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Business Times: Mon, Jun 25 | |
| Tan Tiong Cheng FOR many years, our home-grown small and medium-sized enterprises (SMEs) benefited from the readily available supply of affordable space offered by the government when Jurong Town Corporation was the largest industrial landlord. In recent years, JTC has stopped building flatted factories, and more private developers have entered the industrial property market. The supply of private industrial land has also shrunk over the years as owners convert their land to non-industrial use to maximise returns. SMEs are now faced with a shortage of affordable industrial space as land prices and rentals have risen considerably over the past two years. The government's latest move to halve the maximum industrial land tenure so as to improve affordability for industrial end-users may lead to more measured land bid prices as developers exercise greater prudence. But these land parcels are subject to private sector competition, and are awarded on the basis of highest bid price. Private developers would have to seek returns from the investment risks that they take in this process, and would thus be less inclined to offer lower rents to end-users. In order to maintain cost-competitiveness in the industrial sector and contain property costs, the government should reconsider its policy of divesting industrial land to the private sector, and play a bigger role to provide affordable industrial space for genuine industrialists, particularly start-up companies and entrepreneurs. Additionally, to better optimise industrial land use in land-scarce Singapore, the Urban Redevelopment Authority could review the plot ratio densities for industrial land. Current plot ratios of industrial land sites under the Government Land Sales (GLS) programme range from 2.0 to 4.0. In Hong Kong, the maximum average plot ratios for general industrial land use range from 5.0 to 9.5. Dennis Yeo THE move by the government to halve industrial land tenure does provide genuine industrialists the option to own a more economical property for their business. And with the implementation of this new land tenure policy, we could possibly see a rise in the prices of existing industrial properties with longer tenure, as the new policy signals to the market that the supply of longer tenure industrial lands will no longer be available. However, this is expected to be a short-term phenomenon. Price is a function of demand and supply, and thus, varying tenures will have minimal impact in controlling prices. When there is high level of activity in the market and demand exceeds the immediate supply, industrialists will pay even if property prices are high. Hence, to prevent a price escalation due to increase demand and limited supply, the government should continue to make land available for business owners. Varying the land tenure has the advantage of providing businesses more options according to their affordability. Casual investors unfamiliar with industrial property are likely to have less preference for shorter tenure. Thus, this new land tenure policy could be effective in separating user demand from investor demand. Loi Pok Yen RENTALS are dictated by market forces. Tenants will look for the best value when deciding on suitable premises. It is unlikely that underlying land tenure will be a major consideration. Industrialists rent premises usually because they cannot afford or are unable to buy. The industrial sector consists of numerous players but where rentals are concerned, it is clearly the struggling small and medium-sized enterprise (SME) that is most affected. I believe that SMEs in the industrial sector are well served by the impending pipeline of light industrial premises. The issue is that SMEs (primarily the service sector) looking for small, affordable and convenient commercial space are not well served and have moved into these industrial buildings. There is a huge arbitrage between industrial rental rates and commercial rentals. Inflation, and thereby higher building costs, is also partly to blame albeit to a lesser extent. There are a few easy ways to create stable and cheap industrial rents but I prefer to reserve my comments. I am confident that our city planners will come up with solutions to take care of the various stakeholders. Nick McGrath THE recently announced changes to the industrial Government Land Sales (GLS) programme is unlikely to have any impact on AIMS AMP Capital Industrial Reit. As at March 31, 2012, AACI-Reit has a current weighted average unexpired land lease of 41.7 years, and is focused on unlocking the value of our existing industrial assets through active asset management. We're supportive of efforts by the government to ensure that Singapore remains a vibrant and cost-competitive economy. Lim Soon Hock I DOUBT if the move to halve industrial land tenure will really help to contain industry property costs, rents and lower business costs. We see the same scenario being played out between 99 years leasehold and freehold properties. While the cost of acquiring the land may be lower, building or development costs are likely to remain the same, if not higher. As a consequence, the amortisation of development costs over a shorter land tenure will go up, inadvertently translating to higher rents - and given that the developers will want the same returns, if not higher - and the concomitant higher business costs. I prefer the government to develop more industrial properties and offer it at attractive rentals to businesses, especially SMEs, much like what was done in the early years of our industrialisation, to tackle the problem. Annie Yap HALVING the industrial land tenure to 30 years will certainly lower industrial property costs of the selected zones, and translate