More SMEs own office spaces to save on rental costs

More small and medium enterprises (SME) are taking steps to own their business premises.

Experts said the upturn in Singapore’s economy encouraged companies to increase their capacity.

And SMEs are also opting to buy office, warehouse and factory space to save on rental costs which analysts said could rise by 15 to 18 per cent this year.

Packaging solutions provider Greenpac believes consolidating its business under one roof will be beneficial in the long-term.

It will spend S$20 million on a new facility in Tukang Innovation Drive to move its warehouse and offices in the next 12 months.

This will shave some 30 per cent from its monthly rental costs of S$140,000.

Susan Chong, CEO of Greenpac, said: “After so many years of paying rent, I think it will be more viable to own the property. So end of the day, at least whatever you paid you still own them.”

Low interest rates and the need to insulate against rising rentals are driving firms to seek loans.

OCBC Bank said it has seen a three-fold increase in the number of applications for mortgage loans for commercial properties in the past six months.

Tan Chor Sen, head of Emerging Business of OCBC Bank, said: “It’s due to real demand for such properties, as well as the market’s reaction to the various property cooling measures that have been introduced, as investors look at redirecting their surplus monies to alternative investment sources.

“Amongst the buyers, we see a growing interest in industrial properties, with many of them investing in such properties for business use such as manufacturing and storage of goods and raw materials,”

DBS has also seen growth in its commercial and industrial property loans among SMEs.

Experts said the trend will continue as more companies see the benefit of owning spaces rather than leasing them.

Alfred Chia, chief executive officer of financial advisory firm SingCapital, said: “Generally banks are willing to provide support for business owners to buy their own premises for their own use of up to at 80 per cent loan quantum.

“So based on a half a million dollar kind of property investment, generally, all you only need to do is come up with S$100,000 bearing in mind all the stamp duties and miscellaneous charges.

“The first point of consideration is, based on the rental I am paying now, can I better make use of these resources if I’m to own a space? For example, if I buy a space and my installment can be cheaper than my rental, then I would say that is a very good point of consideration. And any capital appreciation should come as a kind of secondary consideration.”

SMEs are likely to buy those properties that are in city fringes or outskirts where Grade C offices and industrial properties are more affordable.

Donald Han, vice-chairman of Cushman & Wakefield, said: “Usual budget would be anything from about less than S$3 million in that sense.

“And you are looking at price per square foot affordability can range between S$300 per square foot to as high at about S$1,500 to S$1,600 per square foot.”

“The first half of this year, rents have gone up by at least 10 per cent. We expect a more stable second half where rents will probably go up another 6 per cent. In all, we are looking at 15 to 18 per cent increase this year primarily led by prime office buildings.”

But experts warn that SMEs must also be cautious before making the leap, as a rise in interest rates could impact their cash flow and ability to pay their mortgage.

And there are also other headwinds.

Edwin Khoo, head of Enterprise Banking of DBS Bank, said: “Going forward, uncertainties in the macroeconomic environment such as the anaemic growth in the US, debt situation in the Eurozone and threat of a hard landing in China may have an impact on demand for commercial and industrial property loans.”

Source : Channel NewsAsia – 20 Jul 2011

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