SINGAPORE is a wealthy country with an abundance of investment capital and a limited domestic investment universe. As a result, Singapore-based investors are one of the most active sources of outbound capital globally, targeting the world’s most liquid real estate markets.
Since the end of the Global Financial Crisis (GFC) in 2008, Singaporean investors have exported S$154.4 billion, according to data compiled by Real Capital Analytics (RCA). Although activity has slowed more recently, Singapore ranks as the fourth most active cross-border property investor globally over this period.
US buyers are the most active, investing US$305.2 billion of capital internationally, followed by Hong Kong (US$213.5 billion) and Canada (US$146.6 billion). This is remarkably strong activity for the island-nation, given the size of its economy and population.
Singapore’s key outbound players can be split into three dominant groups: sovereign-linked entities, developers, and high net worth individuals/family offices.
The first, large and sophisticated, group has been active in global real estate for years, in some cases for decades, and have gradually increased their investment quantum.
Sovereign wealth fund GIC is often behind Singapore’s largest real estate transactions abroad. For instance, a joint venture between GIC and Global Logistics Properties (GLP) purchased Blackstone’s mixed and industrial Indcor portfolio of close to 600 properties across the US for US$8.1 billion in 2015.
For both GIC and GLP, this cross-border transaction is the largest on their books to date. More recently in August this year, GIC purchased a partial interest in a portfolio of 178 properties of Yes! Communities in the US, for about US$2 billion.
The second group of investors – Singapore-based developers – traditionally have been active across the Asia-Pacific region. CapitaLand alone, for instance, ranks as the fifth most active Singapore investor abroad since 2009, investing S$7.4 billion in that time, as recorded by RCA. Previously, China was a major focus for these developers, but that has now broadened to also include Australia, Japan and even some frontier markets across South-east Asia.
Finally, as real estate prices in Singapore, both residential and commercial, rose significantly following the global financial crisis, high net worth individuals and private offices became more active in major gateway markets around the world looking for fairly priced assets. They are focused predominantly on residential investments.
Historically, the destination of choice has been the Chinese real estate market, which has attracted 24 per cent (or S$35.5 billion) of all cross-border investments from Singapore since 2009.
Other popular targets include the US, Australia, UK and Japan, as they are markets with sound fundamentals and ample investment opportunities. For cities, London has been and remains the most sought-after market by Singaporean investors, with 17 per cent of all cross-border investments from Singapore placed there so far this year.
Generally speaking, the most popular property type is office buildings, with S$3.2 billion invested since the start of this year alone. Of note was Mapletree’s purchase of a UK office asset, Green Park, from Canadian pension fund OMERS for £557.7 million (S$964 million). Industrial assets have been also very popular, driven by a few exceptionally large portfolio deals in Japan, Australia, and the US.
While Singapore’s overseas investment in real estate has grown dramatically through the last cycle post-GFC, the inflow of foreign capital into Singapore real estate remained marginal in comparison, at S$30.7 billion so far within the cycle.
The volume of investment activity in Singapore – by both foreign and domestic players – has slowed in recent years as the market works its way through a supply glut across nearly all property types.
Nevertheless, there have been a few exceptional landmark transactions made by foreign entities including Qatar Investment Authority’s recent purchase of Asia Square Tower 1 for S$3.4 billion from BlackRock, and in 2015 when Abu Dhabi’s sovereign wealth fund ADIA and Australian developer Lendlease formed a joint venture to acquire a development site at Paya Lebar for S$1.7 billion.
Notwithstanding these transactions, Hong Kong and Chinese investors remained the largest source of foreign capital into Singaporean property, accounting for S$1.1 billion of investments in the last 12 months. While some of this was invested in existing properties, purchasing a development site is the preferred route for them to access real estate in Singapore.
Going forward, the pattern of strong capital exports from Singapore should continue. The long-term driver pushing Singapore capital abroad – a surplus of savings both in the private and public sectors – should remain for years to come.
Singapore investors will continue to be drawn to offshore real estate opportunities that offer stable fundamentals, regulatory support, and market transparency.
Ultimately, the scale of activity will cool if interest rates in the US continue to rise since this will affect both relative pricing and lending costs at home. Moreover, an ageing population and the consequent need for domestic investment will reduce the capital available for outbound investment, but not in the next few years.
By Petra Blazkova – senior director of Asia-Pacific analytics at Real Capital Analytics