to lower business costs for industrialists. This is favourable for smaller companies who wish to secure an industrial space, especially during their early start-up years. Through this move, the government has demonstrated greater sensitivity to the needs of SMEs, a growing group of companies in Singapore. The Ministry of Trade and Industry should work to include more land parcels under this programme in future. However, there are SMEs which already have longer-term business development plans. This move spells higher costs for such companies in the long run. To better cater to the different needs of SMEs, the programme can probably consider more flexible sales packages, such as 40- and 50-year tenures for different land sites and companies. Allen Ang THE new measure to halve industrial land tenure will have limited benefits for local manufacturers. The majority of SMEs lease industrial space from JTC. As the biggest industrial landlord, JTC policies would have more impact on factory rents and business costs. In order to ensure the long-term viability of manufacturing in Singapore, JTC should not adopt the practice of valuing industrial premises based on market rates but peg industrial rents against a basket of factory rental costs in nations which are competing with Singapore. This will enhance the competitiveness of our manufacturing sector. Additionally, the recent spike in demand for industrial space is partly driven by demand from investors and by those leasing industrial land for non-manufacturing purposes. The government should introduce financial measures to discourage investors, speculators and non-manufacturers to lease or buy industrial space. For example, the government could consider adopting discriminatory rents and costs of industrial space in favour of companies that are doing manufacturing and research & development. Finally, we hope that JTC will not privatise its industrial property business as this will raise the cost of industrial properties. Ronald Lee THEORETICALLY, halving industrial land tenure will help to directly lower business costs - for those that opt to purchase industrial properties outright as lower land tenure will bring down quantum prices of the properties. For businesses that may not have the financial muscle to invest in industrial properties, the question is to what extent reducing land tenure can help moderate rental prices. My view is that any easing of rental prices resulting from this new measure may only be slight as we have to look at it from a macro perspective - the role that the economy, with its ebbs and flows, will continue to play in the overall demand and supply of the rental market for industrial properties. Another point to note is that this initiative is likely to mainly benefit businesses in certain sectors where location is not an important criterion, such as manufacturing and logistics. Teng Yeow Heng Michael THE move to halve industrial land tenure will partially help contain industrial property costs and rents. However, as many of our industrial properties are held by real estate investment trusts (Reits) and major developers which have deep pockets, I doubt that the costs of rental will be lowered immediately. The effectiveness can be further boosted if even shorter tenure can be made available such as five or 10 years for some selected properties and locations. Most businesses relocate their place of work within less than 10 years anyway. Also, for many business start-ups, the first five years are the most critical, and lower rental costs in the initial years will help these start-ups to survive. Patrick Liew PRICES of industrial properties have risen by 66 per cent since the beginning of 2010. The rise in capital values have been attributed to a large number of industrial properties being built and sold on a strata titled basis. Brisk sales have encouraged more developers to bid aggressively for industrial sites at higher land prices, tipping new record sales prices for the end units. End prices are now some 35 per cent higher than previous peak in Q3 2008. The government's decision to reduce industrial land tenure to a maximum of 30 years is seen as a timely move in curbing rising land and occupational costs. The shorter tenure and reduced plot size will make land less attractive for strata titled property developers and more feasible for genuine industrialists. Smaller plots on shorter tenure will also render such industrial developments more affordable to SMEs. They may be inclined to build and occupy their own customised premises. However, this policy can potentially reduce organic growth of various industrial real estate investment trusts (Reits), which typically purchase properties with a minimum tenure of 60 years. Joshua Yim HALVING industrial land tenure is a very good initiative, and it sends a clear signal that the government is trying to curb speculation in the industrial property segment in addition to the residential property market. Curbing such speculation will ensure that the prices of industrial land are not raised artificially. This will have a direct impact on helping to reduce business costs as companies will be paying based more on their actual usage of the property - for 30 years instead of the current tenure of 60 or more years. Realistically, some businesses may not have such long-term planning, beyond 30 years. Many organisations may also expand and encounter changing needs over the years. The prices of industrial and commercial properties have been rising for some time. To moderate prices, the government could perhaps look into adopting some of the measures that they have recently implemented to cool the residential property market. Dora Hoan IT is a good move but it may not achieve a direct impact in lowering business costs for SMEs or industrialists, as