RCA Insights

Record Activity in Singapore? Look to Developers

By on February 26th, 2020

Commercial real estate investment in Singapore broke the $10 billion (S$14.0 billion) mark for the first time in 2019, with the most oft-cited reasons including record high cross-border inflows, improved office occupancy and rentals, and capital diverted from beleaguered Hong Kong. However, one factor for the record investment has gone under the radar so far: the role of Singaporean developers.

Up against institutional investors, REITs, and cash-flushed cross-border investors, Singapore’s domestic developers increased their activity to account for half of all income property deal volume in 2019. This was a far cry from just two years ago, when they participated in only 10% of investment into standing assets.

Back then, they poured over $10 billion into development site investment in 2017 alone. They followed that up with another $9 billion in the first half of 2018, after which the Singapore government responded with a package of cooling measures.

With a shrinking supply of land parcels sold by the government and a new tax on companies buying residential sites, land-hungry developers were doubly squeezed. In our RCA Insights piece at the time we questioned if there would be a spillover effect into the commercial market. Indeed, there has been no shortage of owners putting up old, strata-subdivided buildings for sale since then, but developers have largely refused to bite.

Meanwhile, the Singaporean government has urged domestic developers to venture overseas in search of new development projects. However, acquisitions of development land abroad has fallen some way since the peak in 2017, both in terms of the value of the land and the number of sites purchased.

Instead, Singaporean developers have shifted away from development to acquisitions of standing assets. In 2019 alone, they spent some $6 billion on domestic income-producing properties – more than triple that of the previous year and double that of their core business of development sites. Notable deals include Hoi Hup’s acquisition of Andaz Hotel for $350 million and Frasers Property’s indirect purchase of a majority stake in a prime retail mall portfolio from a PGIM fund valued at almost $3 billion.

With the Singapore government’s continued reassurance that the cooling measures will be here for the long haul, domestic developers are likely to remain hungry for other opportunities to invest their capital.

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