4 reasons why the industrial cooling measures will have minimal impact on landlords

The policy intent is targeted at speculators.

According to Maybank Kim Eng, effective on 12 Jan 2013, the government has introduced the Seller’s Stamp Duty to the industrial property segment to curb speculative activity. The rationale being that prices of industrial properties have doubled over the last three years.

Here's more from Maybank Kim Eng:

Industrial properties and land bought and sold within three years will henceforth incur SSDs starting from 15% if sold within the first year (stepped down at 5% for each subsequent passing year).

We also noted that the SSD may be remitted for developers’ sale of the industrial properties developed by them. As such we think the impact on industrial landlords will be minimal because of the following:

■ The policy intent is targeted at speculators and not long-term owners of industrial assets. It is also unlikely that Industrial REITs will need to divest properties held for less than three years (since majority of assets should be income-producing real estate).

■ Since developers are remitted from SSD, this will not impact sponsor’s injection into the REIT or acquisitions from third-party developers.

■ Speculative activity will be restrained moving forward. Nonetheless, we do not think that capital values for industrial assets will be impacted by more than 5% in 2013, given underlying genuine demand from industrialists (barring a macroeconomic downturn).

■ As of 3Q12, the industrial price index has risen by 103% vis-à-vis three years ago. Nonetheless, the industrial rental index is only up 39%. We do not think that rentals (which affect DPU for S-REITs) will be affected materially, taking into account that leasing activity amongst MNCs and SMEs remains strong, andthis should provide price support for rentals.