Experts tout SG’s strata commercial spaces an ideal investment choice

Apart from delivering significant returns, this property type is not affected by the recent ABSD hike.

Foreign investors who might have taken a step back from investing in prime residential properties in Singapore due to the recent hike in Additional Buyer’s Stamp Duty (ABSD) rates should look into strata commercial spaces instead.

According to Tang Wei Leng, managing director and head of Capital Markets & Investment Services at Colliers Singapore, strata commercial spaces, particularly those located in the Central Business District, is an “ideal investment choice.”

“The control in future approvals for new strata subdivision ensures that the supply of such commercial spaces remains limited, which can potentially drive up rental yields and capital appreciation,” Tang told the Singapore Business Review.

“Foreign investors can capitalise on Singapore's pro-business environment and welcoming stance towards foreign investment. Our stable political climate and robust legal framework instil confidence, providing a secure and transparent environment for international investors,” Tang added.

Tang, however, underscored that strata commercial spaces aren’t only a good investment for foreigners but also locals.

“Investing in strata CBD commercial space in Singapore offers local investors the opportunity to leverage their knowledge of the domestic market, and benefit from the continued growth of Singapore's business landscape,” said Tang.

“Moreover, such investments would allow them to actively participate in the flourishing business landscape of Singapore and contribute to the country’s economic growth,” she added.

Nicholas Keong, head of Residential and Private Office at Knight Frank Singapore, shared a similar sentiment saying both locals and foreigners can explore investment possibilities in the commercial shophouse and strata office segments given that they are not affected by the recent increases in ABSD rates.

“These assets are limited in the island state of Singapore, and over time consistently deliver significant returns should investors be able to adopt a longer-term investment horizon,” Keong said.

“Commercial shophouses and quality strata office space in Singapore, whether in the CBD or in suburban locations, typically provide capital preservation and appreciation for buyers,” Keong added.

Apart from strata commercial spaces, Keong said local Singaporeans can also target private landed homes as an investment.

“These are also in limited supply, comprising just 5% of all housing stock on the island. So long as there is steady continued increasing affluence in Singapore, demand for landed homes will remain supported vis-a-vis the limited inventory that would not increase by very much in future,” Keong said.

Singapore retains its investor appeal

Despite Singapore’s skyrocketing real estate prices, Leonard Tay, head of Research at Knight Frank Singapore, believes it will remain attractive to investors since it offers  international firms “a flight-to-safety and flight-to-quality destination for investment and expansion that will facilitate growth when stability returns to the global economy.”

“In a time of global economic and political uncertainty, institutional investment and private wealth are drawn towards destinations of stability and are willing to pay a premium for security in an uncertain world,” Tay said.

Colliers Singapore’s Tang believes the same, adding that the Lion City can continue to attract foreign investors despite its high prices through three strategies.

The first of these would be offering long-term investment opportunities. Tang said Singapore’s commitment to long-term planning and ambitious master projects like the Jurong Lake District (JLD) create “alluring investment prospects for both local and foreign investors.”

“The JLD, a significant urban redevelopment endeavour, showcases Singapore’s dedication to sustainable growth, making it an attractive destination for foreign capital seeking stable returns over the long run. Additionally, with the government’s emphasis on continuous land releases through the Government Land Sales (GLS) program, there are abundant opportunities for investors to participate in the country’s progressive development journey,” she added.

The Colliers expert said that the government must stay committed to addressing the root cause of supply-demand imbalances in the local property market.

“By implementing flexible policies that respond to changing economic circumstances, Singapore can sustain its allure to foreign investors even amidst rising property prices,” she said.

Amongst cooling measures that Singapore has implemented to control rising prices in the market include the ABSD rate hike.

According to Tang and Tay, the rate hike will likely affect collective sales in Singapore.

“Sellers who are foreigners are now unlikely to be supportive of any en bloc initiatives, as their replacement cost would have increased drastically. As such, collective sales launches might also taper off in the coming months,” Tay said.

Providing incentives and initiatives, however, can alleviate the impact of the cooling measures on the collective sales market and even promote a healthy property market, said Tang.

“They may introduce incentives and initiatives to facilitate the rejuvenation of older developments through collective sales. Such initiatives [can] entice both local and foreign investors to actively engage in redevelopment opportunities,” she said.

“Overall, Singapore’s continued commitment to economic growth, stability, and innovation will play a crucial role in retaining its appeal as an attractive investment destination for both local and foreign investors,” Tang added.

READ PART I HERE: Diversification to shape real estate investments in 2024