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June 29, 2017

Singapore’s real estate sector dominated M&A transactions in the first half of 2017 as a recent softening of prices prompted increased local demand, while overseas investors continue to look at diversifying their portfolios.

The aggregate value of announced M&A deals involving Singaporean companies reached US$22.4 billion in the first six months of 2017, based on the latest Thomson Reuters data. The real estate sector took the lead and accounted for 40.3 percent of the market share worth US$9.1 billion, up 64.1 percent in terms of deal value from the first half of 2016. This is the highest first-half period for the sector since 2014 (US$17.7 billion), driven by two of the biggest Singapore deals to-date involving real estate players.

Mapletree Investments, a unit of Fullerton Management, acquired a student housing portfolio of Kayne Anderson Capital Advisors LP, a U.S.-based open-end investment fund ultimately owned by Kayne Anderson Rudnick, for an estimated US$1.6 billion in cash – the largest deal with Singaporean involvement so far this year. Separately, Mercatus Co-operative, owned by the state-owned National Trades Union Congress (NTUC), agreed to acquire Jurong Point Shopping Centre, for US$1.57 billion.

Amid the interest in real estate M&A, Equity Capital Markets (ECM) issuance from the sector accounted for majority of the nation’s ECM activity for the first six months of the year with a 60.4 percent market share and generated proceeds worth US$633.2 million, based on Thomson Reuters’ ECM Preliminary Review for January to June.

Office and residential favourites
“We are beginning to see a recovery in the Singapore office and residential markets,” says Greg Hyland, Head of JLL’s Capital Markets team in Singapore. “In the office markets, rents have bottomed and new supply is being taken up at a faster pace than expected. This is translating into the investment market where buyers are increasingly positive about the medium-term outlook and the relative value of Singapore compared to other developed markets.”

Singaporean government data shows that, although month-on-month sales of new private homes were down 12.6 percent in April, there was a huge year-on-year increase of 107.3 percent.

“Not too dissimilar to the office market, the residential market on a relative basis to other major Asian markets now represents fantastic value when you compare housing affordability statistics,” says Hyland.

Developers have been aggressively bidding for land in the Lion City to replenish land banks, following the recent rebound in residential sales volume and recovering office market sentiment.

Earlier this year, a record-winning bid of S$1 billion for a land parcel in Stirling Road was made by China’s Nanshan Group and Logan Property. Another Chinese developer led by Fantasia Investment Singapore — a unit of Hong Kong-listed Chinese developer Fantasia Holdings – submitted the highest bid of S$75.8 million for a new site released by the government.

“While the recent fall in prices presents a great opportunity for investors to acquire assets, the downturn coupled with the mature nature of Singapore’s real estate market has led some to seek opportunities overseas,” explains Hyland.

From an M&A point of view, the real estate industry is the most targeted sector capturing 54 percent of Singapore’s outbound M&A activity, with US$4.3 billion worth of deals, based on the Thomson Reuters report. Although real estate investments dominated deal flow, overall Singapore’s outbound M&A, including other industries, totalled US$8.0 billion so far this year, down 9.7 percent in deal value terms, compared to the first half of 2016.

Activity was driven by Mapletree Investments’ acquisition of the U.S. student housing portfolio, according to the Thomson Reuters report, and CapitaLand Mall Asia’s acquisition of a Japanese portfolio for around 51 billion yen (US$458.7 million).

“Traditional Singaporean investors with existing overseas investments are expanding their footprints,” says Hyland. Worldwide, alternative real estate assets such as data centres and student housing are increasingly attracting Asian investors looking to increase yield on invested capital, he adds

Globally, equity funds and investment managers have tripled their investment in alternative real estate assets including student housing in the last five years, and many are seeking greater access following better-than-expected returns from their overall real estate portfolios, based on JLL data.

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Greg Hyland

Head of Capital Markets, JLL Singapore

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