Boss, they’ve shrunk the land

SINGAPORE — The Government has cut the total volume and individual lot sizes of industrial sites that will be made available under its land sales programme for the next six months, a move analysts say is a continuous effort to meet demand from end-users and keep land prices from escalating.

Fourteen parcels, with a total site area of 14.08ha, will be on offer under the Industrial Government Land Sales (IGLS) Programme for the first half of 2015, the Ministry of Trade and Industry (MTI) said yesterday. This is the smallest supply since the second half of 2008, when 13ha of industrial land were placed for sale.

“The Government has released a lot of (industrial) sites in the last three years and I think that has met a large part of demand, so there’s no need to pump in a lot of supply now,” said Mr Nicholas Mak, executive director of real estate firm SLP International Property Consultants.

Of the 14 sites, nine are on the Confirmed List, similar to that in the second half of this year. However, the total site area of 6.46ha available under the Confirmed List for the next six months is about half of the 12.06ha offered in the current programme and the lowest since the first half of 2011, when 5.82ha of industrial land was made available.

The individual sizes of the lots in the upcoming programme are also smaller, ranging between 0.47ha and 1.37ha, as compared with 0.5ha and 2.79ha in the current programme.

Sites on the Confirmed List are put up for sale regardless of market interest, while those on the Reserve List are triggered for public tender only if a developer makes an acceptable opening offer.

All but one of the nine Confirmed List sites have 20-year tenures which, when combined with smaller plot sizes, will attract more end-user industrialists to participate in the tenders, analysts said. The maximum tenure for industrial sites offered under IGLS is 30 years.

“I think this IGLS is mainly to satisfy the needs of industrialists, rather than developers who are looking to build and then resell. The 20-year leases will make it difficult for anyone to resell because of limitations in getting loans, and the small sizes mean it is harder to sub-divide the development,” said Mr Ku Swee Yong, chief executive of real estate agency Century 21. “Overall, these constraints could lead to lower bid prices for the tenders. With lower bid prices then perhaps industrial land values will start to drop.”

But Mr Mak said there is limited room for overall prices to drop as land costs make up only 20 to 30 per cent of overall development expenses.

“The other development costs, such as construction, financing, management, consultants’ fees and marketing costs make up about 70 to 80 per cent of the development costs. By lowering the land costs, the cost of industrial space is unlikely to be reduced much … Reducing the land tenure will not reduce the construction cost,” he said.