SINGAPOREANS' move from the housing to non-residential market appears to be tapering out.
Figures show that purchases of industrial and commercial properties continued to plunge this year, a decline that started since the total debt servicing ratio (TDSR) was introduced two years ago. With individuals' share of total purchases still on the downward slide, companies have now emerged as key buyers in these segments.
This has erased all initial spikes of interest in non-residential units which resulted when individual investors were deterred from investing in residential properties by the cooling measure known as additional buyers' stamp duty (ABSD).
According to caveat data provided by government industrial agency JTC, in the first five months of 2015 the number of industrial property transactions by Singaporeans slumped 35 per cent year-on-year to 55.
This was in tandem with a 27 per cent fall in overall industrial transactions (by companies, Singaporeans and foreigners) from the same period last year to 435. Last year, industrial transactions plunged 48 per cent to 1,358, following a 44.2 per cent slump in 2013 to 2,619 from the preceding 2012 peak of 4,696.
Singaporeans' share of total purchases of industrial properties slipped further to 13 per cent this year, down from 14 per cent in the same period last year, 19 per cent for the whole of 2013 and 25 per cent for 2012.
But consultants note that 2011-2012 were "abnormal years" when a surge in speculative interest in industrial properties stoked a surge in prices and individuals' share of purchases; the boom in turn led to a proliferation of industrial shoebox units by developers with little or no experience in industrial projects.
By and large, a string of measures by JTC to keep business costs low for genuine industrialists has also brought down the abnormally high levels of purchases by individuals. Non-traditional industrial developers also seem to have stopped bidding for industrial plots in state tenders.
Though the commercial space has been largely spared from government cooling measures, still Singaporeans' office purchases plunged 78 per cent year-on-year in the first five months to 15; their retail transactions plunged 54 per cent from a year ago to 35.
The drop came on the back of a 71 per cent year-on-year dive in all office transactions (by companies, Singaporeans and foreigners) in the same period to 86 and a 57 per cent drop in retail transactions to 87.
The TDSR and a lack of launches this year has affected sales in the commercial and retail strata titled space, Savills research head Alan Cheong said. But he added: "The current anaemic market volumes is definitely not acceptable even for the medium term of 12 months.
"While buyers who could afford to make a purchase hold out, the velocity of transactions in the real estate economy collapses," Mr Cheong said. "This has severe repercussion on not only those who earn a living directly off real estate."
Chia Siew-Chuin, Colliers International director for research and advisory, noted that TDSR has effectively "crippled the purchasing power of Singaporean buyers who obtain onshore loans for properties here".
Lingering uncertainties over when interest rates will rise and a wide gap in price expectations between prospective buyers and sellers also weigh down transaction volumes, she said.
Century21 Singapore CEO Ku Swee Yong noted how agents used to encourage individual buyers to consider industrial and commercial strata units, touting them as property investment alternatives with no ABSD and no seller's stamp duty (SSD). The government has since imposed SSD on industrial properties bought on or after Jan 12, 2013 and sold within the three-year holding period.
But Mr Ku also warned that rising interest rates and pockets of vacancies in industrial and commercial properties could put a cap on yields.
An analysis by Knight Frank showed that post-TDSR, the average proportion of Singaporean buyers for office and retail properties fell to 22.2 per cent and 33.5 per cent respectively between H2 2013 and H2 2014, down from 28.8 per cent and 52 per cent between H1 2012 and H1 2013 - a pre-TDSR period after ABSD was first imposed on Dec 8, 2011.
In the first five months this year, companies accounted for 72 per cent of all office purchases, up from 66 per cent in H1 2013; they accounted for 49 per cent of all retail purchases, up from 42 per cent in H1 2013.
"The higher proportion of companies contributing to commercial transactions since the TDSR ruling reflects the advantage accorded to companies for such investments," said Knight Frank head of consultancy and research Alice Tan.
Companies are not subjected to the TDSR assessment nor ABSD (when it comes to non-residential purchases), prompting some investors to set up company entities to purchase commercial properties, she added. "Yet, the requirements and other associated costs of operating the company entity such as reporting and compliance costs would have deterred some individuals from adopting the company entity to invest in commercial properties."
Companies' purchases of industrial properties also dropped 25 per cent year-on-year to 372 in the first five months. But their share of total purchases have risen since 2012 from around 70 per cent and to 85.5 per cent in the first five months this year.
Consultants reckon that a cloudy outlook facing Singapore's small-and-medium enterprises and the borrowing curb on Singaporeans will continue to cap industrial property transactions this year.
But sellers with weaker holding power may cut their prices to move sales, Ms Chia said. "The weak buying sentiment poses challenges for developers looking for the opportune time to release units in their new developments for sale."
Upcoming projects for light industrial use include Far East Organization's Nordcom II at Gambas Crescent and NSS Group's Proxima@Gambas. Singapore-listed Wee Hur Holdings has a multi-user industrial development at Woodlands Avenue 12 that will be launched in the second half of this year.
SLP International executive director Nicholas Mak believe that there is latent demand as some Singaporeans still see industrial properties as a way to diversify their portfolio. But many are not able to get an ideal loan.
What has clearly changed since the exit of non-traditional industrial developers is that new projects are more functional to suit the operational needs of industrialists, without frills like the swimming pool and the selling of void areas.
But Ms Chia noted that whether upcoming developments will help revive the market depend on factors such as the project's location, building specifications, target market, presence of any competing projects in the vicinity and pricing.