Property investors with a budget of below $1.5 million are diversifying from the residential sector to other sectors, most notably industrial, in bigger numbers since the government began introducing measures to cool the residential sector in September 2009.
This is borne out by a study of URA Realis caveats data for private homes (excluding executive condos), as well as strata private industrial (factory) space, offices and retail properties (excluding shophouses) - all below $1.5 million.
The private residential sector's share of this pool of total caveats has fallen from a high of 96.6 per cent in Q2 2009 (before the first of four rounds of property cooling measures were rolled out) to 87.2 per cent in Q3 2011 (based on caveats data as of Oct 12). Over the same period, the percentage share of strata private industrial (factory) units has risen from 2.2 per cent to 8.8 per cent, while that for strata offices has gone up from 0.4 per cent to 1.4 per cent and strata retail, from 0.8 per cent to 2.6 per cent.
Analysts attribute the contraction in residential property's share to government measures to cool the housing market, such as a lower loan-to-value (LTV) limit for housing loans for property investors and seller's stamp duty to deter short-term trading of private homes.
Due to the punitive policies, investors have been seeking non-residential properties. The LTV an investor can obtain for commercial and industrial properties can be as high as 70 per cent, compared to only 60 per cent for a second residential property. Naturally, investors are driven towards the non-residential segment - especially industrial, which has a much larger stock of strata units than retail and office. Nonetheless, investor interest for strata retail and office space is still strong.
Another incentive for property investors to venture beyond the residential sector is yields. Net yields of 6.5 to 7 per cent for industrial property, 5 to 6.5 per cent for retail, and 3.5 to 4 per cent for office properties - are higher than the 2 to 3.5 per cent yield for private homes.
Industry observers say some marketing agents tout such premises for office use even though such use is unauthorised.
So far, residential volume is still a dominant force of about 80-odd per cent of total number of transactions. However, if the volume of non-residential transactions continues to rise, and speculation becomes rampant and affects the normal operations of businesses, the state may need to relook its policy.
Figures also show that the total number of caveats (for all property segments) rose about 33 per cent q on q to 6,949 in Q2 2011, reversing three consecutive quarters of contraction.
This rebound, however, may be shortlived. As of Oct 12, caveats were lodged for 4,268 deals in Q3 across all sectors, or 61.4 per cent of the Q2 volume - suggesting that market confidence has weakened on the back of global uncertainty.
Source: Business Times – 24 October 2011
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