How will the Singapore’s industrial property market perform in 2015?

Most investors are aware that Singapore’s property market, as a whole, did not do very well in 2014.  The drop in property prices was primarily due to the tightened lending conditions via the Total Debt Serving Ratio (TDSR) regulations, which severely curtailed “specu-vestors” from investing in properties.  With the start of a new year, the question on many stakeholders’ minds is how will the industrial market perform in 2015.  To answer that question, let us take a quick recap on what happened the year before…
Observation 1: Significant drop in industrial transaction volume
Observation 1 Significant drop in industrial transaction volume
In 2014, there was a 50% drop in industrial transaction volume as compared to 2013 (see Figure 1). This drop does not come as a surprise and it is in line with the general decline experienced by the residential and commercial sectors.
Figure 1 Significant drop in industrial transaction volume
Observation 2: Majority of industry transactions are less than 400sq m
st industrial transactions in 2014 were less than 400sq m large (see Figure 2). While this is generally in line with the distribution for previous years, by extrapolating the data, it means that industrialists who are looking for large factory spaces may not have much to choose from (as indicated from the low transaction volume). On the other hand, those who own units of between 101sq m and 200sq m could face stiff competition when they try to sell their units in 2015 due to the abundant supply (as represented by the high transaction volume).
Observation 2 Majority of industry transactions are less than 400sq m
Observation 3: Majority of industry transactions are less than S$2 million
Looking at transaction prices, one immediate observation is that the bulk of transaction is between the S$500,000 to S$1million price range (see Figure 3). This means that investors who are thinking of selling their units at significant higher prices in 2015 could face some challenge in finding potential buyers as more than 80% of deals were transacted at below the S$2 million mark. For those who wish to use the data to do their own analysis, you can download the full 2014 industrial caveats here.
Observation 3 Majority of industry transactions are less than S$2million
Who can still consider buying a factory unit in 2015?
In view of the current market situation, the question on some readers’ minds is who can still consider buying a factory in 2015?
While I would think that investors may want to wait at the side-lines for now, it may make sense for some business owners to acquire industrial units for their own use. Why do I say that?
With reference to the caveat below (See Figure 4), one of the cheapest industrial units transacted in 2014 was S$135,000. With a remaining lease of about 51 years, the annualised depreciation expense worked out to be about S$2,650 per year (or about S$220 per month).
Figure 4 caveat of the cheapest industrial unit transcacted in 2014
When compared against industrial rental figures from URA, it can be seen that a similar unit in the location was going for at least S$1.98psf per month. Based on the size of 134sq m, if the owner was to rent the unit instead, he would end up paying rental of about S$2,855 per month. In other words, this is one instance where it would make more financial sense for the owner to buy instead of rent.
figure 5 rental data on woodlands link from URA
Conclusion
While I concede that this is a very simplistic analysis, one thing I wish to highlight is that the availability of such worthwhile opportunities as the property markets has reached a tipping point.
As the overall property market continues to weaken, investors could potentially see more and more undervalued deals coming onto the market. So even though it still may be too early for property investors to come back into the industrial market, buyers who are looking to buy a unit for their own use may want to keep their eyes open in 2015. Who knows, an attractive deal could be just around the corner…

Mr Getty Goh has a Masters in Real Estate from the National University of Singapore (NUS) and he is the CEO of CoAssets.com, South East Asia’s first crowdfunding website. Mr Goh is also a director with Ascendant Assets Pte Ltd, a real estate research consultancy and think tank. The views expressed are his own.

Advertisements