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Why This is the Best Time to Invest in Singapore Commercial Property
Real estate investments have dramatically changed in Singapore property sectors for the last 10 years.
Before the introduction of Additional Buyer’s Stamp Duty in 2011 (ABSD), commercial sector lacked the vibrancy and the heat we see today.
It was primarily driven by hot money flowing into the commercial sector.
Since 2011, commercial prices doubled, tripled and outpace any other property sectors in Singapore real estate market.
And surprisingly good rental yields were found in many commercial investment sales. One which rocked the market was the sale of Asia Tower One where the gross rental yield was reportedly close to 4%.
Since then, many investment sales followed.
Many were surprised by the recent hike of ABSD on the 6 July 2018. This has essentially fed the momentum in investment sales.
Coupled with low rental yields in the residential sector; Singapore government kept cautioning investors about 30,000 vacant condos are available for rent in the market today, the rental yield in the residential sector is not expected to recover anytime soon.
And this has made commercial properties a viable option as there is no ABSD, no seller’s stamp duty (SSD), and some of the commercial rental yields are looking attractive comparing with residential properties.
Investment Sales in Singapore Hit Record High
Impressively, even the introduction by the government of market cooling measures has not dampened investors’ appetite for Singapore’s real estate property.
Granted the forecast some months ago has dropped by S$6 billion to S$40 billion following the cooling measures introduced in July this year, but after tracking of every property transaction of S$5 million value and above in the quarter ending June 2018, it has found that the value of this year’s property sales transactions is very likely to match the impressive record of last year.
The confidence in the country’s property market growth lies in the fact that there was a boom in property sales from January to June 2018.
Moreover, in the second quarter, investments in real estate grew by 19% to S$12.2 billion compared to the same period last year, with the lead being the residential sector whose sales comprised 67% of Singapore’s entire property investment sales.
In actual fact, sales of residential properties in the second quarter rose by almost 61% to total S$8.2 billion, compared to last year’s second quarter, which drove overall half-year sales of residential properties to S$17.3 billion, which, as Colliers says, is an unprecedented high.
On the overall, the investment sales for the second quarter totalled S$1.4 billion, which were almost three times the investment sales of the first quarter of the year.
Among the most impressive sales deals of the second quarter of 2018 were 16 transactions that involved collective sales of residential properties, whose revenues totalled S$3.9 billion.
In total, the second half of 2018 saw 33 transactions of residential properties succeed, resulting to revenues of S$9.7 billion.
Incidentally, there has also been significant demand for mixed use properties in Singapore with sales shooting to S$1.5 billion within the second quarter of the year, which is practically a 30.2% rise.
The properties involved were mainly investments meant for both commercial and residential use, such as Chinatown Plaza that was bought at S$260 million, and another property along Holland Road that was scooped at S$1.2 billion.
Shophouses are becoming popular investment assets among individuals with high purchasing power, investment companies, and property funds as well.
There are even families who are ready to utilize their pool of resources to acquire what they view as assets with great potential.
This market trend is a result of the additional cooling measures introduced in the residential property sector with effect from 6th July, 2018. It is easy to compare the positive demand that has been seen in the last half of 2018 to prior years when demand was more on residential properties.
Of course, in terms of volume sales of strata office assets are still lower than in 2012, but that historic boom occurred before the introduction of Total Debt Servicing Ratio or TDSR rules. Nevertheless, sales in this category of developments are gradually resuming the rise that began in 2015, after the drop that the TDSR caused beginning 2013.
In 2012, the market saw an all-time high of strata titled office sales, with recorded revenues of new buildings plus re-sales of old developments reaching S$2.29 billion.
This figure is almost triple the amount of revenues office developments fetched in 2017, which was just S$760 million.
Post TDSR, fewer consumers were able to access the credit previous buyers of office strata utilized. Besides, the heavy supply of such properties in the pre-TDSR period had caused a drop in rental income and made investing in office space somewhat unattractive.
That trend has gradually changed, and now there seems to be fewer investors in that sector than willing buyers; making investment in office-strata developments worthwhile.
While the ratio of supply to demand was estimated to be 30:70 pre-TDSR, the ratio could be seen changing post-TDSR soon getting to 70:30, status quo that is only now being shaken by the introduction of new cooling measures in the residential investment sector.
In any case, potential buyers of office strata units recognize the benefits that come with owning such space as opposed to renting, especially considering the volatility of rental costs.
Families as well as general investors are comfortable knowing their business revenues will not be drastically slashed by massive rental costs, and one way of ensuring they are well cushioned is to buy their own strata office units.
Developers have high hopes there will be sufficient demand for strata office units not only from local investors but also foreign ones especially from Malaysia and Hong Kong as well as China and Indonesia, who appreciate the need to hedge against fluctuating rental prices.