Business Times | MARCH 11, 2013
Introduction of the seller's stamp duty in Jan gives speculators pause
[SINGAPORE] Speculative demand for industrial properties has eased, following the seventh round of cooling measures, arresting the problem of spiralling prices.
According to data from SLP International, demand for strata factories moderated following the introduction of the seller's stamp duty (SSD).
Specifically, demand for strata factory units slipped from 133 in the 28-day time-frame before the introduction of the seventh cooling measure to 118 in the period after.
The monthly average demand for strata factories also fell, to 173 transactions in the period from Jan 12, after hitting a high of 321.8 transactions per month on average in the second half of 2012 to Jan 11, 2013.
"There is clearly an increase in the buying demand for industrial space in the second half of 2012," said Nicholas Mak, head of research at SLP International. "The number of subsales also increased three times in H2 2012 over the preceding six months (to 24.5 transactions on average per month from 7.5 transactions). This could be the reason for the government imposing the SSD on the industrial property market."
While the measures have given speculators pause, end-users are still buying, noted Mr Mak.
"There is real demand, and for people prepared to hold for more than three years, this means a willingness to ride out the SSD. This is especially in the secondary market since units can be rented out immediately. So these are not people buying to flip, but buying to collect rental as an investment."
Another factor drawing investors to the secondary market is that sellers are more flexible about adjusting their prices, said Mr Mak.
"In new projects, it takes a bit longer for developers to consider whether or not to lower prices," he said.
According to Tan Boon Leong, executive director of industrial services at Colliers International, the number of transactions seen post-measures is within expectations given that cooling measures typically result in a knee-jerk reaction as potential buyers stay on the sidelines to assess the impact of the measures.
This was further intensified with the slowdown in activities due to the approaching Chinese New Year holidays then, he added.
"The additional 15 per cent stamp duty has also helped deter specu-vestors from buying new strata units, as they will need to hold their properties longer amid a slow manufacturing sector and a large upcoming supply of industrial space," noted Mr Tan.
"This leaves only genuine end-users and investors with a longer investment horizon, but who may take a longer time either to make a decision or due to pending bank loan approval, for instance."
The SSD, which was introduced on industrial properties for the first time in January this year, saw industrial property sold within a year of its purchase levied with a 15 per cent stamp duty; 10 per cent if the property is sold in the second year; and 5 per cent in the third year.
While demand has moderated, prices have held steady, said Knight Frank Singapore.
Using 60-year leasehold strata factories as a benchmark, given that these factories contributed the highest number of strata sales transactions, Knight Frank found that new sale prices remained stable up to February 2013, at an average $420 per square foot (psf), with strata factory prices in the resale and subsale markets also remaining resilient since the fourth quarter of 2012.
In fact, prices of strata factory units started registering an upward trend, particularly in the new and resale market segments, since the beginning of 2011.
The introduction of the fifth round of cooling measures in December 2011 - which included the Additional Buyer's Stamp Duty (ABSD) on the residential sector - served to fuel the price increase.
Correspondingly, new sales in the 90-day period post-measures jumped to 170, from 78. This is despite the fact that resale transactions fell from 456 to 318. A total of 549 transactions were clocked in the 90 days leading up to the fifth cooling measure, while 497 transactions were clocked after.
The sixth round of cooling measures introduced in October 2012, which included impositions of maximum loan tenure and lower loan-to-value ratios for mortgage loans for residential properties, further supported investment interest in industrial property.
However, the government's decision to place a 30-year cap on the tenure of all industrial GLS (government land sale) sites with effect from the H2 2012 industrial GLS programme could have amplified the fall in the number of transactions during this period, said Lee Lay Keng, head of Singapore research at DTZ.
Nevertheless, 2012 saw a 1.45, 5.7 and 33 per cent year-on-year jump in prices in the new sale, resale and subsale strata factory segments, respectively.
Notably, prices of resale and subsale strata factories accelerated towards new sale unit price levels, pointed out Alice Tan, senior manager, consultancy and research, at Knight Frank Singapore. "Given the elevated prices of new sale units and coupled with increased buying interest in industrial space, investors of strata factory properties saw opportunities to sell their units at higher prices in the subsale and resale markets," she said.
While prices have held steady thus far, the actual impact of the measure on industrial property prices and transaction volume can only be fully ascertained within the next two quarters at least, added Ms Tan.
According to DTZ's Ms Lee, the latest cooling measures should have limited impact since the SSD will not be a deterrent for owner-occupiers, Reits or developers with a long-term view.
That being said, price growth is expected to decelerate after the high level of growth seen in 2012 and the enforcement measures undertaken by the Urban Redevelopment Authority on non-qualifying users which could affect rental income.
"The stiffer cooling measures in the residential sector will drive more investors to the commercial and industrial sector, and with the quantum of industrial properties being more affordable than commercial properties, industrial pro-jects will continue to attract investors, although demand may be tempered slightly," said Ms Lee.
"The holding period to avoid paying SSD for industrial properties is also shorter than that for residential properties (three years compared to four years) so investors could prefer to buy uncompleted industrial properties to hold through the construction period and hopefully make capital gains upon TOP (Temporary Occupation Period)," she added.
Knight Frank's Ms Tan said price acceleration should taper off in the next three quarters as demand is expected to soften.
"In view of the SSD cooling measure, we are forecasting an annual price appreciation in the region of 5-10 per cent by the end of 2013 for industrial properties with longer tenures, good locations and superior building specifications."
Referencing recent GLS tenders, Colliers' Mr Tan said: "If we look at the most recent industrial GLS tender, the number of bidders and pricing were encouraging."
The first, a 3.96 hectare plot at Tuas South with a 30-year tenure, drew a top bid of $102.18 psf ppr; a separate 0.35 ha plot at Ubi Avenue 4 drew a top bid of $172 psf ppr. Both sites drew bids at the top end of forecasts when they were launched.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)