Property investment deals drop 40% in 1Q 2011

This is likely to be temporary as investment sales in Q4 2010 was the highest in 13 quarters.

According to DTZ, investment deals in properties went through a slight pullback last quarter, falling to $7.2 billion.

On a year-on-year basis, however, deals tracked by DTZ Research showed investment sales were more than twice the value reached in Q1 2010. Overall, the total value invested in Q1 2011 is still comparable to the level in Q3 2010.

On a year-on-year basis, however, deals tracked by DTZ Research showed investment sales were more than twice the value reached in Q1 2010. Overall, the total value invested in Q1 2011 is still comparable to the level in Q3 2010.

Investment figures compiled by DTZ Research comprise transactions that are more than $5m each and exclude $1.2bn of transactions in single residential units and lots that cannot be redeveloped/subdivided into more than one plot.

The fall in investment value was broad-based, except in the hotel and retail segments. Investments in hospitality assets grew the most, as bullish sentiments over Singapore’s tourism sector spurred spending in hotel assets. Total investments in the hotel sector amounted to $562.5m in Q1 2011, which were accounted for by three reserve GLS sites for hotels that were awarded in the quarter as well as the acquisition of Studio M hotel by CDL Hospitality Trust. This excludes the sale of the Lion City Hotel and Hollywood Theatre site, which was sold for a total of $313m and classified under the mixed-used category.

Transactions over $100m each fell to 20 in Q1 2011, from 27 in Q4 2010. However, despite the fall in volume and transactional values, the average deal size in Q1 2011 was still higher at $90.6m, as compared to $81.3m in Q4 2010, as capital values have appreciated.

Foreigners were net sellers in Q1 2011, accounting for over a fifth of the total value of all properties sold versus purchases which accounted for about 12%. The proportion of foreign capital investing in Q1 2011 was also lower QOQ when compared to the 17% in Q4 2010. The bulk of foreign capital invested in Q1 2011 continued to be from the Asian economies.

According to DTZ Research’s findings released in the March edition of The Great Wall of Money, investors remain focused on their more familiar home country or regional market, which is particularly true in the Asia Pacific region where 92% of capital targeting the region have been raised locally.

“With Asia Pacific benefitting from a greater increase in capital targeting the region, we expect to see more foreign investor participation in 2011. Nevertheless local investors will continue to dominate as many are developers buying state land and private collective sites, and REITS are increasingly on the acquisition mode after a two-year hiatus, with a few more listings in the works,” said Ms Chua Chor Hoon, Head of DTZ South East Asia Research.

“The outlook for the investment market is expected to be better than last year. Some funds intended for and from Japan could be diverted here. With limited assets for sale, we expect greater competition for investment opportunities,” said Shaun Poh, Head of DTZ Investment Advisory Services and Auction. “We expect the markets to re-price at a faster rate and yields will likely face compression in 2011. Investors will need to look outside of the core markets for outperformance,” he added.