September 27, 2012
However, the rising trend of investors turning from residential to commercial real estate could turn the sectors speculative.
Affected by recent cooling measures, residential property investors are moving into commercial and industrial real estate in a bid to maximise profits. But this trend could turn the sectors speculative.
The holding period for strata commercial units has shown a steady decline over the past two years - from an average of 440 days for projects launched in 2010, to 324 days for projects launched in 2011, and just 60 days for projects launched this year.
From 2010 to 2012, the number of profitable versus unprofitable strata commercial unit transactions were almost equal - 14 compared to 12.
According to Dennis Wee Group (DWG), profitable transactions achieved net returns of between SGD 9,777 and SGD 251,227. On the other hand, investors suffered losses of between SGD 21,517 and SGD 194,763.
Industrial strata transactions were seen to do better, recording 198 profitable deals against just 13 unprofitable ones. Successful investors came out ahead by between SGD 2,652 to SGD 689,241, while those involved in unprofitable transactions lost between SGD 8,512 to SGD 322,215.
"It seems that the investors of industrial units in projects launched in 2010 achieved the best net returns. 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," noted DWG.
Industrial strata units, too, were gaining in popularity among speculators, judging by the y-o-y decreases in holding periods, from an average of 461 days for units bought in 2010, to 364 days in 2011, and 78 days in 2012.
However, potential investors should proceed with caution, as large upcoming supply will place a cap on any growth in prices and rents, warned DWG. In the pipeline are about 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 completing in the next few years (excluding potential new launches in the future).
In addition, the Urban Redevelopment Authority (URA) is also clamping down on unauthorised users of industrial space. This could result in more industrial spaces being released for sale or lease, adding downward pressure on prices and rents.
Newcomers to the commercial and industrial sectors may also be hampered by a lack of experience. "For example, many strata industrial units are sold on a gross basis, which may include air-con ledges, car park lots, loft spaces or roof terraces. When these are excluded, the usable space is actually much smaller," said DWG.
"In some instances, the buyer is not able to make use of the loft space within the unit as the development has maximised its gross floor area. Similarly for the roof terrace and car park lot, the buyer will not be allowed to build a permanent structure if the gross floor area for the development has been maximised."
Tags: Commercial real estate, Business space, Office for lease, Factory for rent
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