Property investment deals slump 55% in Q3 2011

Investors are more cautious as real estate investment sales were only $4 billion in Q3 2011, the lowest level since Q1 2010.

According to DTZ Research, investment in properties fell by about 55% quarter-on-quarter (QOQ) in Q3 2011, as global uncertainties and falls in the stock market affected sentiment. Real estate investment sales were $4.0bn in Q3 2011, the lowest level since Q1 2010, according to deals tracked by DTZ Research.

Investment figures compiled by DTZ Research comprise transactions that are more than $5m each and exclude $1.0bn of transactions in single residential units and lots that cannot be redeveloped/subdivided into more than one plot.

The bulk of the investment sales were in the residential and industrial sectors which made up almost 75% of all investment sales. This was largely driven by the sale of residential sites under the Government Land Sales (GLS) programme and the second phase of Jurong Town Corporation (JTC)’s divestment of their industrial properties. Sales by the government amounted to $2.2bn, accounting for 55.6% of total investment sales in Q3 2011.

Investments in the office sector slowed down significantly, falling by more than 60% in Q3 2011 to $668.2m. Besides the GLS site at Robinson Road/Cecil Street which was sold for a lower price than expected, only two office buildings – RCL Centre and 182 Clemenceau Avenue – were sold in the quarter.

Property companies were the most active in Q3 2011. Some of these deals included the purchase of the GLS office site at Robinson Road/Cecil Street for $311.8m by Far East Organisation and Orchard Parade Holdings, and the sale of Hong Leong Garden Shopping Centre for $171.1m to a consortium led by Oxley Holdings, in 2011’s largest collective sale so far.

REITs were less active in the quarter, compared to Q2 2011, but continued to purchase properties for injection into their portfolio. Major deals included Mapletree Industrial Trust’s purchase of 11 blocks of flatted factories and amenity centres from JTC for $400.3m, Frasers Centrepoint Trust’s purchase of Bedok Point for $127.0m, and the sale of Nordic European Centre to Ascendas REIT for $121.6m.

The outlook for investments has turned more cautious due to the deteriorating global outlook. There were fewer bids for GLS sites that closed in September and the winning bids were lower than expected or lower than nearby sites sold earlier in the year. Collective sales with high asking prices are not able to find buyers and numerous office buildings in the CBD are now up for sale.

Ms Chua Chor Hoon, Head of DTZ SEA Research, commented: “In a reflection of the more cautious sentiment in the market, investment deals were smaller in value in Q3 2011. Other than the JTC portfolio and some residential GLS sites, the rest of the deals were below $200m. The average deal size of $62.8m in Q3 2011 was about 21% lower than that in Q2 2011. There were 14 deals of over $100m each in Q3 2011, almost half of the previous quarter. Investment sales were dominated by local buyers who are more familiar with the market, as foreign interest declined from 16.3% in Q2 2011 to only 8.0% of all investment sales in Q3 2011.”

Shaun Poh, Head of DTZ Investment Advisory Services and Auction, added: “Investment deals are taking longer to be completed, as either the bids are below sellers’ expectations or buyers are taking a longer time to evaluate the many choices available and review their valuations arising from the recent lower tender bids.”