the period of industrial land tenure has no direct link to the rising cost concerns. When the government aggressively brings in foreign investment and foreign talent to stimulate the economy, we pay the price in the stimulation of property prices, business costs and cost of living. Also, while a shorter-term tenure will provide a better position for the government to execute its land redevelopment and land sales programme, SMEs may have difficulties in seeking financing from the banks. The property manipulator may also make use of the opportunity to carry out bulk purchase activities that cause price fluctuations in the land and property market. Recommended measures could include the government releasing more land for local SMEs to build for commercial and industrial use, with conditions that restrict them from reselling the buildings to third parties. The government could also build more properties for commercial and industrial use, and rent only to local SMEs at fairly low rates. Benedict Soh THE halving of industrial land to a 30-year tenure may have the reverse effect. Developers will have to recoup their investment over a shorter period of time. I also question the effective deployment of capital to be amortised over a shorter length of time. In the larger scheme of things, will this be wasteful? In order to lower business costs for industrialists who prefer to build their own customised premises, the best that they can hope for is for them to lease the land parcels at a lower monthly rental. Also, they should be allowed to build more simple buildings so as to lower their investment cost, as normally the award of land is subjected to minimum investment criteria. David Leong THE approach of halving the land tenure of the industrial properties does not have a direct proportionate containment of industrial property costs and rent, and may not directly lower business costs. Halving the land tenure technically is like a share split. In general, if there is an upwards bias for its share price or a perception that the share price has tended to a level that is too high, the publicly traded company may execute the split to make the share affordable. The split of the share technically do not affect the capitalization of the shares at the point of split and similarly halving the land tenure will not affect the pricing of the land. This split will create a certain demand velocity and volume and may in fact lead to a spike in the share price. At a historical high, the demand for land may naturally be slowed but with the split, the price may be perceptibly lower - creating the impression that there may be more upside growth to the land price. This may lead to more intense purchases by speculators, creating another spiralling round of price hikes - this time for land with half the tenure. A more manageable and sustainable way to contain price over-run for industrial properties will be to set tiered buyers' stamp duties and sellers' stamp duties based on units purchased. This cooling measure will immediately impact speculators' purchasing decisions. Industrial properties are set aside by government to promote growth of industrial activities and not be used for speculation. The second approach is for the government to set base pricing points for new industrial property releases, and this will have a bearing on the prices of existing properties. The pricing movement of the industrial land will depend on land use - the returns based on the industrial activities to be generated as a result of using the land. Halving the land tenure with a view that it will lower industrial property price is too simplistic as the prices move in tandem to other factors such as demand velocity and volume. There is no perfect cooling off measure - but each of the suggestions, when acted in concert, will bring about reduced interest in speculation, hence a lowering of prices. David Ang THE effect of the reduction in the industrial land lease to 30 years will probably be marginal because the biggest cause to our escalating increase in business (as well as living) costs is asset inflation. The government prices its land based on so-called market value, as seen in HDB's principle of market subsidy instead of actual subsidy based on actual costs of land acquisition, development, etc. While the market subsidy can help to optimise utilisation among competing users, it can create a vicious circle when this principle is applied to an extreme, as is happening now in the application to land use pricing. It is time for the government to review the use of the market subsidy method of cost accounting and ascertain if this is the biggest culprit in asset inflation and hence, the high increase in business costs. Also, because this vicious circle of overpricing land is not only causing but escalating high property prices especially of premium properties, tycoons from all over the world are parking their money by buying up these premium properties thus causing the almost frenetic chase in 'super-properties'. This unfortunately, is causing a further escalation in the prices of general properties and even HDB ones. The government has to realise that in the longer term, this extreme application of the market subsidy will continue to aggravate the income disparity. Also, the fixation on enhancing our reserves has to be balanced with sufficient investment in our social fabric. Otherwise, this may eventually lead to a net result of more of our bright and young Singaporeans being more interested in settling and working elsewhere in the world. While the government continues to pour money into getting younger Singaporeans to procreate more, it should continue to invest sufficiently in social facilities and infrastructure for the pre-school children, the elderly, the disadvantaged and the disabled. Source: Business Times | |
