Introduction
Investing in industrial real estate is a niche that has garnered significant interest amongst Singaporeans.
It dangles the hope of owning multiple properties without ABSD, while allowing everyday Singaporeans to become landlords collecting passive rental income monthly.
With full transparency, we share common interest in the topic as we seek to find ways to go beyond owning 2 residential properties.
Quick intro – Decoupling Expertise
Quick introduction, before you decide to commit the next 5 mins reading this article.
We are decoupling expertise, a team of specialist realtors that specialise in helping Singapore property owners derive the best strategy to purchase their second investment property without ABSD.
While decoupling property is often the go-to strategy that property owners adopt. We pride ourselves for helping our client explore and evaluate other alternatives that best suit individual circumstances and objectives.
Drop us a text to explore the best strategy to purchase your 2nd investment property.
What are Industrial properties in Singapore ?
Industrial properties are properties used for industrial activities.
Industrial activities include manufacturing, food processing, warehousing, and most importantly growing industries like media production, software development and ecommerce distribution.
60:40 land use – A unique value proposition for Industrial Property
The 60:40 usage rule stipulated by URA is a notable feature for industrial property which serves as the core appeal for tenant demand within the emerging media production and digital businesses.
The 60:40 usage rule provides the leeway for 40% of the industrial property space to be used for ancillary supporting purposes. This includes offices, meeting rooms and showrooms.
This serves as an appeal for upstart tech companies to consider renting an industrial property as office space as compared to renting a pricier commercial office space.
If you walk the ground, you should see companies below forming the bulk of the tenancy landscape, as a hallmark of a thriving industrial real estate development.
Classification of Industrial real estate
We will touch on this briefly for completeness in information. We are mindful not to dwell too much into general knowledge that does not help our readers into making the next concrete move in real estate investing.
B1 Industrial Property
Industrial property that caters to light industrial activities that does not cause a disturbance or disamenities its surrounding. The B1 industrial properties can be located near MRTs, in close proximity to residential estate.
Light industrial activities include, light manufacturing, printing, industrial training, e-businesses, media production businesses and software development.
Walking the ground, reviewing the tenancy profile of B1 Industrial developments you would see digital marketing agencies, advertising agencies, videography and production agencies, accounting firms, shipping companies and tech software and hardware development and distribution firms.
Note these are mainly local SMEs.
B2 Industrial Property
These are industrial properties that are used for heavy industrial purposes. Due to the negative externalities that come with these activities, a 100m buffer is required between these properties and its surrounding areas.
Heavy industrial activities include car repair and heavy manufacturing. Expect to see car workshops, steel work, etc as you walk the ground.
Strata titled Industrial Property Development
Strata titled industrial property is the focus for our discussion. Strata title properties allow individual buyers to buy individual lots or units within a bigger industrial development, akin to purchasing a unit in a condo development. This makes purchase quantum affordable and attainable by average retail investors.
Different types of lease for industrial properties
Industrial properties lease ranges 30 year, 60 years, to freehold. The government has stopped releasing land sales for industrial properties with 60 years of lease. So most industrial properties that are currently being developed have a 30 year lease.
As an investor, you will prioritise your purchase towards industrial property with a longer 60 years leaslife. This provides a greater runway for the property to change hands and be flipped for capital appreciation.
Profitability of investing in Industrial Property
Before you commit more time towards gaining head knowledge. It is important to first consider if investing in Industrial property is even profitable ?
Research Method
We conducted a cross sectional profitability study for Industrial property. The following criteria was used to gather the necessary data for our analysis.
- Filtering for all Industrial properties with 60 year lease
- Further sieving out Industrial properties with at least 15 sale transactions over the last 12 months.
Percentage Profitable vs Unprofitable Transaction – Industrial Real Estate Singapore
The first insight to take away is that risk of losing money is greater in industrial property investing when compared with residential real estate investing.
As a benchmark, the percentage of profitable vs unprofitable transactions for residential real estate ranges from 100% to 97%. Majority of the private residential real estate 100% profitability ratio.
