The debt crises of Europe and U.S have dampened investor sentiment in the auctions market. 3Q11 figures show that auction transactions are at their lowest (7) since 1Q09 which recorded 11 transactions. While the seasonal slowdown due to the Hungry Ghost Festival could have had some impact, investors are generally more hesitant amidst the current financial woes in the Eurozone.
Since the peak of 3Q09 where the number of successful bids stood at 41, this volume has been on a general decline except for the slight recovery in 1H11. In 3Q11, the number of successful bids dropped by over 50% from the previous quarter. This came at a time when the European sovereign debt crisis was particularly tense and has led to a pronounced slowdown in the transaction volume across all the property sectors. This situation mirrors that of 2008 when subprime mortgages triggered the global financial crisis.
Transaction Proportions by Quarter (Transaction Volume)
Source: URA, Jones Lang LaSalle 3Q11
The residential sector is typically the most active in a booming market such as in 2009. This is to be expected given the lower risk of the Singapore residential market, which is backed by strong fundamentals of land scarcity and a growing urban population.
However investors have been turning to other sectors since the introduction of the cooling measures in the residential market. Led by the commercial sector, the proportion of residential transactions has been on a decline, with the worsening global economy motivating investors to further diversify their portfolio.
Despite the shift back to the residential sector in the third quarter, we think this general trend of property diversification will continue as investors move to higher yields offered in the commercial and industrial markets amidst the punitive policies that are applied to the residential market. However we expect overall transactions to remain muted as investors grapple to make sense of the impact of the fallout from the Eurozone financial market on the Asia Pacific economies.
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