Singapore property loses investment appeal

India, Manila, and Vietnam are amongst the investors' new favourites.

Singapore—an investor favourite in 2012 —has sunk to near the bottom of this year's City Investment Prospects' rankings.

A study by Urban Land Institute and PwC show that Singapore's ranking fell 10 notches down to 21 from last year.

"Beset by overcapacity in office space, falling retail sales, and a five-year residential price slump, the city-state has sunk to the foot of rankings it topped as recently as five years ago," the report read.

Topping this year's list are Bangalore, Mumbai, Manila, Ho Chi Minh City and Shenzhen.

According to the report, if the results of last year’s survey—in which Japanese and Australian cities featured as investor favourites—could be seen as a vote for “flight to safety approach,” the emergence of four emerging-market destinations as the top choices in this year’s results reflects a very different mandate—the “quest for yield.”

"The apparent shift in favor of the higher-risk strategy reflects changing conditions on the ground. On the one hand, while demand for core assets in gateway cities remains as strong as ever, buyers are having trouble sourcing investable assets at acceptable prices—or indeed at any price," the report said.

At the same time, the report added that as cap rates across the region continue to dwindle, the need to identify investments that deliver higher returns grows ever stronger. Increasingly, those returns are most evident in emerging-market destinations.

The report however noted that it does not necessarily mean—with some notable exceptions—that investment funds are now beating a path to these cities.

"Apart from anything else, emerging-market destinations lack the scale to accommodate the sheer volume of capital that investment funds collectively need to deploy. Nor do the vast majority of investors have the connections, experience, or appetite for risk to easily exploit those opportunities," it said.