Low interest rates and high foreign capital bright spots in property capital markets: CBRE

By Valerie Kor / EdgeProp Singapore | March 2, 2020 4:45 PM SGT
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SINGAPORE (EDGEPROP) - Despite the sizeable and prominent assets such as DUO, Mapletree Business City II and 30 Raffles Place transacted in 2019, investment volume for 2019 has been the lowest since 2017, according to CBRE’s report “Real Estate Market Outlook 2020 - Singapore”.
This may mean that there is currently a lower supply of quality assets, resulting in fewer large-sized transactions.
One thing for certain in 2020 is a low-interest-rate environment, which will set a more favourable position for home mortgage and commercial lending, given that SOR (Swap Offer Rate) and Sibor (Singapore Interbank Offered Rate) are highly correlated to the US Federal Reserve rates.
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This will boost consumer spending and alleviate the impact of the sustained weakness on the Singapore economy. However, asset yields are likely to stay flat or decline.
With lower yields, investors may either have to lower their return expectations, or consider investing in alternative assets with higher risks, such as co-living, senior or student housing, or data centres.
In 2020, there will be more interest in enhancement of older assets. Investors will be keen to enhance older assets through the CBD Incentive Scheme where bonus plot ratios are given to mixed developments, or the Strategic Development Incentive Scheme where smaller buildings in the CBD can be amalgamated and redeveloped into mixed-use properties.
Commercial shophouse transactions were still robust in 2019, and they remain an attractive asset since they can be refurbished and are exempt from stamp duties.
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In 2020, CBRE projects that property investments will be led by Singapore-focused, close-ended real estate funds as they will have more than US$50 billion ($69.5 billion) to deploy over the next few years (assuming a leverage ratio of 40% to 50%).
Real estate will maintain its attractiveness as it offers a more defensive income stream and provides portfolio diversification. Robust capital flows into real estate can be expected, which will support merger and acquisition activities or portfolio transactions.
However, the lack of investible quality assets might create challenges in deploying capital, which may result in fewer large-sized transactions.
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On the whole, CBRE predicts real estate investment volume to be 20% to 30% lower than the $18.23 billion recorded in 2019, depending on the scale and length of the ongoing virus outbreak, and whether sizeable assets are available.
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