Singapore has experienced a shift in capital over the past five years, with more money flowing into non-residential strata properties as investors start to view them as an alternative to residential properties. Analysis of caveat data lodged with the Urban Redevelopment Authority between 2007 and 2011 shows the proportion of investment in industrial properties has been increasing.
Strata residential transactions dominated the number of caveats lodged, especially during the global financial crisis recovery period in 1H09. When the Singapore government introduced the first of five sets of cooling measures in 3Q09, the proportion of residential caveats lodged fell from 96.6% in 2Q09 to 90.0% in 4Q11 and the number of strata industrial caveats increased by 4.6% to 7.5%, with those for office and retail properties rising by 0.6% and 0.9% respectively.
The relationship between falling residential and rising industrial transactions might weaken due to government intervention in the industrial sector from 2012 on and a return to the long term trend of non-residential strata sales, excluding industrial properties, increasing its proportion of transactions is possible. The proportion of residential transactions should also remain stable, if not dip, given the highly uncertain outlook after the introduction of the Additional Buyers Stamp Duty (ABSD) on 8 Dec 2011.
Average market yields on industrial properties are highest at 5.5%, with retail at 5.3% and office and residential properties at 3.8% and 3% respectively. Industrial property might seem an attractive asset class to invest in right now but capital values are at their highest since 2008 and investors buying at this time might be paying a premium. Residential prices are also at a peak and recent cooling measures are likely to compress high end prices further, and the mass market to a lesser extent.
Although the industrial sector offers the highest yield, prices could fall due to the impact of economic problems on consumption and production, and despite government measures, prices in the residential mass market could appreciate in the long term albeit at a slower rate.
Investing in the office sector is more challenging given the limited strata units available within the CBD. Nonetheless, on the back of weakening global demand and lower domestic GDP growth, capital values for offices could weaken. Retail price movements are smaller compared to other sectors and are expected to soften in 2012 and 2013 given the large supply at that time.
Most investors are waiting on the side-lines for greater clarity in global market conditions which are expected to stabilise by the second half of 2012. With government measures already in place in several sectors, potentially keeping the short term price upside minimal, such market conditions should prove attractive for retail investors in the mid to long term.
