Singapore’s office market saw a revival of investor interest in 2016 with the full-year investment sales value (comprising private sector deals above S$5 million or US$ 3.61 million, and all public sector deals) more than doubled that in 2015 to reach S$9.06 billion (US$6.53 billion). This impressive performance was underpinned by the robust en bloc market, that is, sales of entire buildings. Has the positive sentiment now spilled over to the strata-titled office market i.e. the sale of buildings in parts?
Sales activity in the strata-titled office market quietened significantly after 2012. That year, new launches at Oxley Tower, Paya Lebar Square and PS100 were met with buyer exuberance and total strata-titled office transaction value reached a peak of S$2.96 billion (US$2.14 billion). However, the implementation of the Total Debt Servicing Ratio in 2013, which limits borrowers’ monthly repayment of all debts, dampened investor interest and the transaction value of strata-titled deals tumbled in subsequent years. By 2015, the total sales value was a mere 30 per cent of that in 2012.
Source: JLL Research, URA Realis
Nonetheless, there are signs that the positive investor sentiment in the en bloc office market has filtered down to the strata-titled office market in recent times. The strata-titled office transaction volume and value bottomed in 2015 and rose 12.7 per cent and 4.7 per cent respectively in 2016. In Q1 2017, strata-titled transactions worth some SGD$1.43 billion (US$1.03 billion) took place — the highest Q1 sales value recorded for this market in the last nine years.
Diving deeper into the numbers, the rebound in the strata-titled office sales market has been driven by bulk strata-titled deals, including the sale of shares in entities holding strata-titled assets. Major bulk strata-titled deals in 1Q17 included Fullshare Holdings purchase of the entire interest in Plaza Ventures Pte Ltd, which owns the remaining unsold strata-titled units in GSH Plaza, for S$725.21 million (US$524.29 million). Additionally, 17 units in Prudential Tower and six units in Samsung Hub were sold for S$206.59 million (US$149.35 million) and S$43.07 million (US$31.14 million) respectively.
What is driving this spate of bulk strata-titled deals? The spillover of investor confidence from the en bloc market certainly plays a part. Mid-budget investors who wish to take part in Singapore’s impending office rental recovery are attracted to the lower capital outlay needed for bulk strata-titled compared to en bloc deals. At the same time, they are confident of reaping capital appreciation through resale, either in bulk or individually. This stems from their belief that the impending office rental recovery could drive some businesses to switch from being a tenant to an asset owner, and boost the strata-titled office sales market.
The March 2017 introduction of the Additional Conveyance Duty, which effectively closed the loophole where buyers of residential properties could avoid hefty Additional Buyer’s Stamp Duty by purchasing a stake in property holding companies, has also diverted demand from the bulk residential to the bulk strata-titled office market.
Driven by bulk deals, Singapore’s strata-titled office market appears to be awakening.
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