Singapore’s 2023 total investment sales to fall short of S$25b forecast

The projection dropped 20% to S$19 to S$20 billion.

Total investment sales value in Singapore is projected to drop from the forecasted S$24 billion - S$25 billion to S$19 billion - S$21billion, according to a Savills report. This is due to the possibility of new conflicts erupting, the rewiring of supply chains, political purges and the contagion effect arising from the recent terrorist attacks within Israel. 

“While there is a probability that large ticket items may still be transacted for the rest of 2023 to possibly H1/2024, the likelihood of such is lower than the pre-pandemic decade and institutional investors will likely see a retrenchment in deal counts,” the report said.

Here’s more from Savills:

With the rewiring of global supply chains, the transition to alternative (and more expensive) energy sources and accentuated geopolitical fault lines, core and core plus investments are likely to take a backseat for the medium term (up to 18 months) as opportunistic and development investments move to the fore. It is only when asset values adjust to levels which see positive carry re-emerge in the core and core plus asset classes that transaction numbers can begin to increase. 

However, given the relative financial strength of landlords of Grade A offices, they will not transact at steep discounts and this means it will take time for capital values to adjust. For the retail and industrial sectors, the transaction highway is still clear as net yields for these asset classes are in the high-4% and the low to mid-6% ranges respectively (versus borrowing costs of 4.5% to high-4%). In contrast, net yields for Grade A CBD offices are still at 3.3% to 3.5%. 

For the first three quarters of 2023, the total investment sales value came to S$17.12 billion or an average of S$4.28 billion per quarter. At this rate, the final value for 2023 will fall short of the S$24 billion to S$25 billion forecast earlier. The fact that effective borrowing costs are above net yields for income producing properties and the recalibration of the ABSD for foreigners buying private residential properties to 60% (with effect from 27th April 2023) have been the transactional depressants. 

Also, as the S$908 million collective sale of Far East Shopping Centre comes with conditions, it leaves the door open to the possibility that the final investment sales value may have to be adjusted down should it fall through. We have decided to revise our full year estimate of the total value of investment sales to S$19 billion to S$21 billion. 

While the global real estate industry may suffer from a host of problems, Singapore has a unique selling proposition as safe haven, and there will still be a base level of transactions as a result, especially from ultra-high net worth families, seeking to diversify from riskier assets and countries.