Singapore REITs reach record S$13.6b worth of deals in 3Q13

Highest value ever for a quarter.

According to Savills' Asia Pacific Investment Quarterly report for the Q3 2013, Singapore saw a record-breaking S$13.b worth of deals, doubling that of the previous quarter due to a galvanized IPO market.

Acquisitions by these REITs amounted to almost S$5.7 billion, with the trusts listed including Soilbuild Business Space Reit (S$905.3 million), SPH Reit (S$3.07 billion) and OUE Hospitality Trust (S$1.71 billion), contributing to 41.8% of total investment sales. Buying activity in the private sector, however, was subdued with 65 deals recorded in Q3, down 27.8% from the 90 transactions seen in Q2.

Hungry Ghost Month, the introduction of a total debt servicing ratio and expectations of quantitative easing tapering by the US Federal Reserve, leading to higher interest rates, were possible reasons behind the slowdown in the number of transactions, although this did not affect the total value recorded, said Savills.

Savills defines investment sales as deals of at least S$10 million. "We include transactions below this threshold for Government Land Sale Programme sites, residential en-bloc sites and acquisitions by REITs. Investment sales are recorded as of the date of caveat registration," said Savills.

By property type, the hospitality segment was the bright spark in the reviewed quarter. Seven hotels were sold for a total of about S$2.9 billion (including the retail podium of Grand Park Orchard Hotel) or 21.0% of Q3’s total investment sales. Many of the recent transactions exceeded S$1 million per room.

Meanwhile, hotels in shophouses gained in popularity for investors, probably due to the smaller price quantum. According to Singapore Tourism Board data, the average revenue per available room in the first seven months of this year was down by 3% year-on-year, due to the mix of a weaker events calendar slower corporate demand and price competition from newly opened hotels. Nevertheless, in the long term, hotel investments in Singapore should remain positive due to expectations of continued economic growth and a stable political environment, said Savills.

"Despite recent signs of a recovery in developed countries, the global economic environment remains volatile. Coupled with the increasing difficulty in obtaining credit and expectations of rising interest rates, the investment sales market is expected to face more challenges ahead," said Savills.