Singapore’s property investment market perked up at the start of the second quarter, at a time when the cumulative tally for the earlier quarter had shown a drop with a few strata deals. Office development Tampines Grande 7 and 9 transacted early April at $395 million, and Realty Centre closed a few days after at $148 million. Realty Centre was the first commercial collective sale inked in the year, fuelling hopes that the commercial collective sale market is chugging along despite the muted sentiments in the overall economy. Oxley Holdings has entered into a deal to sell Chevron House for $1.025 billion, testing the capital value threshold of commercial properties. Anson House, 139 Cecil Street and possibly Frasers Tower are next on the line up. Whatever the reasons for selling commercial properties, the market is in agreement that the momentum in commercial development sales will keep steady.
Although not finalised, the 2019 draft master plan’s recommendation to rejuvenate the Central Business District certainly created some buzz in the commercial market.
The CBD Incentive Scheme will offer an increase in gross plot ratio to encourage the conversion of existing office developments to hotel and residential uses. This could be beneficial for many office developments which face challenges when it comes to land use zoning. As residential and hotel use typically have a lower capital value, it does not make sense for land owners to downgrade to those development options without the increase in the plot ratio. If the CBD Incentive Scheme is approved, it will make commercial sense for developers to look at various development options. The lure of hospitality continues, and property owners continue to weigh hotel conversions against higher Development Charges (DC) for hotel use. In the period just before DC for hotel conversions increased, Cheong Sim Lam acquired Ascott Raffles Place Singapore for $353.3 million. Waterloo Apartments was sold to a subsidiary of Fragrance Group through a collective sale of $131.1 million and the owners of Hotel 81 bought Golden Wall Centre for $276.2 million. Since the state planners raised the DC for hotel conversions, Oxley has put up its Mercure and Novotel Hotels back on the market and we may also possibly see a transaction on Global Premium Hotels’ portfolio of 23 hotels. It will be interesting to watch the level of interest in hotel assets for the rest of the year.
If the master plan goes through, plot ratios for numerous CBD land parcels will see significant increases. Private owners who have been sitting on historical land sites but have not been motivated to redevelop will welcome this move. For example, the base plot ratios for land parcels in the heart of Raffles Place and in the vicinity of Raffles Place MRT station, rose from 12.6 to 15.0. This provides an impetus for landlords of ageing assets in prime locations such as The Arcade and Clifford Centre to redevelop their properties. This could spur investment activity as landlords who are undecided on whether to divest their older assets for redevelopment have now more reason to do so.
There is also likely to be an increase in asset enhancement initiatives as landlords seize the opportunity to unlock the additional untapped Gross Floor Area (GFA) It might be possible for landlords of assets which are currently undergoing AEIs to revise their plans in order to unlock the additional untapped GFA. As a result, there could be a delay in asset enhancement exercises as these landlords await the finalisation of the new Master Plan and apply for revised planning permissions.
Singapore’s fundamentals remain strong. The city provides a safe haven for the weight of capital that is hunting for assets, albeit its limited stock. In the medium term over the next six to 12 months, commercial properties including office, hospitality assets and shophouses will continue to be sought after. However, the window of opportunity may be narrowing. Should more commercial properties be converted to homes and hotels, the office supply in the CBD might be tightened further and drive the capital value of commercial properties even higher. This situation may persist beyond 2020 – 2021 even when additional CBD office supply is released in the market. Investors will increasingly have to look more closely at the decentralised office market for opportunities similar to Tampines Grande 7 and 9.
The article above first appeared on EdgeProp on 24 May 2019.