’s a very difficult time for equity raising,’ Simon Vinson, AMP’s head of Asian property, said. ‘We’re looking outside Australia. Sovereign wealth funds are continuing to put money into real estate. And the US and Europe are traditional good sources of equity for investment outside their own markets.’

AMP, which opened an office in Singapore in 2006 to funnel investment into Asia, is looking to launch funds in the next couple of years to buy property in Japan and Singapore. ‘For the Singapore fund, we’re talking to investors at the moment,’ Mr Vinson said.

The proposed fund would invest in offices outside of Singapore’s main financial district, as well as industrial premises, and would target internal rates of return of 10-12 per cent.

In Japan, Mr Vinson wants to invest in shopping malls, hoping some bargains emerge as retailers suffer from falling sales and landlords are squeezed by a cutback in bank lending.

AMP is also considering raising a fund for distressed property in Vietnam, where developers are struggling after banks clamped down on lending and hiked interest rates as inflation soared out of control.

‘We’re exploring an opportunity to create a development fund. We really like the long-term story,’ Mr Vinson said.

AMP manages A$104 billion worth of assets, including about A$15 billion worth of property, mostly in Australia.

Source : Business Times – 20 Nov 2008