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May 30, 2017

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Commercial property proving a big draw in Singapore

SINGAPORE -- Commercial property is fast becoming a hot favorite among investors in Singapore, going by both the sales figures and loans taken out in the first quarter of this year.

Mixed-use and commercial property accounted for more than 20 percent of total property investment sales in the first three months of the year, and was worth about SG$2.26 billion (US$1.8 billion), according to data from Colliers International.

Some banks The Straits Times spoke to have reported a rise in customer interest in buying such properties in the first three months of the year.

HSBC estimated a 10 percent rise in these loan applications, while OCBC said it had recorded double-digit growth in commercial property loan applications since March 2010.

The number of loan applications by Special Purpose Vehicles (SPVs), companies created for a financial transaction, has also risen in the last few months.

Willie Tham, HSBC Singapore's head of commercial banking, said: "While the interest stems primarily from business owners looking to purchase for their own business use, we have also seen an increase in applications by SPVs, which are acquiring such properties for investment purposes."

Property watchers say this could indicate that even entities other than businesses and other non-traditional buyers are entering this sector.

Purchasing property through SPVs has its advantages, including a reduction in stamp duty and the means for investors to protect specific assets from creditors if they fall into debt.

Chris Marriott, Southeast Asia chief executive of Savills, said commercial property is a good hedge against inflation: "The 20-year inflation average is 1.7 percent per annum compared to commercial property growth of 4.3 percent per annum. At present, rental growth is supporting higher values so short-term gains can outweigh inflation."

He noted that strong economic fundamentals across all key economic sub-sectors — financial services, manufacturing and tourism — are creating healthy demand.

Singapore's office market is expected to benefit as the country gains importance as a regional business hub within Southeast Asia and the Asia-Pacific, said Ashish Manchharam, Southeast Asia head of investments at Jones Lang LaSalle.

He is also expecting Grade A office rents to climb a further 10 percent to 15 percent this year.

Analysts say recent property market cooling measures may have driven some investors to park their money in commercial property, which is seen as a stable property asset that is less susceptible to policy changes.

Added to that, the financing of commercial property loans is attractive for investors, with some banks offering up to 80 percent financing for such loans.

Industrial property rents have risen sharply in the first quarter of this year, climbing 8.3 percent from the previous three months.

Rents for private residential property have also risen, but at a more subdued pace of 2.2 percent.

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