Wednesday, December 28, 2011

Danger of froth in strata industrial, office segment can be averted

Business Times: Wed, Dec 28
W ITH the additional buyer's stamp duty expected to cool the private home market, many have predicted that monies will continue to flow to other property segments, most notably strata industrial, office and shop units.


Possibly aware that this could lead to a spiral of rising prices in this sector, the authorities have already started putting certain restrictions in place.


Some developers have found a cosy niche selling small strata industrial and office units to cater to demand from those looking to park their monies in a place that's been shielded from the government's cooling measures that have been targeted at the private residential sector.


Strata industrial and commercial units are attractive to property speculators and investors with deep pockets; Central Provident Fund savings can't be used to purchase non-residential properties. The appeal of investing in strata commercial and industrial units is strong given low interest rates and volatility in financial markets.


However, excessive investment demand has potential dangers. For one, it drives up prices of such properties and genuine industrialists and other businesses that need such space for their use may find their occupation costs going up, whether they buy such premises or rent them. Investors who have paid a high price for strata industrial units, for instance, will have a high rental expectation. Alternatively, if they plan to flip their units, an end-user in the market may find the price too expensive.


Competition for land from developers keen on building strata industrial or office projects too will drive up bids for such sites at Government Land Sales (GLS) tenders - the primary source for such land. When developers pay steep amounts for sites, they will naturally try to sell their units at a high price, fuelling a cycle that will translate to higher occupation costs for end-user businesses.


Developers of strata industrial projects or their marketing agents may also tout such properties to potential buyers for office use - even though such use is unauthorised.


Market watchers reckon the authorities are probably keeping a close eye on sales of strata industrial and office units to gauge whether unhealthy demand including speculation has set in. They could come up with measures to cool demand in this segment just as they've done for the residential sector.


However, an easier solution for the authorities could be to tackle the problem at source - when they sell land through the GLS Programme. To some extent, the government has already started doing this. For instance, an industrial site near Aljunied MRT Station on the reserve list of the current H2 2011 Industrial GLS Programme that was made available for application last month, comes with the condition that strata subdivision of the development on the site is not allowed in the first 10 years after the project is completed.


Strata restrictions


Even when strata units are allowed in the development after the 10-year period, the minimum floor plate size per strata unit is set at 150 square metres. 'Based on feedback from industrialists, the typical floor plate requirement for Business 1 activities is around this size. Hence a minimum floor plate of 150 sq m for the strata units will ensure that the proposed industrial development will continue to cater to the needs of Business 1 activities,' reads the Questions and Answers section for this site listed by Urban Redevelopment Authority, land sales agent for the plot.


Business 1 use typically covers clean and light industrial and warehouse use.


On the initial 10-year bar on strata subdivision, URA says: 'Having a single owner for the first 10 years after the development is completed will ensure better management of the industrial space and provides greater flexibility in the customisation of floor plate sizes and development layouts to meet the needs of industrial users.


'The condition is not imposed for the full duration of the lease (60 years for most industrial sites) to provide the owner some business flexibility to respond to future market conditions such as requests from some industrialists to own the space they are operating in.'


The location profile, tenure and zoning for the Aljunied plot, at the corner of Aljunied Road and Sims Drive, are similar to the earlier GLS sites on which the Oxley BizHub 1 and 2 projects - with strata industrial units for sale - are being developed. The two plots, in a prime industrial location at Ubi Road 1, are between Tai Seng and MacPherson MRT stations. All three plots are zoned Business 1 and have 60-year leasehold tenure.


Such attractive industrial locations near MRT stations and close to the city are more appealing to strata industrial investors. So perhaps the government has started imposing restrictions on strata subdivisions on projects on such sites. This makes sense. It remains to be seen whether such conditions will appear on more sites in the upcoming H1 2012 Industrial GLS Programme.

Source: Business Times © Singapore Press Holdings Ltd

Team Marshe
Martin Koh/ Sherry Tang
9383-3992/ 9844-4400
www.marshe.net

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