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IPO market in doldrums as companies go cautious amidst global slowdown
FINANCIAL INSIGHT: IPO IPO market in doldrums as companies go cautious amidst global slowdown
Not even the debut of SPACs in the SGX can save 2022.
Many listed entities are also looking at the bond market as a source of funds compared to equity markets
Singapore’s initial public offering (IPO) market may likely see no improvement in the last six months of 2022. The Lion City is riding the same bleak wave as the rest of the world, and the expected slowdown of economic growth will further put a damper on companies’ interest to go public, analysts told Singapore Business Review.
“Economic uncertainty that has been brought about by higher interest rates, inflation combined with the forecast of recession, have dampened sentiments resulting in a more cautious investment appetite,” Stephen Bates, Partner and Head of Transaction Services, Deal Advisory, KPMG in Singapore, told Singapore Business Review.
Bates noted that the slowdown in particular reflected geopolitical tensions, the corresponding inflation in food and energy costs, and subsequent increases in interest rates in the US and other markets. “Special purpose acquisition companies (SPAC) IPOs have also weakened given the depressed equity markets and rapid decline in prices for more recently listed entities,” he noted.
Improving, but slowing
On the hopeful side, Singapore’s IPO market improved compared to the height of the pandemic, recording a total of 12 IPOs over the past 18 months. Six of these IPOs were in the first quarter of this year, with the second quarter recording another four IPOs–a strong improvement compared to just two for the whole of 2021, and just one more IPO shy of the 11 IPOs that took place in 2019, before the pandemic hit, according to Ernst & Young LLP.
This was thanks to locallyheadquartered companies going public. Nine out of the 12 companies who made public debuts in the past 18 months call the Lion City home, according to Christopher Wong, Singapore Head of Assurance, Ernst & Young LLP.
“The SGX has been an attractive bourse of choice for both domestic and foreign trusts and this momentum is expected to continue however could be slowed due to prevailing economic headwinds,” Wong said.
Wong expects a “slight decline” in listings in the last six months of the year as global woes bare its claws against the economy with Singapore likely to be affected as well.
Instead of listings, companies may opt to look at other markets to raise money–the bond market especially receiving interest, even from already listed companies.
“There are many options and alternatives [such as] private capital, alternative listing venues and there is never a one size fits all in one’s bid to raise funds for growth and success,” Wong said. “Many listed entities are also looking at the bond market as a source of funds compared to equity markets. However, this may be challenging given rising interest rates.”
Singapore’s bond issuances fell 62% to only US$4b in the first half (H1), compared to US$10.5b in H1 of 2021, according to data from EY.
SPACs to the rescue?
One feature that notably characterised the 2021 IPO market was the introduction of SPACs by authorities in Singapore. In simpler terms, an SPAC is a “blank check” company that raises capital through an IPO for the purpose of acquiring an existing operating company, according to PwC.
The Singapore Stock Exchange (SGX) began listing them in September 2021, a move that catalyses Singapore’s IPO market moving forward, according to Bates. Three SPACs successfully listed on the SGX during the first half of 2022: Vertex Tech SPAC, Pegasus Asia SPAC, and Novo Tellus SPAC. They each successfully raised $208.03, $170m, and $150m, respectively.
All three SPACs are characterised
Economic uncertainty has dampened sentiments resulting in a more cautious investment appetite
by their intention to invest in technological companies. Indeed, the technology sector continues to outperform in the global IPO market.
“Private Equity (PE) and Venture Capital (VC) firms are now refocusing their 2022 investments towards technology that will fuel industry transformation over the next ten years and beyond. Fintech in the domains of climate change, supply chain, financial and crypto market infrastructure, artificial intelligence and agritech are attracting high interest,” Bates said, adding that EY expects SPACs to position the wider Southeast Asian region as one of the largest deal markets in APAC.
The full positive net effect of SPACs in the IPO market of Singapore and the wider Southeast Asian region, however, is not expected until 2023.
Tech and energy outperform
Globally, listings from tech firms continue to prop up the IPO market. In the first six months of the year, there was reportedly a total of 120 IPOs from the sector, although the average deal size came down from US$293m to US$137m, according to data from the EY Global IPO trends Q2 report.
