Singapore’s investment sales see 50.7% dip in Q2 2023

Jeremy Lake of Savills Singapore points out the challenges amid high interest rates, but stays cautiously optimistic for property sales trajectory.

The second quarter of 2023 brought forth a notable 50.7% plunge in the total investment sales value in Singapore, signalling challenges in the real estate market.

In an exclusive interview with the Singapore Business Review, Jeremy Lake, managing director of Investment Sales & Capital Markets at Savills Singapore, said: “The first quarter was a surprisingly large number. Therefore, the second quarter was always going to be much lower."

Tempering his own expectations reflected Lake’s deep understanding of the factors contributing to this decline as he offered insights into the industry’s trajectory.

He said that whilst the investment market in Singapore was facing a downturn, the volume of transactions was decreasing across segments, among which is the segment of private development sites.

Lake pointed out that a growing price gap between seller expectations and developer prices hindered numerous sales. He attributed these softened developer prices to high interest rates and increased construction costs.

The big-ticket investment deals segment, which often involves institutional buyers, has also been affected by high interest rates. Lake explained that many of these buyers prefer to await clarity on interest rate peaks before reentering the market.

Nonetheless, the Savills expert saw a relatively brighter note in the private buyer segment. “Ultra-high net worth buyers are still willing to jump into the market. They’re less gun shy, but they’re more focused on shop houses and strata offices,” he noted.

This preference was attributed to their longer investment horizon and a different perspective on capital preservation.

When questioned about the influence of ultra-high net worth individuals’ decision-making, Lake remarked: “They have a different time frame in mind. Many of these ultra-high net worth individuals are looking at 10 years, 15 years, that sort of longer timeframe. Thereafter, capital preservation!”

He likened their approach to real estate investment to that of buying art or gold – a long-term asset.

Addressing Savills’ forecast of SG$44.7 billion for this year’s total investment sales volume, Lake affirmed, “Our forecast for this year is roughly the same as last year… so we’re expecting more of the same in 2023.”

While the first half of the year saw subdued activity, Lake expressed optimism about the second half due to the government land sale program, with several large sites expected to close.

Lake acknowledged the Singaporean government’s influence on their forecasts, as the government’s land sale program plays a significant role in determining public sector contributions to the investment market.

He acknowledged that the unexpected surge in interest rates has caught many off guard, emphasising how it has impacted everyone from individuals to property funds.

He urged clients to proactively manage their loan portfolios to avoid abrupt spikes in interest rates.

Despite the challenges posed by high interest rates and construction costs, Lake remained positive about the market’s potential recovery and encouraged buyers to incorporate higher interest rates into their analyses while expecting eventual stabilization.

“For developers… they borrow money [to bankroll construction], and therefore interest rates are a key factor to incorporate into their calculations. But construction costs are a very important component,” Lake noted when discussing other influences on their business.

Rising construction costs have influenced developers’ willingness to pay for land, thus contributing to the observed price gap.

In the end, despite the challenges posed by high interest rates and construction costs, Lake maintained that there remains a cautiously optimistic sentiment regarding the market’s trajectory.

With the government’s land sale program and the resilience of ultra-high net worth buyers, the market is poised for potential growth in the latter half of 2023, he concluded.

For more business news and insights, visit sbr.com.sg.