Singapore’s industrial building sales may drop 10 percent this year after the city became the first in Asia to impose curbs on such properties, according to the world’s largest closely held commercial real estate broker.
The government on Jan. 11 imposed as much as 15 percent in stamp duties on sellers of properties such as warehouses and logistics buildings to curb speculation after prices doubled in the past three years and outpaced the increase in rents.
“We foresee a substantial short-term impact on the industrial segment,” Priyaranjan Kumar, the Singapore-based regional director of capital markets at Cushman & Wakefield Inc., said in a Jan. 15 interview. “Measures targeting the industrial sector are appropriate given very vocal concerns by local small and medium scale industries of being increasingly priced out of the market.”
Ranked by the World Bank as the easiest place to do business for a seventh year, Singapore’s grappling with rising costs that pushed its inflation to among the highest in the developed world. The country with an area slightly smaller than New York City said this week land and labor limits will “increasingly constrain” its economic expansion.
“Industrial property prices have seen one of the fastest increases in 2012 and the capital values were moving much ahead of the rentals,” said Vijay Natarajan, an analyst at UOB-Kay Hian Pte in Singapore. “The government has to retain its advantage of the cost of setting up business in Singapore and if that keeps escalating, then it’s a problem for the attractiveness of Singapore as a business hub.”
The maximum tax rate will apply to sellers of warehouses and factories after one year, with the rate falling to 10 percent in the second year and 5 percent in the third, the government said. The new rules were effective as of Jan. 12.
The government also added new levies on homebuyers last week after residential prices and sales climbed to a record in 2012.
Low interest rates and measures on residential properties prompted some investors to shift their focus to higher-yielding warehouses and logistics assets, according to Cushman & Wakefield. Industrial space returned 6.25 percent to 7.5 percent, exceeding the 4 percent for apartments and 5 percent for offices, according to the New York-based property brokerage.
“The recent measures will most likely lead to increased activity for office and retail strata sales,” Jeremy Lake, Singapore-based executive director of investment properties at CBRE Group Inc., said in an e-mailed response to queries. “The strong fundamentals which kicked off the office and retail strata sales activity 18 months ago remain intact and positive sentiment is further supporting the market now.”
Almost 98 percent of sellers of strata factories made an average profit of 47 percent or S$263,000 ($215,000), according to London-based property brokerage Savills Plc. Industrial properties bought in 2012 and sold in the same year generated a 15 percent return, it said in a report sent on Jan. 15.
Strata title refers to ownership of a building that’s subdivided with shared areas.
Transaction volumes will decline 10 percent this year because speculators are being driven out of the market, Boon-Leong Tan, executive director at broker Colliers International, said in an interview on Jan. 14.
The number of industrial strata title transactions climbed 78 percent to 3,460 last year, according to data from Seattle-based Colliers, while the value of the sales more than doubled to S$3.3 billion.
The government said it introduced the property curbs to discourage short-term speculative activity that could distort the underlying prices and raise the costs for businesses. Singapore’s economy expanded 1.2 percent last year, less than a quarter of the pace in 2011. Growth is expected to range between 1 percent and 3 percent this year, based on official estimates.
The stamp duties and restrictions on mortgages were the “most severe and most encompassing” since the government started curbing gains in residential prices almost four years ago, according to Knight Frank.
“The government is concerned with the rising property prices in Singapore, which has fueled inflationary pressures and could cause long-term structural problems to the economy if left unresolved,” Png Poh Soon, head of research & consultancy at Knight Frank, said in a Jan. 15 statement. “This latest set of cooling measures is designed to have the maximum impact on the property market to rein in escalating prices.”
The city’s real estate stock index dropped 0.9 percent this week following the measures. Ascendas Real Estate Investment Trust, the city’s biggest industrial trust, climbed 2.9 percent. Mapletree Logistics Trust, one of the largest logistics property landlords in the area near the Singapore port, gained 1.3 percent, while Cambridge Industrial Trust advanced 1.5 percent.
The stamp duty on industrial properties meant to discourage short-term speculation is unsurprising given the strong run-up in prices, analysts Elaine Khoo and Gregory Lui at Deutsche Bank AG said in a note to clients on Jan. 14.
“For investors, the message is to purchase prudently and ensure underwriting is not reliant on short-term exits and financing,” Kumar at Cushman & Wakefield said.