Friday, June 29, 2012

Trying to keep a short lease on rising industrial rents

Straits Times: Thu, Jun 28
THE recent bullish bid for a 30-year industrial site in Tai Seng underlines the need for keeping business space affordable for the genuine industrialist, an issue that the business community has been grappling with for the past year.

The most recent numbers, for the first quarter, show that prices of factory and warehouse space have shot up 7.3 per cent, almost double the pace of gains in the previous three months.

With an economic slowdown possibly on the cards and small and medium-sized enterprises (SMEs) - which form the the majority of enterprises in Singapore - already grappling with higher wage costs, keeping industrial space affordable is a top priority.

The latest move from the Ministry of Trade and Industry is to cap lease terms for industrial sites under the Government Land Sales (GLS) programme sold from July to December at 30 years.

More sites of smaller size and shorter tenure will also continue to be released to meet the demand of industrialists who might prefer to build their own customised facilities rather than rent.

The change in land tenure is one of the most significant policy shifts on the front of tackling land costs. Supply - releasing more or less land - can be adjusted, but shortening the lease tenure has wider implications.

But aside from whether these changes will bring down costs, will there also be a ripple effect from the recent changes which may result in a fresh set of challenges for industrialists instead?

The debate is still ongoing, but at first glance, it is clear that slashing the lease term will go some way towards easing the burden on local firms.

Unit prices are expected to come down. A rough estimate based on past sales puts a 30-year leasehold site at at least 20 per cent cheaper than a comparable 60-year site, making them instantly more affordable...
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