Warning signs as residential market slows

It may just be the beginning of a trend, but after almost a year of increases, volume of residential property sales declined 8.5% quarter-on-quarter as industrial property sales overtook.

The figures compiled by DTZ Research comprise transactions that are more than $5m each. They exclude $1.75bln of transactions in single residential units, or lots that cannot be redeveloped/ subdivided into more than one plot, as well as deals that are deemed to be interested person/party transactions.

In contrast to last year when residential sales had dominated the investment market, investments in the industrial segment stood out in Q1 2010 accounting for $1.02bln or 38.5% of the total transacted value. The bulk of it is due to the sale and leaseback deals that were made by soon-to-be-listed Cache Logistics Trust with the owners of six industrial properties totalling $713.20m.

Residential investments came in second at $879.20m. The majority of it (93.7%) was from the sale of sites in the Government Land Sales (GLS) program. With just 6.3% share of residential transactions, private investment sales were noticeably crowded out. This trend is likely to continue into Q2 2010 with the GLS program expected be the main source of land supply for residential development due to the variety of GLS sites available and the speed at which they could be tendered for and put on the drawing block for sale in less than a year.

Investment by local companies continued to dominate the scene due to purchases by local developers and REITs. However, there could be more foreign purchasers in the coming quarters. “Renewed interest from foreign funds is evident as the major purchases of two office buildings – Robinson Point and One Finlayson Green – are made by overseas investors,” observed Ms Chua Chor Hoon, Head of DTZ South-east Asia Research.

An ongoing economic recovery is also expected to lead to increased investment activity in 2010. “Besides the purchase of land for residential development, acquisitions by REITs are resuming. More office buildings are also expected to be transacted for redevelopment into residential use for owner occupation or rental yield,” Shaun Poh, Senior Director (Investment Advisory Services and Auction) noted.