Covid-19 compels investors to stay on the sidelines

Foreign capital inflows have slowed to a trickle, dropping by 65.1% q-o-q to S$213.99 million due to restrictions on global travel. As a result of the pandemic, investors are likely to sit by the sidelines as they wait for value to emerge.

Michael Tay (郑兆能), Head of Capital Markets, Singapore at CBRE, shares, “We’ve observed deals in the pipeline fall through, with bids below expectations as the buyer-seller price gap widens. The market seems to have come to a stalemate with little activity. With retail and hospitality assets in the eye of the storm, investors will be looking for distressed sale opportunities.”   

Desmond Sim (沈振伦), Head of Research, Southeast Asia at CBRE, forecasts, “For 2020, depending on the scale and length of the pandemic, Singapore real estate investment volume should come in around 20% to 30% lower than the S$18.23 billion recorded in 2019. Investment will still be supported by ample liquidity looking for safety and value, government land sales, and unless any prominent asset comes onto the market, bite-sized deals.” 
Notwithstanding the current situation, given its stability and strong fundamentals, Singapore remains a preferred investment destination as demonstrated by the results from CBRE’s recent Southeast Asia Investor Intentions Survey findings. 

Highlights of Southeast Asia (SEA) investor intention survey 2020:

Based on the survey findings which was intended to reveal investors’ interest in investing in SEA, asset diversification in real estate was identified as investors’ main goal, with income stability gaining importance. Lower and diminishing returns from mainstream assets, such as equities and bonds, have diverted more capital to real estate. Furthermore, real estate offers investors a more defensive income stream and provides portfolio diversification. In the search for returns, investors have shown their preference for assets to which they can value add.

In terms of investment destination, Ho Chi Minh City (HCMC) and Singapore ranked the top two SEA cities among investors.  More investors voted HCMC which is seen as having potential for greater appreciation in property values and higher yields, edging Singapore down to a close second. Investors are also more inclined towards industrial and logistics assets, which has overtaken office to become the preferred sector to invest for this year.  

Looking at long term structural trends, investors looking at SEA believe that flexible space, sustainability and smart buildings (in that order) will have the greatest impact on their investments. As a result, more investors are also considering adopting Environmental, Social and Governance guidelines in their investments. 

Mr Sim concludes, “In light of the unfolding Covid-19 pandemic, investment sentiments and momentum will inevitably be dampened. However, in times of crisis, there will also present opportunities. Amid the low interest rate environment, investors will still be compelled to invest in SEA real estate assets to achieve their target returns directed by the mentioned goals and criteria.”