There is a higher risk of losing money when investing in Industrial property
From the table below, Industrial property profitability ratio, averages in the 80% mark and there are significant frequency of development experiencing subpar profitability rate below 70%.
| Project Name | Tenure | Lease Remaining | No of Profitable Transaction | No of Unprofitable Transaction | % Profitable Transaction |
| UB POINT | 60 YRS FROM 1997 | 33 | 34 | 0 | 100% |
| NORTHSTAR @ AMK | 60 yrs FROM 2007 | 43 | 532 | 45 | 92% |
| ENTERPRISE HUB | 60 yrs FROM 1997 | 33 | 329 | 34 | 91% |
| MIDVIEW CITY | 60 yrs FROM 2008 | 44 | 524 | 58 | 90% |
| NORTH SPRING BIZHUB | 60 yrs FROM 2011 | 47 | 182 | 21 | 90% |
| WOODLANDS 11 | 60 yrs FROM 2010 | 46 | 175 | 21 | 89% |
| PRIMZ BIZHUB | 60 yrs FROM 2011 | 47 | 191 | 24 | 89% |
| A’POSH BIZHUB | 60 yrs FROM 2010 | 46 | 151 | 19 | 89% |
| TRADEHUB 21 | 60 yrs FROM 2003 | 39 | 343 | 54 | 86% |
| UBI TECHPARK | 60 yrs FROM 1997 | 33 | 636 | 102 | 86% |
| HARVEST @ WOODLANDS | 60 yrs FROM 2009 | 45 | 255 | 45 | 85% |
| WCEGA TOWER | 60 yrs FROM 1997 | 33 | 200 | 50 | 80% |
| VERTEX | 60 yrs FROM 2007 | 43 | 242 | 73 | 77% |
| NORTH LINK BUILDING | 60 YRS FROM 1999 | 35 | 357 | 157 | 69% |
| PAYA UBI INDUSTRIAL PARK | 60 yrs FROM 1997 | 33 | 88 | 61 | 59% |
| 8B @ ADMIRALTY | 60 yrs FROM 2000 | 36 | 48 | 38 | 56% |
| ARK@GAMBAS | 60 yrs FROM 2012 | 48 | 29 | 32 | 48% |
| WCEGA PLAZA | 60 yrs FROM 1997 | 33 | 105 | 157 | 40% |
| OXLEY BIZHUB | 60 yrs FROM 2010 | 46 | 105 | 157 | 40% |
| LINK@AMK | 60 yrs FROM 2011 | 47 | 24 | 47 | 34% |
Average Profits derived from Investing in Industrial Properties
The upside to be noted is that there is reasonable capital gain to be made when investing in the right industrial property. Referencing the data below, we see an average of $180k capital gain across 20 industrial property developments.
Better performing industrial developments can rein profits that spill into the $300k range, this is a decent amount considering the significantly smaller capital outlay incurred when buying a 1 plus mil industrial property versus purchasing a 2 to 3 mil residential property.
Long holding duration is a concern
Profits aside, how long you take to make the profit is an even more important consideration. The alarming point to note is that the average holding duration that owners took to make an average of $180k to $200k capital gain is an average of 9 years.
Trust me, you would want to make more than $200k to $300k in 9 years. We will discuss this in a later section when we compare residential real estate investing with industrial real estate investing.
| Project Name | Tenure | Lease Remaining | Average ProfitAll transaction from year 2020 onwards | Average Holding DurationProfitable Transaction (years) |
| NORTH LINK BUILDING | 60 YRS FROM 1999 | 35 | 386,275 | 12 |
| ENTERPRISE HUB | 60 yrs FROM 1997 | 33 | 350,161 | 11 |
| UBI TECHPARK | 60 yrs FROM 1997 | 33 | 312,964 | 11 |
| NORTHSTAR @ AMK | 60 yrs FROM 2007 | 43 | 244,234 | 10 |
| HARVEST @ WOODLANDS | 60 yrs FROM 2009 | 45 | 232,672 | 10 |
| TRADEHUB 21 | 60 yrs FROM 2003 | 39 | 223,409 | 10 |
| NORTH SPRING BIZHUB | 60 yrs FROM 2011 | 47 | 213,719 | 10 |
| MIDVIEW CITY | 60 yrs FROM 2008 | 44 | 211,969 | 9 |
| PAYA UBI INDUSTRIAL PARK | 60 yrs FROM 1997 | 33 | 204,871 | 17 |
| VERTEX | 60 yrs FROM 2007 | 43 | 202,351 | 9 |
| WCEGA PLAZA | 60 yrs FROM 1997 | 33 | 201,011 | 10 |
| A’POSH BIZHUB | 60 yrs FROM 2010 | 46 | 190,096 | 8 |
| WOODLANDS 11 | 60 yrs FROM 2010 | 46 | 142,228 | 9 |
| WCEGA TOWER | 60 yrs FROM 1997 | 33 | 111,723 | 10 |
| PRIMZ BIZHUB | 60 yrs FROM 2011 | 47 | 102,351 | 9 |
| UB POINT | 60 YRS FROM 1997 | 33 | 94,941 | 3 |
| OXLEY BIZHUB | 60 yrs FROM 2010 | 46 | 76,217 | 9 |
| ARK@GAMBAS | 60 yrs FROM 2012 | 48 | 60,543 | 9 |
| 8B @ ADMIRALTY | 60 yrs FROM 2000 | 36 | 60,210 | 9 |
| LINK@AMK | 60 yrs FROM 2011 | 47 | 57,493 | 10 |
| Average | 183,972 | 10 |
Losses can be significant
Inline with the earlier point on higher unprofitability ratio for industrial properties, the average losses are also significant. The price to pay when getting it wrong is also higher.
