Investment in Singapore’s real estate market is projected to drop by up to 22 percent this year after the city-state notched S$25.8 billion ($19 billion) in total deals in 2021, as the impact of residential cooling measures kicks in and investors turn more conservative, Knight Frank said in a market update on Thursday.
The UK property consultancy predicts that investment deals total around S$20 billion to S$22 billion this year, delivering a setback to a market that had just recovered from the pandemic with a 5.3 percent increase from the S$24.5 billion in transactions recorded in 2020.
The property firm said that its prediction of this “moderate performance” is mainly due to an expected dip in transactions both in the en bloc and luxury condo markets, with investors and homebuyers turning more cautious in response to cooling measures announced late last year.
“Homeowners looking to collectively sell their homes will now have to recalibrate their price expectations to align with the increased risks developers face if a sale is to be successful,” analysts at Knight Frank said. “In similar vein, demand for luxury private homes might also turn conservative with buyers expecting price increases to slow.”
Robust residential sales helped buoy the overall investment market last year, with the sectors reaching S$2.8 billion in sales during the fourth quarter, on its way to a S$7.3 billion annual total.
Knight Frank said both local and foreign builders will likely become more cautious in developing new homes in the next 12 months after the additional buyer’s stamp duty (ABSD) for developers was raised to 40 percent from 30 percent previously, and construction costs continue to rise as imported labour remains scarce.
The consultancy predicts that developers hungry for sites may still try the en bloc market, as the the pipeline of government land sales in the first half is limited, although those builders still bidding in collective sales may focus on projects with 200 units or less to minimize risks. While the government’s ABSD remission scheme allows builders to obtain refunds of up to 35 percent on stamp duty paid on collective sales, developers must sell all units in the resulting projects within five years in order to qualify.
The property firm noted how the higher stamp duty and tighter lending rules which took effect on 16 December struck a blow to a residential market which had seen home prices rise by 15 percent last year and collective sales of condo complexes jump to record levels.
One notable casualty of the new measure was Shun Tak Holdings’ purchase via collective sale of the High Point condo complex in District 9, which was announced on 10 December, only to have the Hong Kong developer cancel the deal just a week after the cooling measures came into force.
The forfeited purchase ended a string of five en bloc deals that closed from October to December, led by Hoi Hup Realty’s purchase of a Thiam Siew Avenue project for S$815 million in November to mark the biggest collective sale of the year.
While transaction restrictions have set the market back, Knight Frank said that the reopening of borders should boost demand for high-end condos, as the Lion City remains popular as a safe haven for global investors looking for stable assets.
Another side effect of the residential clampdown is likely to be a spill-over of investor demand into strata title commercial real estate and shophouses, which are not included in the new stamp duty measures.
“Strata offices together with shophouses continued to retain its lustre, with these assets regarded as safe havens for investment,” Knight Frank said.
Knight Frank predicted that the market for en-bloc commercial assets will witness more deals this year “as institutional investors search for core and core-plus assets to reinforce their portfolios,” and pointed to properties already up for sale, such as the Orchard Hills mixed-use complex and ARA Asset Management’s Lazada One as potential contributors to a deal surge.
Commercial Market Still Strong
The positive outlook for the commercial sector going into the new year comes after the market remained robust in 2021 as investors rushed to buy on expectations of a more constrained supply in the year ahead. The 2021 deal surge was topped off at the end of the year by JP Morgan Asset Management and Nuveen Real Estate’s S$1.3 billion purchase of One George Street from CapitaLand Integrated Commercial Trust and insurer FWD Group.
That deal contributed to a three-fold increase in commercial real estate transactions in Singapore last year, according to separate data from Real Capital Analytics. Purchases of offices and retail space in Singapore during 2021 totalled $9.6 billion according to RCA, which had recorded just $3.2 billion in such deals during 2020.
The property information provider reported that two-thirds of institutional real estate investment in Singapore last year went into the commercial sector, with rental residential and industrial assets playing a more limited role.