In terms of proceeds, the global energy sector has overtaken the lead with the average deal size of proceeds increasing from US$191m to US$680m.
EY expects that a greater focus on renewable sources of energy in the face of increasing oil prices will help the sector continue to lead by proceeds from bigger deals.
“Further, environment, social, and governance (ESG) will continue to be a sector-agnostic key theme for investors and IPO candidates. As global climate change and energy supply constraints intensify, companies that have embedded ESG into their core business values and operations should attract more investors and higher valuation,” Bates said.
“ESG adoption, net zero investments, and impact investments are on the rise, fuelled by crossindustry demand and a desire to make an impact. As the momentum for these investment channels continues to gain steam, investors are refining and evolving their strategies,” Bates noted, adding that the recent Point Zero Forum is a good yardstick for the fintech space–indicating future investment into digital assets, as well as sustainable and embedded finance.
Wong echoed this sentiment. “In the next 12 months, high growth companies in the technology, energy, health care and industrial sectors should still very much be the mainstay of companies seeking to go public and raise capital,” he said.
The opposite story for REITs are notedly Singapore’s “most significant type of listing” representing 12% of Singapore’s overall stocks, generating an average dividend yield of 6.4%— amongst the highest in the region.
However, analysts do not expect any new REITs to list, with the sector moving towards consolidation instead.
“Amidst the challenging global real estate market, the S-REIT sector has instead seen six successful consolidations since 2018 with one more merger–between Mapletree Commercial Trust and Mapletree North Asia Commercial Trust–currently ongoing with the respective unit holders’ approvals obtained in May 2022, as S-REITs seek economies of scale and competitiveness,” Bates said.
He added that given the current economic climate, any new REITs listed would likely be at a discount due to more favourable economic conditions. “We do not expect to have any significant REITs listed in the second half of 2022,” he added.
Wong also noted that the lacklustre appetite from REITs is just endemic to the downtrend felt across the global IPO ecosystem.
“That said, should such subdued sentiments continue on a prolonged basis, the market may start to lose depth. Hence, it is important that the SGX continues to be attractive to companies with IPO aspirations,” Wong said.
In the end, investor sentiment will depend on the state of the economy through 2023. “A robust economic environment will engender more IPOs as corporates address more opportunities for growth and expansion. Financial performance and track records should be healthier and this makes for a more compelling story for investors and stakeholders,” he said.
Companies that have embedded ESG into their core business values and operations should attract more investors and higher valuation A robust economic environment will engender more IPOs
Stephen Bates
Christopher Wong
ESG will continue to be a sector-agnostic key theme for investors and IPO candidates
PROPERTY REPORT Cooling measures steer investments away from homes
After the imposition of a higher additional buyer’s stamp duty, residential property investment sales declined to 33.4%.
When Singapore implemented a new round of cooling measures in large residential sites. “With this in mind, small to medium sites with a palatable December 2021, analysts observed that increasing home prices have indeed been moderated. The downside, at least to the residential real estate market, is that it has driven investments out and towards commercial properties.
Just one quarter (Q1 2022) after imposing a higher additional buyer’s stamp duty (ABSD) on residential properties, the investment sales value of the residential sector declined by 9.1% to S$3.11b. This was opposed to the 165.9% quarter-on-quarter growth to S$5.81b in commercial real estate.
Over the same period, the share of residential properties in the total investment sales value dropped to 33.4% from 47.6% in the previous quarter. In contrast, commercial real estate investment accounted for 62.4%, a “significant” increase from 30.4%.
In Q1, investment activity grew by 34.4% QoQ to S$10.6b, largely led by commercial sales, Colliers data showed. Cushman & Wakefield also recorded “significant” Q1 growth in commercial investment sales of 19% QoQ. This was followed by notable deals, such as the acquisition of 79 Robinson Road for $1.3b, Golden mile Complex for $700m, and Twenty Anson for $599m, in the second quarter.
“Investor demand spilled over into the commercial sector. Amidst headwinds from rising interest rates and geopolitical tensions, Singapore continued to attract capital from private funds and family offices pursuing assets in prime locations,” Colliers said in a report.