| Project Name | Tenure | Lease Remaining | Average LossesAll transaction from year 2020 owwards | Average Holding DurationUnprofitable Transaction (years) |
| NORTH LINK BUILDING | 60 YRS FROM 1999 | 35 | -131,797 | 9 |
| ENTERPRISE HUB | 60 yrs FROM 1997 | 33 | -152,849 | 7 |
| UBI TECHPARK | 60 yrs FROM 1997 | 33 | -44,248 | 6 |
| NORTHSTAR @ AMK | 60 yrs FROM 2007 | 43 | -131,058 | 6 |
| HARVEST @ WOODLANDS | 60 yrs FROM 2009 | 45 | -121,435 | 8 |
| TRADEHUB 21 | 60 yrs FROM 2003 | 39 | -158,660 | 8 |
| NORTH SPRING BIZHUB | 60 yrs FROM 2011 | 47 | -429,070 | 7 |
| MIDVIEW CITY | 60 yrs FROM 2008 | 44 | -44,436 | 7 |
| PAYA UBI INDUSTRIAL PARK | 60 yrs FROM 1997 | 33 | -176,973 | 9 |
| VERTEX | 60 yrs FROM 2007 | 43 | -103,283 | 7 |
| WCEGA PLAZA | 60 yrs FROM 1997 | 33 | -134,000 | 7 |
| A’POSH BIZHUB | 60 yrs FROM 2010 | 46 | -37,183 | 7 |
| WOODLANDS 11 | 60 yrs FROM 2010 | 46 | -55,573 | 7 |
| WCEGA TOWER | 60 yrs FROM 1997 | 33 | -98,075 | 8 |
| PRIMZ BIZHUB | 60 yrs FROM 2011 | 47 | -43,224 | 8 |
| UB POINT | 60 YRS FROM 1997 | 33 | 0 | 0 |
| OXLEY BIZHUB | 60 yrs FROM 2010 | 46 | -99,879 | 10 |
| ARK@GAMBAS | 60 yrs FROM 2012 | 48 | -60,665 | 7 |
| 8B @ ADMIRALTY | 60 yrs FROM 2000 | 36 | -51,524 | 9 |
| LINK@AMK | 60 yrs FROM 2011 | 47 | -165,383 | 8 |
| Average | -111,966 | 7 |
Rental yield and rental income generated from Industrial property
To most of us, making money from Industrial real estate comes in 2 parts, capital gain and collecting rent.
In this section, we will explore how much net cash flow we will take home, assuming we were to own an industrial property in today’s interest rate environment.
The key point to note when it comes to rental performance is to look at net cash flow generated, not to simply look at gross rental income and gross rental yield. Both the latter metrics did not take interest rates and monthly interest expense into consideration.
Example : Purchase a B1 Industrial unit at Midview City
Basic Information
- Price of property – $955,260
- Size – 1647 sqft
- Tenure remaining – 44 years
Financing Assumptions
- Loan to valuation – 70% (assume lower LTV for industrial property, for prudence)
- Loan Quantum – $668,682
- Down payment – $286,578 (30%, cash, CPF cannot be used)
Estimated Rental income
- $3,800 – based on prevailing rental rates
Monthly Recurring Cost
- Monthly Mortgage Payment (principal + Interest) – $3,001 (based on 4% interest rate)
- Monthly Maintenance Fee – $200
- Monthly Property Tax – $250 (yearly, amortised over 12 months)
- Total Monthly Recurring Cost – $3,451
- *Note – Interest rates for Industrial property is 0.5% or 1% higher than prevailing residential mortgage rates.
Nett Monthly Cash Flow
- Rental income less Monthly Recurring Cost
- $349
So, referring to the simulated example above, using actual price, interest rates and rental rates for industrial property. You would realise that what’s remaining from the $3.8k rental monthly after netting off recurring expenses is only $349.
And it is important to note that interest rate is the major component influencing your monthly passive income.
The real rental yield of Industrial Properties
Taking this 1 step further, let’s look into the actual rental yield of an industrial property.
