http://www.businesstimes.com.sg/arch...space-20131015
Published October 15, 2013
HDB calls time on assignment of tenanted business space
By ong chor hao [email protected]
THE Housing & Development Board (HDB) yesterday acted to curb rising operating costs and speculation in its rental commercial and industrial properties - a move that market watchers said will lead to a more level playing field for genuine businesses seeking space in those sectors.
The board said it has introduced a two-stage plan to end the practice of assignment where tenants can pass on their tenancy to a new party for a one-time fee. It added that it currently has 8,000 commercial tenants and 10,700 industrial tenants, and sees an average of about 500 cases of assignment for each group every year.
The new rule came after the agency noted rising average assignment fee and tendered rent in the past few years for these premises, which can contribute to higher operating costs that may be then passed on to residents and consumers. "Assignment may also encourage unhealthy speculation," HDB said. The intention for assignment fees had been to facilitate the exit of tenants that need to close down their businesses and minimise disruption.
HDB's commercial units generally cater to two types of businesses: retail/service trades and eating houses. The average tendered rent has increased 21 per cent from last year to $7.90 per square foot (psf) currently.
Assignment fee averages $144,000 now, a 66 per cent surge year on year. As for HDB industrial properties, comprising mainly food, motor workshop and light industrial developments, the average tendered rent has risen 40 per cent since last year to about $2.60 psf.
The average assignment fee for clean and light activities is about $35,000 while the fee for more popular units such as food factories and motor workshops has been transacted for as high as $100,000 to $150,000.
Tan Boon Leong, executive director of industrial services at Colliers International, cited one industrial deal where the assignment fee was some $500,000.
HDB said it chose to disallow assignments to preserve the original intent of the premises to serve the needs of residents and consumers within HDB estates.
Analysts believe speculative activity can creep in through the tender process (see chart). End-users may face unfair competition from investors or speculators who bid with the intention to re-assign them later for profit through the assignment fee.
This is notable as the rents at these HDB premises are about 20 to 30 per cent lower than market rates, and enjoy strong footfall, analysts said. Each round of assignment also presents new speculative possibilities, they added.
That is set to change.
HDB will disallow assignments for all new commercial and industrial tenancies from tomorrow. Tenants who wish to shutter their businesses must return their premises to HDB for a re-tender.
Existing tenants get a three-year reprieve. They will be allowed to assign their shops or industrial premises up until Oct 15, 2016 (they can also choose to return the premises to HDB within this time). But new tenants taking over from them cannot assign the properties.
Shop tenants can still sublet up to half of their premises if they want to scale down operations, with the caveat that they can have only one sub-tenant.
Consultants mostly welcomed the policy changes.
Eugene Lim, key executive officer at ERA Realty, said it "closed a loophole" with regard to speculation.
Desmond Sim, associate director at CBRE Research, said that while the changes may not have too big an impact on the economy - a single mall the size of Plaza Singapura can have up to 200 tenants - they ensure genuine business owners do not have to contend with those who have no intention of meaningful operations at the HDB premises.
"So hopefully the competition is lesser and your operating costs is a bit lesser (as well)," he said.
Still, there were some points of concern.
Colliers' Mr Tan said there could be "unintended victims", in the form of existing tenants who have paid a high assignment fee and cannot pass this on to the next tenant any more.
Mohamed Ismail, CEO of PropNex Realty, said there are few instances of speculation in these units.
"Assignment fees have their own merits," he added. When businesses fail, they could assign their space to similar businesses to recoup part of renovation costs, which can run around $30,000 to $100,000 for office space. He said the new operators also incur lower operating costs to start the business.
On another note, CBRE's Mr Sim suggested that the authorities could look at tackling the sales of HDB commercial properties next, with some high prices being set on that front recently.
In July, a coffee shop in Hougang sold for $23.9 million, or $5,930 per square foot, a record price for an HDB coffee shop.
The termination of assignments brings HDB's practices in line with those at other government agencies and private landlords, it said. Last March, the Ministry of Environment and Water Resources banned subletting and assignment of tenancies for hawker and wet market stalls.
Separately yesterday, HDB said it will increase the supply of HDB shops in tandem with the ramping up of public housing development by building four neighbourhood centres in Punggol, Hougang and Sembawang over the next five years. Details will be announced later.
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