Stricter criteria
Cushman & Wakefield Head of Research Singapore WongXian Yang said the cooling measures have particularly led to stricter selection criteria that have increased development risk for quantum are more likely to be transacted in the current market,” Yang told Singapore Business Review. Regina Lim, Head of Strategic Advisory, Capital Markets, JLL Asia Pacific, said the added restrictions on future strata-subdivision of selected commercial properties in central business districts and the Central Area intensified the appeal of the now-limited stock of stratatitled office units. JLL Asia Pacific estimated that real estate capital market deals in the first quarter of the year climbed by 134% year-on-year to S$7.8b, which is also double the quarterly average recorded between 2018 and 2019.
Investors’ ‘safe haven’
Amidst this growth, Singapore could still suffer from geopolitical uncertainties that disrupted the global supply chains and increased inflation and interest rates, Lim said. Whilst Singapore has yet to see its impact on demand for real estate assets, the high-interest rates will likely impact investors’ required rates of return, slow investments, and
moderate asset price inflation. Despite this, JLL Asia Pacific remained optimistic as it observed Singapore is attracting more investors that are diverting their gaze from the usual markets, such as Japan, Australia, and China. “Institutional investors continue to seek to deploy capital into Asia as they are attracted by high urbanisation rates, rising incomes, and strong economic growth,” JLL Asia Pacific’s Lim said. In recent months, the Singapore real estate industry saw the acquisition of office assets by Nuveen, PAG, JPM Asset Management, and KKR. Wong Xian Yang “We believe this is because the Singapore office market is at an inflection point given structural changes in Singapore’s global positioning, the office rental trajectory, and opportunities for asset revitalisation,” she said. JLL Asia Pacific projected transaction volumes in 2022 will Regina Lim recover and return to their prepandemic level, translating to a 20-25% year-on-year growth; whilst a “moderate growth” in investments is expected in 2023. Similarly, Yang expects the current economic climate to put some weight on investors’ activity but sees Singapore will continue to be competitive. “Whilst investors are still looking Investor to deploy capital, they are exhibiting demand spilled more caution and looking at core over into the assets which can generate a stable commercial income, such as Singapore CBD sector offices or prime logistics,” he said.
The cooling measures drove residential property investments out towards commercial property
Hotels saw a “very strong growth” coming on the back of pent-up demand
Office and hospitality markets kickstart journey to recovery
Property experts said the shift of consumption from goods to services has given the two markets a lift in 2022.
Over the last two years, the office and hospitality markets were severely impacted, but thanks to a shift of consumption from goods to services, these two sectors were finally able to turn the corner and kick start their journey to recovery.
“As Singapore’s economy and borders started to open and return to pre-pandemic normalcy, real estate sectors such as offices and hospitality that served the service industries saw higher investment demand and growth,” Wong Xian Yang, Head of Research of Cushman & Wakefield (C&W) Singapore, told Singapore Business Review in an exclusive interview.
Based on data from C&W, commercial investment volume surged to $7.2b in the second quarter (Q2), more than 2.5 times than the first quarter (Q1) 2022 figure. Meanwhile, data from JLL showed that as early as March 2022, investment volume in the mid-market hotel segment had already surpassed half of its full-year record in 2021, transacting a total of $103m.
Wong said investors grew more confident and invested large sums of money into offices as more people returned back to the office and with the belief that the role of offices may change.
The property expert added that the office market had already achieved its “new normal” considering the prevalence of hybrid work. Wong said occupancy in the market stands at around 50% to 60%, quite close to the pre-COVID normal of 60% to 70%.
Knight Frank’s Head of Research, Leonard Tay, echoed this saying the office sector has seen “incremental recovery” this year.
“Now that everyone’s allowed back into the office without restrictions, office users have revisited their earlier decision to reduce office space. In the current market, the challenge is to make the in-person office space more compelling such that the office will be a more conducive work location compared to the home,” Tay told Singapore Business Review.
End of the dark tunnel for the hospitality sector
Like the office market, the hospitality segment also won big from Singapore’s reopening. For the month of June, Wong said hotels saw a “very strong growth” coming on the back of pent-up demand.
Data from the Singapore Tourism Analytics Network showed that in June, Singapore hotels’ average room rate was at $238.32, up 63.1% year-onyear (YoY). In the same month, the average occupancy rate of hotels also jumped 22.6% YoY to 76.92%.
