Singapore posts strong recovery in real estate investments

Singapore joined other Asian countries in witnessing property investment upsurge in the second half of 2009.

Singapore witnessed a strong rebound in real estate investment activity in the second half of 2009, according to the CB Richard Ellis' Asia Investment MarketView report for the second half of 2009.

Property markets in Greater China were at the forefront of the recovery with China, Hong Kong and Taiwan accounting for 57 percent of the total investment volume in Asia in the second half of 2009. The $15 billion worth of transactions completed in Greater China during the review period was 169 percent higher than the amount recorded in the corresponding period in 2008. Japan and Korea also witnessed a strong rebound in investment activity in the second half of 2009, accounting for 17 percent and 8 percent of the total volume respectively.

Asian real estate investment markets, as a whole, posted a strong recovery in the second half of 2009 after witnessing a difficult start to the year. Investment turnover bottomed out in the first quarter but improved thereafter as investor confidence gradually returned, underpinned by the strong rebound in the equity markets, the persistence of low financing costs and a stabilising trend in price levels across key markets.

The report also showed that direct real estate investment in Asia jumped 56 percent year-on-year in the second half of 2009 to an estimated $25 billion. However, overall transaction volume was still 22 percent lower in 2009 as compared with the previous year.

Investment activity was largely driven by domestic and intra-regional investors which accounted for 83 percent and 15 percent of total volume respectively. The largest transaction concluded during the second half of 2009 was the disposal by daVinci Holdings’ debtors of Pacific Century Place Marunouchi in Tokyo for approximately $1.51 billion to a local investor.

Prime office properties continued to attract the most interest, accounting for over $10 billion of investment in the second half of 2009, 41 percent of the total volume recorded. Prime office properties accounted for eight of the ten largest transactions witnessed during the period.

Residential properties accounted for 20 percent of total transaction volume, with the retail sector comprising 16 percent.

Despite the relatively low transaction volume in the hospitality sector, a total of seven hotel transactions worth a combined total of $380 million were concluded during the second half of 2009, surpassing the $270 million recorded in the first half of the year.

Transactions involving industrial properties also rebounded strongly in the second half of 2009, climbing 155 percent compared to the first six months, and accounting for a combined total of $1.8 billion.

"Local buyers and domestic real estate funds dominated transaction activity in the second half but the period also saw a small number of core international institutional investors return to the Asian property market," said Andrew Ness, Executive Director of CBRE Research Asia. "Investment volume and prices across most sectors, particularly in the residential and office markets, have increased considerably. However, there are concerns that a number of residential markets appear to be in the early stages of transitioning from a state of recovery to a situation where they are in danger of overheating due to the high liquidity and a surge of capital inflows to the region."

The significant liquidity brought about by the monetary easing policies implemented by Asian governments since the onset of the financial downturn has led to concern over the sustainability of the current recovery. Looking ahead, Asian governments can be expected to gradually adjust their monetary policies and impose certain policy measures to tighten property lending as they look to prevent the formation of new asset bubbles.

Nevertheless, core international institutional investors are expected to gradually return to Asian real estate markets in 2010. The most challenging circumstance that they will face will be the limited availability of stock and deal flow as property owners remain generally reluctant to reduce their asking prices in the light of the ongoing market recovery.