Investors are advised to shy away from residential, industrial.
According to Colliers International executive director of Investment Services Tang Wei Leng, the residential sector remains a concern because of high policy risk that thins profit margins.
The industrial sector is also a concern, she added, as there are also some government interventions. She cited for example, new investors are required to obtain the approval of JTC Corporation for any properties sited on land leased from the JTC Corporation. It has also become more challenging, she said, for third-party facility providers, including institutional investors like REITs, to purchase JTC industrial properties. "This is because, effective from 1 January 2013, such buyers are required to put in an upfront land premium for the remaining part of the lease term. All things being equal, this potentially increases the acquisition price for a property and could translate to a lower yield."
Nevertheless, Ms Tang said that opportunities still abound despite market difficulties.
Here's more from Ms Tang:
Singapore continues to attract investors, in particular, those seeking stable and long term returns. Investors are convinced by the strong delivery track record of the Singapore government. The stable currency and AAA ratings are key drivers in addition to the government’s commitment to infrastructure development and visionary town planning. With the recent announcement of plans for a 5th airport terminal, just as the 4th is breaking grounds, signals a strong confidence in the volume of travellers into and/or via the country.
Singapore is a wealthy country, with property values in Singapore being among the highest in the world. We also rank among the highest worldwide in terms of GDP per capita. Singapore, which offers great ground-up development opportunities with minimal or no barriers to entry, is always on the radar of investors from all over the world. Our government has a planned land sale program that is accessible to global investors. Investment returns in Singapore are generally stable and we have seen great windows of opportunities for economical returns.
We are seeing more inbound money from China, India, Indonesia and the region investing in more sizeable properties in Singapore, in particular, hotels. A total of 9 hotels was sold to date for this year, with 3 hotels being sold just last month.
There are limited buying opportunities, as owners of investment-grade properties generally hold these assets for long term investments. Reasons include lack of replacement opportunities and price expectations. Another challenge is the thin spread between yields and financing costs.
The office and hotel sectors are some of the favourites among investors. With rents bottoming, there could be rental upside potential in the office sector. While for the hotel sector, although there is a high volume of hotels changing hands this year, the situation is rare as there is limited opportunity to access this sector. Nonetheless, this is a sector to watch, as demand for hotel rooms is expected to be high – given the government’s drive to target tourist arrivals to 17 million by 2015, as well as increasing tourism receipts to S$30 billion by 2015 – all these supported by the infrastructural plans such as having a fifth airport terminal by 2020.
Apart from the office and hotel sectors, investors should also keep an eye for opportunities in prime high-end residential units as the average prices remain stable. The price gap between average prices for the prime high-end residential units and units outside of the prime locations are narrowing.
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