THE government has placed only 20-year leasehold land parcels on its confirmed list of industrial sites for sale in the second half of this year – a move that has set some market watchers wondering if 20 years is the new norm for industrial land tenures.
On that, a Ministry of Trade and Industry spokesman told BT that the launch of sites with a 20-year tenure “aims to lower the upfront costs for industrialists looking to custom-build their own facilities or to purchase strata-titled properties”. “Our intent is to provide more options for industrialists looking for affordable industrial space,” the spokesman said.
Ten sites zoned for Business-2 or heavier industrial use are placed on the confirmed list of the Industrial Government Land Sales (IGLS) programme announced by MTI on Monday. Nine sites are located in Tampines or Tuas and one at Tanjong Penjuru. No site zoned for Business-1 or light industrial use is offered under the confirmed list this time round.
But a B1 site at Woodlands Height with a 30-year tenure is placed under the Reserve List, along with three B2 sites that are respectively located at Tuas South Link 1 (30-year tenure), Tuas Bay Close (30-year tenure) and Tampines Industrial Drive (20-year tenure). Sites on the Reserve List are triggered for sale if there is sufficient market interest and a minimum acceptable bid is submitted by an interested party.
JTC will be the sales agent for all the sites on the Confirmed and Reserve Lists. The moderate supply of small units with shorter tenure is seen as an ongoing government strategy to taper the supply of industrial space from an earlier ramp-up.
The MTI spokesman said the government has been rolling out more B2 sites because they can be used for both general industrial use as well as clean and light industrial use, offering industrialists greater flexibility.
The higher gross plot ratios (GPRs) for the smaller sites in the new IGLS programme translate into a higher maximum gross floor area of 1.115 million sq ft from all sites on the Confirmed List, slightly higher than the 1.067 million sq ft from the H1 2015 Confirmed List. SLP International executive director Nicholas Mak reckoned that the higher plot ratio, up from a typical GPR of 1.0 for small industrial sites, could be an attempt to encourage buyers to increase the intensity of the development and usage of such sites.
“All the small sites are too small to be efficiently developed into ramp-up factories,” he said. “With a plot ratio of 1.4, the small site could potentially be developed into a four to six-storey flatted factory or terrace factories, but with nine sites on the confirmed list situated in Tampines Industrial Drive and Tuas South Link 2, flatted factories are not expected to be popular in these two locations.”
Mr Mak pointed out that even the Tanjong Penjuru site that can be developed into a multiple-user factory by a developer has a 20-year tenure. “It appears that the government is trying to test whether the market would accept 20-year land tenure as the new norm,” he said. Colliers International director of research and advisory Chia Siew-Chuin noted that the government’s move to place all the 30-year leasehold sites on the reserve list is a welcome one, given the sluggish sales momentum and ample pipeline supply.
But she found it “somewhat surprising” that the government has decided to include a new 30-year leasehold site at Woodlands Height in the H2 2015 Reserve List, given the ample supply in the north region.
“There are no sites in the Central locality/prime industrial areas like Ubi; this is different from H1 2015 where the government placed a 30-year leasehold B1 site located at Ubi Avenue 1 on the Confirmed List.”
The government has since mid-2012 slashed industrial land leases to a maximum of 30 years and rolled out sites with shorter tenures. It also introduced other measures such as restricting the use of industrial premises, having a minimum size for each unit, and banning strata sub-division of projects on selected sites in the first 10 years after the project’s completion.
JTC also lengthened the prohibition period for lease assignments and increased the minimum occupation period for anchor tenants who do sale and leaseback arrangements on JTC-leased sites.
Mr Mak, however, questioned if the shortened tenure for industrial sites has indeed cooled industrial land prices. “If 20-year leasehold becomes the new norm, then 30-year leasehold sites will be worth more, the 60-year leasehold sites will be worth even more, so the property costs will go up,” he posited. He is also concerned about whether buyers of 20-year leasehold strata units will have difficulties in obtaining sufficient mortgage financing due to the short land tenure.
Consultants believe it is unlikely that developers will trigger any sites on the Reserve List, amid substantial completions of industrial projects from this year.
R’ST Research director Ong Kah Seng noted that the land parcels in Tuas on the Confirmed List may be targeted at end-users. But there have been many small Tuas plots rolled out previously and have generally met the demand from industrialists looking at small plots.
While there may be ongoing demand from industrialists, contractor-developers, or even developers for industrial land parcels in Tampines, bidding interest for the five Tampines plots on the Confirmed List will likely be cautious, he said.