Successive rounds of cooling measures on Singapore's residential property market have seen investors turn to industrial property, where they have enjoyed lower prices and a lack of restrictions. But could cooling measures be on the cards for the industrial sector? Cheryl Tay finds out.
There has been a lot of talk about Singapore's residential property market in recent years, especially since house prices had been shooting up more rapidly than the country's temperature has in recent months. The massive influx of foreign talent into our little red dot was perceived by a large number of citizens to be the main factor which catapulted prices beyond the reach of many an average Singaporean, leading the government to implement as many as five rounds of property cooling measures since 2009, in an attempt to control prices.
A Taxing Issue
One of the most talked about aspects of the cooling measures is the additional buyer's stamp duty (ABSD) — foreigners buying residential property in Singapore are subject to an additional 10 percent tax on their purchases and permanent residents (PRs) are subject to an additional three percent tax on their second homes, as are Singaporeans who are buying their third homes.
At the same time, the ease in obtaining mortgage loans with attractive interest rates has also contributed to boosting the residential property sector, a kind of buying sentiment analysts believe has spilled over to the industrial property segment.
This has led many investors to shift their attention from the residential property market to the commercial property market, where prices are lower and they are not restricted by such measures. The growing popularity of commercial property investments is particularly evident in the industrial sector, where investments have been on the rise since 2011. A Savills report noted that from Q2 to Q3 2011, Singapore's industrial sector grew an astonishing 170.5 percent, while its residential, private, hotel and commercial sectors each witnessed declines of over 20 percent.
Colliers International's latest bi-annual report stated that between October 2011 and March 2012, Singapore's industrial investment and land sales activities pushed land and capital values up by as much as 13.5 percent, indicating that its industrial sector is still going strong.
What Goes Up Doesn't Always Come Down
Unsurprisingly, industrial property prices have risen as a result. Prices increased 7.2 percent in Q1, according to the URA Property Price Index. More recently, units at AZ@Paya Lebar were sold for record prices of over S$1,000 psf.Such rapid price increases have sparked concerns that the government may implement cooling measures in the industrial market, with steadily climbing demand for such properties doing nothing to quell the speculation.
Nicholas Mak, Executive Director at SLP International Property Consultants Pte Ltd, says, "(Even if cooling measures are implemented for industrial property) I don't think they will be as harsh as those on the residential market. The government can change the rules or introduce new ones but when does a rule become a cooling measure or when is it simply a change of rules? If the government makes it difficult to buy industrial properties, companies may move their operations overseas and this could mean a loss of jobs, which could have a negative effect on the economy."
There is one other factor to consider. The cooling measures on the residential property market have succeeded in dampening demand but not lowering prices. On the contrary, they increased slightly in Q1, due to resilient domestic demand and wealthy buyers from China, India and Indonesia, who remained undaunted by the measures.
Mak says, "A cooling measure may or may not be effective. But if, for instance, the government fixes the price and determines that industrial properties cannot be sold for more than S$500 psf, it will no longer be a free market. No cooling measure is perfect; even the ones in the residential market are not having their desired effect. It's not as simple as adding salt to water and expecting it to be salty. When new measures are introduced, the market will not necessarily react in the way expected of it." Necessity or Novelty?
Authorities have been increasing industrial land supply to cool the sector. Furthermore, the minimum occupancy period (MOP) for industrial Government Land Sales (GLS) sites has been reduced to 30 years in a bid to make them more affordable. While such rules may help to lower prices, they are certainly not strict cooling measures like those in the residential sector.
Experts are not highly concerned, as industrial properties comprise a small portion of the local property market. Donald Han, Special Advisor at HSR, says, "The government has not taken more proactive measures is that the number of transactions in the industrial sector is probably 15 percent of the whole transaction volume."
Some experts also predict that market forces will cool the industrial property sector naturally. The gloomy global economy is expected to flatten industrial space rentals in the current quarter, with an impending year-end decline.For now, however, Mak foresees a more positive outcome for the industrial property sector. "The industrial market is heading towards a period of more stable growth. Prices and volumes have grown substantially and now, the fundamentals have to catch up with that."
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