Beware the folly of leaving it to market forces | Straits Times: Mon, Jun 25 |
| IN SOME ways, the debate now raging over whether the Government should impose more curbs to cool the froth in the residential market is remarkably similar to those that took place in the stock market in the past. Some readers have written to The Straits Times recently to urge the Government to stay its hand. 'Let the market decide,' said a reader, Ms Mei Ding, as she argued for not imposing any limit on the construction of shoebox units, which had experienced a buying frenzy earlier this year. How could shoebox units - with sizes of 500 sq ft or smaller - be a threat when they make up only 1 per cent of private housing units, another reader, Mr Wong Kah Khoon, wrote. This is not a column to discuss the merits of shoebox units. Instead, it is to highlight the fallacy of allowing market forces to correct any imbalances that may exist, drawing lessons from the financial crises that now occur with distressing regularity worldwide. Take the sub-prime bust in the United States that triggered the global financial crisis, whose side effects are still felt today. Influential pundits such as Nobel laureate Joseph Stiglitz and former US labour secretary Robert Reich felt that former US central bank chief Alan Greenspan could have done more to take corrective action when he discovered that US banks were lending out wantonly. 'The situation screamed for action, but Greenspan refused, trusting the market to weed out bad credit risks. It did not,' Mr Reich was quoted as saying. A contrite Mr Greenspan finally conceded error as he testified before US lawmakers in 2008, admitting that he had put too much faith in the self-correcting power of the free market and failed to anticipate the self-destructive power of wanton mortgage lending. Now that Singapore is experiencing a fifth year of abnormally low interest rates, spawned by the ultra-loose monetary policies of Mr Greenspan's successor, Mr Ben Bernanke, as he tries to nurse the sick US economy back to health, there is propensity for financial bubbles to develop here as well. One good example to look at is Spain, which enjoyed a decade- long property boom that was fuelled by the exceptionally low interest rates which it had enjoyed, after joining the euro. When the property bubble finally burst in 2008, as a result of the global financial crisis, it saddled Spanish lenders with about €180 billion (S$289 billion) in bad debts. This then put the euro zone in a quandary: bail out Spain or face the destruction of the single currency, as the interest rates on government debts spiral to record high levels. Not that the Bank of Spain was a particularly lax regulator. But like Mr Greenspan and other market regulators, it had adopted the view that it might warn of the danger but it should not intervene. That proved to be a costly oversight. In the local stock market, brokerages have learnt, through pain, the importance of reining in financial bubbles. As UOB Kay Hian executive director Desmond Choo noted, it was once common to hear of brokerages sitting on contra losses of over $100 million each time the stock market rally crashed. To stop such recurrences, the brokerages have come up with measures like 'designating' a stock where the speculative frenzy is building up, making it off-limits to Internet trading, and requiring the clients to come up with cash upfront to make the purchase. Indeed, such curbs make the huge contra losses suffered by brokerages a thing of the past. It also makes trading far safer for stockbroking clients, as it stops them from making foolish investment decisions which they may regret later. But on their own, self-policing measures may still be insufficient to stop some investors from their own follies. In January, the Monetary Authority of Singapore imposed fresh rules to protect small investors, requiring brokerages and other financial institutions to assess their clients on their financial know-how before they can trade in complex financial instruments. This was in the wake of the Lehman Brothers minibond debacle which had caused 9,900 investors to suffer a total loss of $520 million from buying toxic derivatives that were mis-sold to them as bonds. Quite sensibly, financial derivatives such as covered warrants and contracts for differences are put out of the reach of retail investors, unless they are 'certified' to trade them. But the restrictions ended up covering trading of foreign shares as well. Overnight, the client base in some brokerages, eligible to trade in foreign shares, fell by two-thirds. To enable their clients to resume trading in overseas-listed shares in October, the stockbroking industry has embarked on a massive project to 'tag' tens of thousands of foreign shares to determine their suitability for investment by retail investors here. Some will use the inconvenience suffered by investors in this instance as an argument to allow market forces to take the necessary corrective actions, since regulators may go overboard in their zeal to protect investors, if they intervene. Still, there is a strong argument to be made of tempering the 'caveat emptor' approach - weighing all the data given to make an informed investment decision - with occasional interventions to ensure that the market place is functioning properly. Preventing a bubble from brewing in the first place is far better than curing the ills it stirs up - as the US and Spain are discovering belatedly in their blighted real estate markets. Not that the Bank of Spain was a particularly lax regulator. But like Mr Greenspan and other market regulators, it had adopted the view that it might warn of the danger but it should not intervene. That proved to be a costly oversight. Source: The Straits Times | |
