Red Tape Blues – Industrial Properties
By Square Foot Research
The tide has turned after the imposition of tighter regulations and cooling measures on Industrial properties to curb speculative demands. Sales volume for strata-titled industrial properties dipped by 1.9% q-o-q and 58.6% y-o-y to a 5-year low in 2Q14.
Market Trends
Due to the cooling measures rolled out last year to curb the industrial property market, sales volume of strata-titled industrial properties plummets for the fourth consecutive quarter in 2Q14 and third consecutive half-year in 1H14 since the implementation of Seller’s Stamp Duty (SSD) on industrial property and the Total Debt Servicing Ratio (TDSR) on 12 Jan 2013 and 30 Jun 2013, respectively.
The number of caveats lodged for strata-titled industrial properties plunged by 45.1% h-o-h and 52.9% y-o-y in 1H14 to 618 transactions. Total value fell by 52.7% h-o-h and 53.7% y-o-y to $675.7m (Figure 1).
Advertisement
Demand for new industrial property plunged by about 70% h-o-h and q-o-q to just 118 new sales recorded in 1H14, a far cry from its heyday (Figure 2, Table 1).
Transaction volume of industrial property below $1.5m saw a drastic drop by over 48% y-o-y in 2013 as compared to those above $1.5m (Table 2), which may indicate a declining investment interest in this asset class.
Median Price & Rent
Overall, median price of industrial property across all tenures remained relatively stable over the past 8 quarters (Figure 3).
Freehold industrial properties remained resilient against the languid demand, increasing by 6.1% q-o-q in 2Q14. The poor market sentiments, however, has taken its toll on its leasehold counterparts where those of 30 years and lower lease tenure dropped significantly by over 20% (Table 3).
On the other hand, median monthly rent of factories is stable at about $2 psf per month for the 9th quarter since 2Q09.
Median rental yield in 2Q14 stood at around 2-4% for freehold factories and around 4-7% for leasehold properties with tenure above 30 years.
Advertisement
Capital Gains
Taking into consideration the moderation of industrial property prices, the marginal capital appreciation does not justify itself as a good investment for quick monetary gains especially with the imposition of SSD on 12 Jan 2013.
According to caveats lodged, the total number of strata-titled industrial properties bought and sold within a year fell from 170 in 2012 to only 14 in 2013, out of which 3 were not affected by the SSD (Figure 4).
A total of 16 transactions have been hit by SSD in 2H14 (as of 14 July 2014). Only one transaction was profitable before SSD but had a net loss when SSD is taken into account.
The hefty levy coupled with the encumbrance of holding the property may have led to the decrease in investment appeal of industrial properties, especially in uncompleted projects.
Occupancy Rate
Despite a relatively attractive rental yield, occupancy rate of private industrial property has been declining since 1Q12 and has fallen further by 0.5% for overall private factories and 1.1% for multi-user factories in 2Q14 (Figure 5).
The increase in vacancy rate may be attributed to the influx of newly completed industrial developments that have been designed to cater more to investors than end-users in the market.
Advertisement
With more stringent guidelines and use policies imposed to clamp down illegal tenancy coupled with a finite demand and an increasing supply, these investors-owned units are experiencing more difficulties in finding tenants especially for smaller units that may not be suitable for genuine end-users.
In addition, the declining output in the manufacturing sector may also have a direct impact on business demand for industrial properties.
Supply & Market Outlook
An estimated 1.8 million sqm of gross floor area of industrial space is expected to be completed in 2H14 and an average of about 1.6 million sqm, which is about 3-4% of the current available stock, are set to come on-stream annually from 2015 to 2017. A total of 700,000 sqm of multiple-user factory space is expected to complete in 2014 followed by an estimated 500,000 sqm every year from 2015 to 2017. With an avalanche of supply soon to flood the market, end users are spoilt for choices and market demand is likely to be met and curbed. Though rent is likely to moderate further in the short run, the potential of industrial properties with different tenure may vary. Freehold properties are likely able to remain resilient in times of adversity given its limited supply.
Due to greater difficulties in getting loans and the strain on serving a higher monthly mortgage, prices of leasehold industrial units with leases less than 30-45 years remaining may be more volatile and decline further overtime due to its smaller pool of potential buyers.
As increased efforts are poured in by the authorities to regulate the market, activities in the industrial property segment is likely to remain in the doldrums and unattractive for investors.
INDUSTRIAL PROPERTY – TOP 50 MOST PROFITABLE TRANSACTIONS IN 2014
INDUSTRIAL PROPERTY – TRANSACTIONS AFFECTED BY SSD
https://www.edgeprop.sg/property-news/red-tape-blues-%E2%80%93-industrial-properties
Follow Us
Follow our channels to receive property news updates 24/7 round the clock.
EdgeProp Telegram
EdgeProp Facebook
Subscribe to our newsletter
Advertisement
Advertisement
Advertisement
Top Articles
Search Articles