Ravi Chandran
Mr Inderjit Singh has suggested that the Government should put in place anti-speculation measures for commercial and industrial properties. Mr Singh a former member of parliament made that comment in responding to a Straits Times report ‘Interest in commercial, industrial space may rise’, dated July 9 2018.
The report in quoting several industry stakeholders suggested that cooling measures for residential property could drive investors to other segments like commercial and industrial properties.
The government last week acted to cool the residential property market. Additional Buyer’s Stamp Duty (ABSD) rates have been raised for some categories of residential property purchases, and the Loan-to-Value (LTV) limits on residential property purchases have been lowered, all with effect from 6 July 2018.
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The sudden move by the Government is expected to subdue sales volume for residential properties. Industry observers suggest that commercial and industrial properties could emerge as the biggest gainers of the new property cooling measures.
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JLL said in the wake of the announcement: “The biggest gainers following this set of measures will likely be owners of strata-offices and shophouses approved for commercial use. The government’s swift response to curb home price growth has tampered the prospects of residential properties as attractive investments. Investors looking for alternatives to park their money could divert their attention to the strata office and shophouse markets as they are not subjected to this round of purchase or sales restrictions/encumbrances.”
A June research report by JLL said that office space demand remains strong in Singapore fueled by flexible space operators. It suggested that driven by technology, e-commerce and flexible space operators, demand for office space was strong in Singapore.
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In Singapore, Grade A CBD office net absorption reversed the declining trend of 2015 and 2016 to hit a three-year high in 2017. The buoyant momentum continued into 2018, wherein the take up in the first three months of the year had already surpassed that for the whole of 2017.
“Much of this net absorption was fueled by occupiers moving into their premises in recently completed buildings such as Guoco Tower, Marina One and UIC Building. This was, in turn, underpinned by the pick-up in leasing activity on the back of the brighter economic conditions that lifted market sentiment and business confidence and encouraged take-up,” said JLL Singapore head of research Tay Huey Ying.
The research report by Regina Lim, Head of JLL’s Capital Markets Research for Southeast Asia, said that among the factors driving tenant relocation and strong net absorption was the rental cycle. In Singapore, rents had declined since 2015 and are desynchronised from other markets in Asia, it noted.
The report said Singapore prime office rents started to recover in 1st half of 2017 and are forecast to rise 20-25% over 2018-2020, the fastest pace of growth amongst global cities. In Jakarta, the pace of rental declined as slowed in 1Q18 and JLL expects rents to recover from 2019, as supply peaks after 2018.
Cushman & Wakefield agreed with JLL’s assessment and said that interest in commercial and industrial properties could spike as investors look for alternative opportunities.
Ms Christine Li, Cushman & Wakefield’s senior director of research, in speaking to ST said: “Although we do not expect residential developers to rush into acquiring commercial and industrial sites, as many are not traditional commercial and industrial asset owners, over the medium term, some liquidity will still find its way back to these segments, should Singapore continue to remain a compelling choice for businesses.”
Mr Singh suggested that the Government should intervene in the commercial and industrial properties market and ensure that they go direct to SMEs for their use and not be subjected to financial investment.
“RIETs have already caused a big problem in rental costs. So best the government be proactive and not have to back paddle later,” Mr Singh noted.
Commentators who responded to Mr Singh’s suggestion acknowledged that the idea was a good one, but that it was not so easy to stop people from speculating on anything.
“The SME can also “get into the game” themselves if it is to their advantage,” said one commentator.
Ex-chief economist at GIC Yeoh Lam Keong however agreed with Mr Singh. He said, “after recent cooling measures on residential property, there is a risk that speculative money (will) now flood into industrial and commercial properties.”
He added: “Rentals are a key component of our business costs and can negatively distort competitiveness disproportionately for long periods at the expense of underlying business and industry. We should not become even more of a rentier driven economy.”
Ryan Ong, a prominent economic commentator agreed with Mr Yeoh that REITS may be “killing” our businesses.
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“REITS leads to high cost of living, as your food court stalls are now charging $6, $8 and perhaps even $10 compared to $4, $5 and $6 in the past – they have no choice,” said Mr Ong.
He added: “Think about that for a minute: a typical 500 square foot shop – something big enough to be a boutique or hair salon – could run up a price of $15,000 per month. Along with operating costs like staff, inventory, insurance, and others, this leaves most retail outlets struggling to break even. If you’re not convinced their struggling (despite some parts of Orchard looking like a ghost town), here’s a scary statistic for you: we had 8,680 retail closures last year, up from 4,557 in 2010. That’s a whopping 52.5 per cent increase.”
In 2014, the Workers Party raised the issue of REITs during a Parliamentary session. It was met with insistence that REITs are not responsible, on the basis that REITs only accounted for 20 per cent of our malls (at the time). The Ministry for Trade and Industry further said that it found little discrepancy in rental rates, between REIT owned malls and single owner malls.
Mr Ong said that the Ministry’s reply still leaves a big question: “Even if the rental rates at single-owner malls are not too far off from REITs, why are rental rates so high in general?”
REITs may not own the majority of malls in Singapore, but they do own the major malls, which are the trend-setters when it comes to rental rates. And REITs have inclination to push for higher rentals all the time, as they have a bunch of shareholders to answer to. It’s entirely possible that single-owner malls follow in the wake, matching their rental rates to what the REIT owned malls set.
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