Number of mortgagee sales of strata industrial units rises
By Michael Lim
/ The Edge Property |
Two 3,046 sq ft units at Entreprenuers Business Centre in Kaki Bukit have been put up for auction eight times since April 2014, and are now available for sale by private treaty. Click here for more listings of industrial properties near Kaki Bukit.
Source: DTZ
The number of strata-titled industrial properties surfacing as mortgagee sales at auctions is on the rise. The increase has been more pronounced over the past 12 months, as the weakening of the global economy has taken a toll on the industrial sector.
While hardly any strata industrial properties were put up for mortgagee sale in 1Q2015, at least one or two units appeared as a bank sale at every auction in January and February, says Joy Tan, DTZ head of auction. Most of the strata factories put up for mortgagee sale today are owner- occupied, she observes.
An example is a 7,858 sq ft, three-storey strata terrace factory at Ubi Techpark. The former owner purchased the factory unit for $1.18 million ($150 psf) in November 2003, and had been using it for many years for its trading business. In the middle of last year, the factory was tenanted at $12,000 a month for two years, with the lease expiring at end-July 2017.
The property at Ubi Techpark first surfaced as a mortgagee sale at Knight Frank’s auction last November with an opening price of $3.3 million. As it failed to find a buyer, it was put up for auction a second time on Feb 17 with an opening price of $3.18 million. It drew a counter offer of $2.3 million and four subsequent bids, with the highest of $2.55 million before it was withdrawn. The property has a 60-year lease with effect from 1997.
The monthly rental rate of $12,000 and guide price of $3 million for the Ubi Techpark property translate to a gross rental yield of 4.8%. This is considered rare, as most repossessed properties are sold with vacant possession, says Sharon Lee, head of auctions at Knight Frank Singapore.
This was the case for two industrial units put up for auction by JLL on Feb 23. Both were mortgagee sales and were being sold with vacant possession. One was a 60-year leasehold, ramp-up factory unit of 3,821 sq ft in Woodlands Industrial Park E1, which had an opening price of $900,000. The other was a 60-year leasehold, 1,313 sq ft factory unit at UB One at Ubi Avenue that had an opening price of $730,000. Both were withdrawn, as there were no takers.
The number of mortgagee sales of strata industrial units purchased by investors is expected to rise in the coming months. Many of these small scale investors who entered the industrial market prior to the government’s imposition of the sellers’ stamp duty (SSD) in January 2013 and total debt servicing ratio (TDSR) loan framework in June that year are now finding it a challenge to service their bank loans, says Grace Ng, deputy managing director of Colliers International.
Since the global financial crisis, banks have been more active in engaging their clients who are facing problems with their loan repayments. “They will give them time to sell the properties themselves before stepping in,” says DTZ’s Tan. “The entire process from ‘owner’s sale’ to ‘mortgagee sale’ could take up to six months.”
While many of the strata industrial units listed as mortgagee sales at auctions have a 60-year lease tenure, more properties with 30-year leases are likely to be put under the hammer in the coming months. This is because, in June 2012, the government halved the lease to 30 years to rein in prices of strata industrial properties. “We are not seeing many 30-year leasehold units just yet because these were purchased mainly by end-users,” says DTZ’s Tan. “But we’re likely to see more in the coming months.”
In a tough economic environment, end-users and industrialists have become increasingly cost-sensitive and cautious in taking up space. With the net addition of 5.7 million sq ft of new multi-user factory space in 2014 and another 4.8 million sq ft last year, competition for qualifying industrial tenants has also intensified, says Colliers’ Ng. Rents for multi-user factory space have fallen 5.3% from the peak of 3Q2013 to 4Q2015.
Some investors who purchased such industrial units at launches prior to the 2013 property cooling measures were under the impression that they could lease them out as office space and they therefore had a higher yield expectations, according to DTZ’s Tan. The strict enforcement of the 60:40 rule of B1 industrial space — where 60% has to be designated for industrial use and 40% for ancillary office use — since 2013 has caused many office tenants to move out of such spaces.
This move has also had an impact on rents of such industrial space which are hovering at $2 to $2.50 psf, and therefore yields, say property consultants. It is also taking longer to find tenants for such space, adds Knight Frank’s Lee.
This article appeared in the City & Country of Issue 718 (March 7, 2016) of The Edge Singapore.
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