Who benefits and how: Cooling measures stir Singapore real estate

After the imposition of a higher ABSD, residential property investment sales declined to 33.4%.

When Singapore implemented a new round of cooling measures in December 2021, analysts observed that increasing home prices have indeed been moderated. The downside, at least to the residential real estate market, is that it has driven investments out and toward commercial properties.

Just one quarter (Q1 2022) after imposing a higher additional buyer’s stamp duty (ABSD) on residential properties, the investment sales value of the residential sector declined by 9.1% to S$3.11b. This was opposed to the 165.9% quarter-on-quarter growth to S$5.81b in commercial real estate. 

Over the same period, the share of residential properties in the total investment sales value dropped to 33.4% from 47.6% in the previous quarter. In contrast, commercial real estate investment accounted for 62.4%, a “significant” increase from 30.4%. 

Likewise, Colliers data showed that in Q1, investment activity grew by 34.4% quarter-on-quarter (QoQ) to S$10.6b, largely led by commercial sales. Cushman & Wakefield also recorded “significant” growth in commercial investment sales of 19% QoQ to $2.6b in Q1 2022. This was followed by notable deals, such as the acquisition of 79 Robinson Road for $1.3b, Golden mile Complex for $700m, and Twenty Anson for $599m, in the second quarter.

“Investor demand spilled over into the commercial sector. Amidst headwinds from rising interest rates and geopolitical tensions, Singapore continued to attract capital from private funds and family offices pursuing assets in prime locations,” Colliers said in a report. 

Cushman & Wakefield Head of Research Xian Yang said the cooling measures have particularly led to stricter selection criteria that have increased development risk for large residential sites.

“With this in mind, small to medium sites with a palatable quantum are more likely to be transacted in the current market,” Yang told Real Estate Asia. 

Besides the cooling measures, JLL Asia Pacific sees that the increased interest in commercial real estate is also driven by improved investor confidence over Singapore’s “proactive and transparent” pandemic response, as well as the reopening of the economy and lifting of border restrictions. 

Regina Lim, Head of Strategic Advisory, Capital Markets, JLL Pacific, said the added restrictions on future strata-subdivision of selected commercial properties in central business districts and the Central Area intensified the appeal of the now-limited stock of strata-titled office units.

JLL Asia Pacific estimated that real estate capital market deals in the first quarter of the year climbed by 134% year-on-year to S$7.8b, which is also double the quarterly average recorded between 2018 and 2019. 

Investors’ ‘safe haven’ 

Amidst this growth, Singapore could still suffer from geopolitical uncertainties that disrupted the global supply chains and increased inflation and interest rates, Lim said. Whilst Singapore has yet to see its impact on demand for real estate assets, the high-interest rates will likely impact investors’ required rates of return, slow investments, and moderate asset price inflation. 

Despite this, JLL remained optimistic as it observed Singapore is attracting more investors that are diverting their gaze from the usual markets, such as Japan, Australia, and China. 

“Institutional investors continue to seek to deploy capital into Asia as they are attracted by high urbanisation rates, rising incomes, and strong economic growth,” Lim said. 

In recent months, the Singapore real estate industry saw the acquisition of office assets by Nuveen, PAG, JPM Asset Management, and KKR. 

“We believe this is because the Singapore office market is at an inflection point given structural changes in Singapore’s global positioning, the office rental trajectory, and opportunities for asset revitalisation,” she said. 

JLL projected transaction volumes in 2022 will recover and return to their pre-pandemic level, translating to a 20-25% year-on-year growth; whilst a “moderate growth” in investments is expected in 2023.

Similarly, Yang of Cushman & Wakefield expects the current economic climate to put some weight on investors' activity but sees Singapore will continue to be competitive.

“Whilst investors are still looking to deploy capital, they are exhibiting more caution and looking at core assets which can generate a stable income, such as Singapore CBD offices or prime logistics,” he said.

“We are sanguine on the outlook of commercial investment sales volumes. Compelling demand-supply dynamics in the Singapore office market would underpin investor demand. Given the economic uncertainty, there is a capital flight to safety, and Singapore is positioned to capture this given her status as a safe haven.”