Speculation in commercial properties rises.

Owners hold commercial, industrial units for barely three months before flipping them.

SPECULATION seems rife in the strata- titled commercial and industrial property sectors with many new units being held for barely three months
before they are flipped.

Commercial units launched this year are being held for only an average of 60 days before being sold – a huge drop from 2010 when owners kept them for
about 440 days.

Similarly, new strata-titled industrial units have been held for just 78 days this year, down from 461 days in 2010, according to an analysis of new
sale caveats by Dennis Wee Group (DWG).

The shortest time for which a strata unit was held before being sold was just four days – with the buyer likely to have assigned his option to
another investor.

Mr Lee Sze Teck, DWG’s senior manager of training, research and consultancy, noted that individual investors prefer buying uncompleted commercial or
industrial units because the upfront cash amount is lower, since the units are paid for progressively as construction is carried out.

This lets them flip the unit more easily, he added.

DWG also found that 198 profitable transactions and 13 unprofitable ones have been made in the industrial property sector from launches since 2010.

Six of the units that ended in the red were from Harvest @ Woodlands in Woodlands Industrial Park. One unit in the development lost $42,700.

But the 60-year leasehold project also lodged 44 profitable transactions, with one gaining $376,000 in capital value.

Net profits for the overall strata-titled industrial market ranged from $2,700 to $689,000 while losses came in at between $8,600 and $322,000 from
2010 till now, DWG said.

Projects launched in 2010 also seem to have attained the best returns, the report added.

“This is probably because they enjoy the first mover advantage and profited from spillover demand because of regulations in the residential market in
2011 and 2012,” Mr Lee said.

He was referring to the slew of cooling measures that have diverted residential investors to alternative segments.

Mr Lee also noted that developers have shrunk the size of some strata-titled commercial units to keep the investment quantum affordable.

“This is particularly striking in the strata shop units where the smallest unit is only 5 sq m or 54 sq ft,” Mr Lee added. “One cannot help but think
which trade is suited to operating in a 5 sq m retail unit and yet able to generate enough profits to service the loan.”

The upcoming supply of office, retail and industrial space is likely to affect selling prices and rents, which is another concern investors should
note, said DWG.

Around 7.1 million sq ft of office space, 5.1 million sq ft of shop space and more than 10 million sq ft of industrial space will be completed in the
next few years.

“This supply excludes any potential new launches in the future. This will put a cap on any upside on prices and rents,” Mr Lee said.

“Furthermore, the Urban Redevelopment Authority (URA) is clamping down on unauthorised users of industrial space. These users will have to move if
they receive a notice from URA. This will increase the supply of industrial space for sale or lease and put downward pressure on prices and rents.”

But not all investors have plans to flip units for short-term gains.

Industrial investor Christopher Soh, 62, who works as a director of a manufacturing firm, bought two strata-titled industrial units in Jurong two
years ago. He describes himself as a long-term investor and not a speculator.

He plans to lease out his units when they are completed but does not rule out selling them if an “attractive enough” price is offered.


Source: The Straits Times – Monday, September 24, 2012

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