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Niche developers in Singapore have been nimble on their feet since 2009, and the spate of new launches of industrial projects offering strata units for sale following the residential property cooling measures attests to that. Right off the bat at the start of 2012 is EL Development, the property development arm of construction group Evan Lim & Co. It launched a new freehold ramp-up industrial development at 11 Mandai Estate called Eldrix on Jan 5, just three doors from its headquarters at Evan Lim Building.
“This is our last piece of landbank,” says Lim Yew Soon, managing director of EL Development. “We will be looking for suitable sites to acquire and develop.”
Lim says sales at Eldrix have been “moving smoothly”, adding that “demand for industrial strata units is still healthy, especially from investors shying away from residential investments because of the recent cooling measures”. In the launch of the first phase, strata units on two floors were released for sale, and more than 50%, or close to 20 units, were taken up. Prices were said to average S$470 (RM1,143) psf.
The 11-storey Eldrix has a B1 zoning. It has a total of 169 units ranging from 1,388 to 1,862 sq ft. A 20ft ramp serves all the units from the first to 11th level, and a majority of them have a ceiling height of 6m and loading bay. The project is scheduled to be completed in 2014.
“We have received many equiries and issued some options over the last three days [Jan 5 to 8],” says Tricia Teo, executive director of business development at SLP International Property Consultants, the marketing agent for Eldrix. “Whether these enquiries translate into actual sales remains to be seen. However, freehold industrial strata units are hard to come by, and interest has been healthy.” The majority of enquiries have come from business occupiers rather than investors.
An analysis of caveats lodged with URA Realis also shows that the majority of the buyers (70%) of industrial strata units are companies. While the number of Singaporeans buying industrial strata units has increased in absolute terms over the past 11 quarters, its proportion in terms of percentage has actually dipped to 21.8% in 3Q2011, according to Lee Sze Teck, senior manager of research & consultancy at Dennis Wee Group (DWG), in a report released on Jan 5.
Competitively priced
Another freehold industrial development, Bizhub28, was open for registration in December 2011 and launched on Jan 5. To date, more than 60% of the 60 freehold strata units have been sold, according to SLP’s Teo, who is also marketing the project. “Response has been good because freehold industrial units in the east are very rare,” she says. The project also has dual access — from Senang Crescent leading to the first level of the six-storey building and from Chai Chee Street leading to the second level.
The developer of Bizhub28 is Aston Investments Development, a boutique developer that has a track record in building residential projects. Bizhub28, a flatted factory development, is Aston’s maiden industrial project. The floor area of the strata units average 1,956 sq ft. The units have a ceiling height of 6m and are designed like lofts. The project is part of a new generation of industrial buildings that come with condo-like amenities such as a lap pool, sauna, gym and barbecue area on the rooftop. The average price achieved in the project is S$555 psf. It is said to be just a five-minute bus ride to the Kembangan MRT station.
Construction company-cum-niche developer Sin Soon Lee Development also launched Elitist, a 10-storey factory offering 111 strata units, for sale on Jan 5. The ramp-up factory units are on the first three levels, while the other levels consist of flatted factory units. More than 50% of units released in Phase 1 have been sold, says SLP’s Teo. The project is located in Bukit Batok Industrial Park.
Switching of demand to non-residential
Some property analysts reckon the imposition of the additional buyer’s stamp duty (ABSD) on residential property has resulted in a switching of demand to non-residential properties, such as industrial, retail or office strata units. However, when it comes to buying industrial strata units, there are some things that investors need to bear in mind, says SLP’s Teo. “Not many individual investors are familiar with investing in this asset class,” she adds.
For example, buyers need to pay goods and services tax (GST) on top of the 3% buyer’s stamp duty for the purchase of an industrial or any other non-residential property. While the typical tenure for residential sites offered in the government land sales (GLS) programme is 99 years, those for industrial sites are much shorter, usually just 30 or 60 years, she adds. Since 2006, property buyers have also not been allowed to use their Central Provident Fund money for the repayment of non-residential property, and that includes industrial.
DWG’s Lee attributes the pick-up in transactions of industrial strata units to the increase in the number of GLS sites released for industrial developments, resulting in more industrial strata projects launched in the last two years. The spike in residential prices since 2Q2009 could also have played a part in encouraging some investors to switch to industrial property, reckons Lee. A total of 11 industrial development sites were sold in 2011, and most of them are expected to be launched for sale this year, he adds.
“Increases in industrial rents and the low-interest-rate environment also prompted more companies to look at ownership/investment to control rental costs, while investors enjoy better returns,” he adds. In 2009, rental returns for industrial units were 7% to 8%, but with capital values having climbed steeply, they are hovering around 4% to 6%, he notes.
Prices of industrial property have increased by 54% from the trough in 3Q2009 during the last financial crisis. “Hence, buyers of industrial strata properties could be reacting more to changes in prices of industrial properties rather than changes in policies governing the residential market,” adds DWG’s Lee.
In 2011, there were 1,733 transactions for strata factory space (based on caveats lodged and downloaded from URA Realis on Jan 3), 10% higher than the 1,562 transactions recorded in 2010, according to DTZ Research in a Jan 9 report. The capital value for first-storey private industrial space in resales rose 5.7% in 2011, while that for upper-storey private industrial space grew 10.8%.
In 4Q2011, growth in capital values slowed. The average capital value for upper-storey private conventional industrial space in resales rose 1.2% q-o-q to S$410 psf, more than 10% above the previous peak of S$370 psf in 3Q2008, says DTZ. Meanwhile, the average capital value for first-storey resale private conventional industrial space was unchanged at S$555 psf in 4Q2011, after increasing 1.5% q-o-q in 3Q2011. It is now on a par with the previous peak in 2Q2008.
The average rent for industrial space has flattened somewhat in the last six months after moderate growth in 1H2011. The average monthly rent for first-storey conventional private industrial space rose 4.9% in 1H2011 to S$2.15 psf, but stalled in 2H2011 against the backdrop of a slowdown in manufacturing and exports, notes DTZ.
The average monthly rent for business park space remained at S$4.38 psf in 2H2011 after growing 6.6% in 1H2011. Likewise, the average monthly rent for hi-tech industrial space rose 6% in 1H2011 and remained unchanged at S$3 psf for the rest of 2011. The slowdown in the office sector had a spillover effect on business park and hi-tech industrial space, says Cheng Siow Ying, DTZ’s executive director of business space.
DTZ believes the property cooling measures in the residential sector may have diverted some investors to the industrial market. “The higher prices of the new launches of industrial buildings with small strata units and office-like setting have also lifted the prices of resale units,” says Chua Chor Hoon, head of DTZ Asia Pacific Research.
The projected slowdown in the economy and recent announcements by the government to control the sale and size of strata-titled units in future GLS sites to 150 sq m (1,615 sq ft) will also lead to more cautious buying. “The larger strata unit size also means investors will have to fork out a higher quantum upfront, thereby increasing their risk exposure,” notes DWG’s Lee.
Cecilia Chow is the editor of City & Country at The Edge Singapore.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 896, Feb 6-12, 2012
