Industrial vacancy rates spook sellers
By Feily Sofian,
Esther Hoon
/ The Edge Property |
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Faced with manufacturing gloom and rising vacancy rates, industrial property owners have been eager to offload their units. Amid waning confidence, more sellers could be opting to let go of their industrial properties even if they have to incur losses or seller’s stamp duty. Sellers must pay 15%, 10% and 5% SSD if they sell their properties within one, two and three years, respectively, of purchase. The rule applies to industrial properties bought on or after Jan 12, 2013.
By matching the sales caveats of industrial units with the caveats of their previous transactions, we found that 11 transactions in 4Q2015 were levied with SSD. In comparison, there were only three to four such transactions each quarter in the first three quarters of 2015. The numbers could be understated, as many industrial transactions were not captured in the caveat record.
For the 11 transactions, the highest SSD paid amounted to $290,000. It accrued to a ground-floor unit at The Splendour, a 60-year leasehold factory on Bukit Batok Crescent. Based on caveats published by URA and the Singapore Institute of Surveyors and Valuers, the seller purchased the unit in April 2014 at $2.69 million and sold it in December 2015 for $2.90 million ($335 psf).
The transaction, which resulted in a loss of $78,000 for the seller, would have been profitable if not for the 10% SSD payable. The profit-and-loss computation did not take into account other costs that the seller might have incurred such as the regular stamp duty and service charge. A land register search indicates that the unit is currently owner-occupied by the buyer - an Indian grocery store. The seller was stated as HB Glass & Aluminium Pte Ltd.
Based on caveat record, the Seller's Stamp Duty amounted to $290,000 for this unit at The Splendour. Of the five properties we visited, it was the only one that was occupied - by the buyer himself.
In the first two months of 2016, there were already three transactions saddled with SSD. This was based on caveats downloaded on March 8; there could be more caveats for February that will stream in over the next couple of weeks. The highest SSD this year, amounting to $73,200, accrued to a fourth-floor unit at 15 Woodlands Loop — a 30-year leasehold food factory. The transaction resulted in a $65,200 loss for the seller, who purchased the unit at $480,000 last April and resold it at $488,000 ($157 psf) in January this year. The unit is currently vacant. It was previously occupied by a vegetarian food catering company, which relocated to Food Xchange @ Admiralty at the end of last year.
Sold with an SSD of $73,200, the 15 Woodlands Loop unit was previously occupied by a catering company which relocated to Food Xchange @ Admiralty.
Total sales volume has thinned in recent years as the total debt servicing ratio, rising interest rates and high vacancy rates dampened buying sentiment. However, the number of unprofitable transactions for industrial properties continued to hover between 10 and 20 each quarter in 2014 and 2015. As a result, the percentage of unprofitable transactions in 4Q2015 and the first two months of 2016 breached 10% for the first time since 1Q2011.
The biggest loss in terms of absolute quantum in this period accrued to a second-floor unit at Joo Seng Warehouse, a freehold development on Upper Aljunied Link. No SSD was payable for the transaction. The seller bought the property in May 1996 for $1.65 million and sold it in January this year for $1.26 million ($614 psf), resulting in a loss of about $388,000. On the other hand, the seller would also have enjoyed rental income for nearly 20 years. The unit seems to be vacant, with no signboard seen outside. The previous tenant is said to be a beer trading company that has since relocated to Tat Ann Building on Jalan Pemimpin.
No signboard is seen outside the unit at Joo Seng Warehouse. The seller incurred losses of about $388,000 while the previous tenant relocated to Tat Ann Building on Jalan Pemimpin
The next highest loss was traced to a ground floor unit at Block 53 Paya Ubi Industrial Park — a 60-year leasehold factory. The seller purchased the unit in March 2013 at $1.66 million and sold it in January this year for $1.36 million ($272 psf). This resulted in a loss of about $373,000 after a 5% SSD. This unit seems vacant too, with the shutter down during office hours.
A vacant unit at Paya Ubi Industrial Park was also sold at a hefty loss.
Occupying the third spot was a third-floor unit at KB Industrial Building — a 60-year leasehold factory on Kaki Bukit Road 1. The seller could have incurred a loss of more than $200,000, having purchased the unit at $1.76 million in December 1996 and sold it in October 2015 at $1.53 million ($337 psf). Once again, the property seems to have been sold with vacant possession. The previous tenant is understood to be an electronics firm that recently downsized and relocated to Brightway Building on Lorong Bakar Batu. Given that the unit has been held for a long period, the seller would also have enjoyed substantial rental income in the past but pessimistic about the future prospect of the property.
This unit at KB Industrial Building was sold at a loss in excess of $200,000. The previous tenant recently downsized and relocated to Brightway Building on Lorong Bakar Batu
The islandwide vacancy rate for multiple-user factories was just shy of 13%, or 14.2 million sq ft, in 4Q2015, according to the latest statistics by URA. Warehouses performed better, with a vacancy rate of 8.6%, or 8.2 million sq ft. Meanwhile, the Purchasing Managers’ Index, the barometer for manufacturing activity, stood at 48.5 in February, reflecting the eighth month of contraction. It was also the lowest level seen since December 2012.
This article appeared in The Edge Property Pullout, Issue 720 (March 21, 2016) of The Edge Singapore.
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