Change of focus for property investors

Straits Times: Sat, Feb 11

THINK of property investment, and most people think of residential properties. But more individuals and investors are being drawn to industrial and commercial properties as an alternative place to park their investment cash. This growing group of buyers accounted for up to half of sales at some newly launched commercial projects. One factor may be that these purchases are exempt from the recently announced additional buyer's stamp duty, though other charges apply. Not surprisingly, business operators still make up the bulk of buyers of factories and other commercial and industrial property but investors are showing more and more interest. For example, at Primz BizHub, an industrial project in Woodlands, The Straits Times understands investors account for 30 per cent of the sales. More than 150 of the project's 380 factory units have been snapped up since marketing of the project started early last month, with units transacting at an average price of $390 psf. Units range in size from 926 sq ft to 2,590 sq ft, with the smallest 926 sq ft unit costing $351,880. Paya Lebar Square has seen investor interest inch up since sales of its strata office units started in December last year. Investors account for 52 per cent of sales so far at the 99-year leasehold project. The rest have been bought by businesses for their own use. The stronger interest from investors has helped to drive the price slightly higher. The average selling price stands at $1,710 psf, a $30 increase from the last reported price. EL Development chief executive Lim Yew Soon said his Eldix project in Mandai has also seen a recent rise in investor interest as more individuals or groups of individuals buy units. Of the 40 units sold so far, investors account for 20 per cent of the transactions, up from the 10 per cent to 15 per cent recorded in late December. Even businesses which buy industrial and commercial property could be using the space for investment purposes. Mr Rocky Lau, managing director of Cutter Technologies, bought two 1,160 sq ft units at Primz BizHub for about $380,000 each in anticipation of future expansion. 'But we have to look at the timing of the market. If it's not good, then we can always rent out the space and use it for investment.' Industrial and commercial property may be exempt from the additional buyer's stamp duty but buyers have to pay a 7 per cent government service tax. Also, they cannot use their Central Provident Fund to offset the property purchase. Analysts point out that the lower cash outlay required to buy strata industrial and commercial property is one big draw for investors. It is possible to snag a unit for less than $500,000, depending on factors such as the location and type of building. Such deals are rare in the private residential segment, with homes more likely to start above the $1 million mark. Rental yields are another attraction, with some industrial and commercial spaces touting an estimated yield of 6 per cent to 8 per cent, significantly higher than the 2 per cent to 3 per cent return on investment for residential property. But higher returns come with bigger risks, said Mr Nicholas Mak, head of research at SLP International. 'Residential properties may have a lower yield but such properties can tap into a bigger pool of potential buyers and usually have good capital appreciation,' he said. 'Industrial and commercial property will also be the segments that get hit the hardest when there is a prolonged economic downturn.' [e-mail] Source: The Straits Times