The hospitality market, however, is still playing catch up, according to Tay, given that borders just recently opened in April.
“It is challenging for them because they were in survival mode for the last two years. It takes new resources time to bring operational levels back to pre-pandemic occupancy levels, but at least they will have come to the end of a very dark tunnel now that travel is allowed,” Tay said.
Wong added that the sector remains under pressure since Chinese tourists are a significant source of tourism for Singapore, and China is still under strict quarantine measures.
“From April to December 2022, the segment’s recovery will be from a very low base, but 2023 should be the year of the beginnings of normalisation,” said Tay.
Industrial sector takes the lead in recovery race
Whilst the office and hospitality markets are still in the beginning stages of their revival, the industrial sector is well on its way to the finish line of the race to recovery.
According to Tay, 2022 was the year where the industrial market recovered without serious disruptions, adding that real estate indicators remained relatively steady throughout the first half of the year, increasing incrementally to the tune of about 1% to 2% each quarter.
In Q2, Tay said the market was supported by “output expansions in
2023 should be the year of the beginnings of normalisation
electronics and precision engineering,” and was fueled by “continued demand for semiconductors and semiconductor equipment.”
“We also saw certain recordbreaking levels of foreign asset investment in manufacturing in the last few years, notwithstanding the pandemic. Investment in terms of developing new facilities, especially high value-added facilities,” Knight Frank’s Tay added.
C&W’s Wong said the industrial market is even “stronger than it was pre-COVID [and is] beyond the road to recovery,” mainly due to prevailing market trends such as e-commerce, increased focus on life sciences, and digitalisation.
Whilst the sector has “taken a step back” in terms of investments, Wong said it was only because of its very limited supply and lower pricing. Based on Colliers data, industrial sales declined 29.0% quarter-onquarter to $239m in Q2.
On the flip side, Tay said the market will likely stay on a steady recovery course, with prices and rents set to improve by about 3% to 5% for the whole of 2022.
Residential faces new hurdle
Like the industrial market, the residential market is also a frontrunner in the recovery race; however, Wong said the segment is currently facing a hurdle: a shrinking saleable inventory.
“In the private residential market, the greatest challenge probably is putting new replacement stock or new product onto the market at a time when there is healthy buyer demand. Travel has also opened up, meaning there’s a promise of added demand from foreign homebuyers,” Tay said.
Based on data from Savills, the stock of unsold units hit a 16-year low of 14,087 by end of Q1 2022.
Tay said the stock likely dropped because developers did not acquire the typical levels of land supply during the pandemic years.
With dwindling stock, Tay foresees that the volume of transitions in the private residential home market will be “comparatively less than 2021.”
“This is not because of the lack of buyers, but because of the lack of new product or saleable stock. Sellers are also more reluctant to part with their homes unless they have secured a replacement home,” Tay added.
In 2023, Tay said the market will likely perform the same, but warned that rising interest rates and inflation might dampen “some buyer demand” in the market.
With rising interest rates, C&W’s Wong said demand may shift to the suburban market or city fringe market where prices are cheaper.
“Nevertheless, fundamental homebuyer demand for owneroccupied homes remains strong because housing aspirations that have built up through the last 10 to 20 years of growing affluence should continue to supply the market with buyers,” Tay said.
Inflation to stall retail’s progress
Unlike the residential market, the retail segment will be much affected by the worsening global inflation.
According to Wong, the growth of retail rents might slow down this year as many retailers face “challenging operating conditions” like inflationary pressures, manpower constraints, and supply chain disruptions.
“The retail operating scene remains to be quite challenging because they face high operating costs,” Wong said.
On the flip side, Wong and Tay said Singapore’s reopening relaxation of measures has pushed the segment forward this year.
“The retail sector turned the corner, particularly from April 2022 this year. Since the removal of safe management measures in a compelling fashion, especially in the second quarter of the year, shopping and dining activity has returned to the market, bringing really long awaited relief to the retail sector,” Knight Frank’s Tay said.
Tay added that with borders reopening, the sector has been given a “promise of broad-based recovery” after several false starts in 2021.
