Real estate investment sales off to a slow start in 2023

Global real estate consultancy Knight Frank reported that Singapore's real estate investment market got off to a "slow start" in 2023, with investment sales clocking just $4.2 billion in 1Q2023. This marks a sharp year-on-year drop of 61% compared to the $10.8 billion recorded in 1Q2022.

It was also the lowest quarterly total since 2Q2020, when the government implemented the "Circuit Breaker" measures at the height of the pandemic.

Residential transaction volume reached $1.6 billion in 1Q2023, which included collective sales of Meyer Park, Bagnall Court, and Holland Tower totalling approximately $583.8 million.

The sale of Holland Tower was the first successful residential en bloc transaction in the Core Central Region (CCR) since the implementation of property cooling measures in December 2021. This indicates a "tentative return" of interest in prime development sites following the reopening of China's borders.

However, the en bloc landscape remains challenging given the gap in price expectations between sellers and developers. 

From 2021 to date, the success rate of collective sales has been around 33%. In contrast, the success rate for en bloc sales between 2017 and 2018 stood at 63%.

Even if owners achieve the 80% consensus for a collective sale, a successful transaction is not guaranteed. Ultimately, for the collective sale mechanism to work in the current cycle, owners must have realistic price expectations to pique developers' interest, while developers must recognise the substantially higher replacement costs for owners.

While the commercial market was largely quiet in 1Q2023, the sale of 39 Robinson Road to Yangzijiang Shipbuilding for $399 million last week brought total sales in the sector to $1.9 billion. Another notable deal was the acquisition of a 50% stake in Nex by Frasers Centrepoint Trust and Frasers Property for $652.5 million. 

Meanwhile, the industrial sector saw an uptick in investment sales in 1Q2023, surging 62.8% quarter-on-quarter to $681.1 million. This was attributed to the market shifting its focus while awaiting potential repricing of assets in the commercial sector.

In terms of market outlook, Knight Frank anticipates that amid macroeconomic uncertainties and volatility in the global banking sector, financing has become more challenging for buyers, investors, developers, and banks alike, and this situation will persist until there are clear signs of stabilization in global economic and financial conditions. Investors are expected to remain cautious as they monitor for signs of repricing before deciding on their next move.

As such, Knight Frank has revised its full-year investment sales forecast downwards from between $22 billion and $25 billion to between $20 billion and $22 billion.