“The opening of borders has also allowed big mega events such as the Singapore Grand Prix. Bearing this in mind and the projection that the retail market will grow in the remaining months of the year, prime retail rents should grow by about a moderate 2% to 4% for the entire year,” Tay said.
Come 2023, Tay said the market will likely reach some level of normalisation, alongside the hospitality market.
2023: A year of uncertainties
After a year of holistic r ecovery, Wong and Tay said it is still uncertain how the market will perform in 2023, especially with recession fears looming across multiple markets.
“2023 will be the year of caution for the real estate market,” added Wong.
Wong and Tay, however, said that if and when recession actually happens, Singapore’s real estate market will be cushioned from its impact.
“Singapore can benefit from a ‘flight to safety’ response. Investors like Singapore because of its stability in terms of political, regulatory, and pro-business environment, so I believe investments will continue, and this will support the overall property market in Singapore,” said Wong.
Tay echoed this, adding that Singapore is a stable location which can offer refuge for investors around the globe.
“Singapore is a safe haven, because as a destination for corporate offices, it is more stable in comparison to other spots in the world that might be affected by political and economic tensions,” he added.
Investors like Singapore because of its stability in terms of political, regulatory, and pro-business environment
Wong Xian Yang
Leonard Tay
Now, the challenge is to make the in-person office space a more conducive work location compared to home
REAL ESTATE Where to invest one million dollars in real estate
Amongst locations, realtors suggest the Core Central Region.
Amillion dollars may not buy you much, but if you are planning to invest in residential real estate, consider these three things: the property must be near prestigious schools, it must be located within the Core Central Region, and look into the mass market.
George Tan, Managing Director of Savills Digital Residential Marketing, said one important factor is location.
Tan said buyers must consider areas that are well-demanded and have easy access to schools, MRT, malls, food and beverage (F&B) establishments, and places of recreation.
PropNex realtor, Andy Lim, echoed this, adding that buyers should particularly invest in properties within one kilometre of the prestigious schools.
In the residential market, Tan advised high-net-worth potential buyers to look at Districts 1, 2, 4, 6, 7, 9, 10, and 11, given that properties in these strategic areas have good rental demand.
Good developments in these areas include Perfect Ten, Hyll on Holland, Leedon Green, Bishopsgate Residences, 3 Orchard by the Park, and Klimt Cairnhill.
Lorraine Toh, Associate Director for Residential Services at Savills, also said District 10 will be a good place for investment since “large units are located within the prince central districts,” Toh said.
“This would present a timely opportunity for the well-heeled investor, international and local alike, to act upon such trophy properties when they become available for sale,” Toh added.
Andy Lim
Lorraine Toh
Singaporeans typically prefer homes that can give them the security of a price appreciation after 5-10 years
“Generally, it depends on your budget. But the rule of thumb is that the higher the asset class, the better the profit,” Tan said.
“CCR homes will potentially increase from the current level of $2,801 psf to $3,400 psf,” added Tan.
As for specific properties in the CCR, Loh suggested Hyll on Holland and Leedon Green.
It will also be worth it for buyers to look at new launches in the RCR like The Landmark, said Loh.
Studying the Urban Redevelopment Authority’s Master Plan can also help buyers select which area they should invest in, said SRI realtor Jaslin Khoo.
Momentum in the mass market
For buyers with slightly over a million dollars, OrangeTee & Tie realtor, Christopher Ng, said they should invest in the mass market or the “private residential homes that are mainly catered for the average households or HDB upgraders.”
“Singaporeans typically prefer homes that are comfortable to stay in and can also give them the security of a price appreciation after five to ten years,” Ng added.
With the opening of the North-South Corridor, Canberra, Sembawang, and Woodlands are promising areas to consider.
Decent-sized real estate properties in these mature locations are available at less than $1.2m.
“With recent launches becoming more expensive, resale properties are becoming attractive property options, too. It won’t be surprising to see a higher appreciation in resale prices, in time to come,” he added.
Other property types
Looking at property type, OrangeTee & Tie realtor, Jane Tan said developments with en-bloc potential are a favourable investment given the “potential monetary rewards that come with en-bloc sales.”
For commercial investment properties, Tan said “freehold buildings with a land component can be a worthy investment as such assets have historically performed well in terms of capital appreciation.”
PropNex realtor, Athalia Soon shared the sentiment, saying that buyers should look for “undervalue freehold properties in the core central region,” given the latest cooling measures and the rising interest rates.
Another commercial property that realtors consider a good investment would be shophouses since they present an “opportunity to hedge against inflation and the volatility in the equity market and other asset classes,” said Yap Hui Yee, Senior Director of Savills’ Investment Sales and Capital Markets team.
OCR vs CCR vs RCR
In terms of major sub-markets, Huttons realtors Oliver Tan and Brandon Loh suggested that buyers look into real estate projects in the Core Central Region (CCR) given that the gap between the Outside Central Region (OCR), the Rest of the Central Region (RCR), and CCR is narrowing.
With recent launches becoming more expensive, resale properties are becoming attractive property options (Photo: 52 Boat Quay)
REAL ESTATE OUTLOOK How realtors are dealing with the current market landscape
An expert from Savills said the market has become increasingly international in its outlook.
Realtors advise clients to “buy based on budget and needs” instead of timing the market
Apart from client demands, realtors in Singapore also had to deal with changes in the real estate industry, which include the market being more driven by global challenges like inflation, rising interest rates, and the pandemic.
To keep up with the new realities, ERA Realty’s Division Director, Jazreel Lim said she had to change her mindset and the way she approached her clients.
Lim said she went back to “being a new agent” and worked to further expand her sphere of influence when she had difficulty selling in the first quarter of the year due to an all-time low inventory.
“In any market, referrals are usually the best source of leads…Simply put, if the fishes aren’t biting, I have to go where they are,” she told Singapore Business Review.
According to Lim, she was only able to transact at least four homes in Q121, but in Q222, she had zero. In the same period, only 1,825 new private homes were sold in Singapore, a 47.8% decrease from the same period last year.
“I was panicking to see such a stark difference, but I think as real estate agents, we have to always keep cool. We have to understand that we can’t change the market, so what we can do is change our mindset and the
Provide dedicated service with a good oldfashioned personal touch
Jazreel Lim
way we approach our clients,” Lim, the youngest amongst SBR’s most notable real estate agents under 40 for 2022, said.
Making informed decisions
In approaching clients, Lim said it’s important that realtors educate their buyers about the market and its current conditions.
“As long as we are able to educate buyers and help them with their decision making, that will help boost their confidence [into buying properties],” said Lim.
Lim said she educates her buyers by painting them a “proper picture” of what the market looks like, presenting them with charts and figures, and even helping them with proper planning.
Savills Senior Director, Investment Sales & Capital Markets, Yap Hui Yee, echoed the sentiment, adding that understanding what clients truly want and providing bespoke services based on their needs is the secret to success in the real estate industry.
“There isn’t an easy sale in the real estate market. The key to a successful sale is a combination of preparation, planning and understanding the market and your client’s needs and wish list,” Yap, who was recognised as amongst SBR’s most notable real estate agents under 40 for 2022, advised.
For the buyers, Lim advised them to “buy based on budget and needs,” instead of timing the market.
“Inflation, high mortgage rates and record high home prices are chipping away housing affordability...waiting may not be a viable option because there isn’t likely to be any significant improvements in the prices or the interest rates. I believe trying to predict what might happen next year is not the best home buying strategy,” ERA Realty’s Lim added.
Embrace global
Another reality that realtors had to face, according to Yap, was the market becoming increasingly international in its outlook – be it marketing to overseas buyers or acting on behalf of offshore clients.
“Real estate has historically been viewed as a local phenomenon… but with the influx of international capital, it is almost impossible for real estate brokers to live in a vacuum and protect oneself from global influences,” Yap told Singapore Business Review.
This is why, she said, it is important for realtors to “now look beyond local and embrace this new global reality to surf the waves.”
“This is not to say that local is not important – it is, and it always will be – but factors including the solid international reputation, political stability have solidified Singapore as a safe harbour for wealthy international investors to navigate turbulent seas,” Yap added.
Admittedly, she said embracing this new reality and strategising how she could expand her reach globally was a challenge for her – but, thankfully, she had colleagues from different regions, which helped her have a more extensive global clientele. For more on this story, go to https:// sbr.com.sg/