Rental yield before factoring interest expense and other monthly recurring expense – 4.8% to 5.0%, pretty healthy number when compared with the average 3% – 4% rental yield for residential real estate.
Nett rental yield after factoring interest rate and recurring monthly expense – 0.44%, assuming a 4% interest rate.
The impact of Interest rates on Rental yield and cash flow
It is important to note that interest rate rises and falls within the interest rate cycle, the example above took a prudence stance by assuming a 4% interest rate in an inflationary environment.
In this section, we will simulate the positive effect on rental yield and cash flow, when interest rates fall.
| Rental Income | |||
| Estimated rental income | $3,800 | ||
| 4% Interest Rate | 3% Interest Rate | 2% Interest Rate | |
| Monthly Mortgage Payment (principal + Interest) | $3,001 | $2,616 | $2,260 |
| Monthly Maintenance Fee | $200 | $200 | $200 |
| Monthly Property Tax (yearly, amortised over 12 months) | $250 | $250 | $250 |
| Total Monthly Recurring Cost | $3,451 | $3,066 | $2,710 |
| Nett Cash Flow monthly | $349 | $734 | $1,090 |
| Gross Rental Yield | 4.8% | 4.8% | 4.8% |
| Nett Rental Yield – after monthly expenses | 0.44% | 0.92% | 1.37% |
| Nett Rental Yield on capital invested | 1.5% | 3.1% | 4.6% |
Is there even an investment case for investing in industrial properties ?
Now that we have established, the actual capital gain and net monthly rental income for investing in an industrial property. Let’s compare it against other alternative investment assets and see if there is a case for prioritising industrial real estate investments.
How much will you earn in total over a moderate case scenario ?
Using the same example of purchasing an Industrial Property priced at $955,260. Assuming you held it across the average holding period of 9 years while renting it out. Further assuming a reasonable appreciation for the property, you would be looking at the following gains.
| Estimated Capital Gain | $200,000 |
| Estimated nett rental cash flow received over 9 yearsAssuming a 3% interest rate | $79,234 |
| Total gain | $279,234 |
| Estimated Holding Duration | 9 years |
| Capital utilised | $286,578 |
How much will you earn investing in residential real estate ?
Now assuming you were to deploy the same $286,578, cash capital into a residential real estate. Working backwards using a 75% loan to valuation ratio, you would be able to loan up to $860k loan, and be able to afford a property priced at $1.15mil.
Assuming a prudent 3% year on year price appreciation on the property. Fyi, average inflationary growth rate for residential real estate ranges from 4% to 5%.
You will be looking at a capital return of $349k capital return over the same 9 year holding period.
*Note this is on the equal assumption that both residential and industrial property is rented out and rental income pays for interest expense.
Residential property investing – capital gain over 9 years on a 3% growth rate
| Time Period | Price | Year on Year Price Growth | Capital Gain per Year |
| Starting Point – Year 0 | 1,146,312 | NA | NA |
| Year 1 | 1,180,701 | 3% | 34,389 |
| Year 2 | 1,216,122 | 3% | 35,421 |
| Year 3 | 1,252,606 | 3% | 36,484 |
| Year 4 | 1,290,184 | 3% | 37,578 |
| Year 5 | 1,328,890 | 3% | 38,706 |
| Year 6 | 1,368,756 | 3% | 39,867 |
| Year 7 | 1,409,819 | 3% | 41,063 |
| Year 8 | 1,452,114 | 3% | 42,295 |
| Year 9 | 1,495,677 | 3% | 43,563 |
| Total Capital Gain at the end of holding period | 349,365 |
Residential property investing – capital gain over 9 years on a 4% growth rate
If we were to take a slightly more optimistics stance, assuming you were to put in a little more due diligence in selecting your residential investment property and factor in a higher year on year growth rate of 4% instead of 3%.
You will be looking at a higher $485k capital gain, almost $200k greater than the option of investing in an industrial property.
| Time Period | Price | Year on Year Price Growth | Capital Gain per Year |
| Starting Point – Year 0 | 1,146,312 | NA | NA |
| Year 1 | 1,192,164 | 4% | 45,852 |
| Year 2 | 1,239,851 | 4% | 47,687 |
| Year 3 | 1,289,445 | 4% | 49,594 |
| Year 4 | 1,341,023 | 4% | 51,578 |
| Year 5 | 1,394,664 | 4% | 53,641 |
| Year 6 | 1,450,450 | 4% | 55,787 |
| Year 7 | 1,508,468 | 4% | 58,018 |
| Year 8 | 1,568,807 | 4% | 60,339 |
| Year 9 | 1,631,559 | 4% | 62,752 |
| Total Capital Gain at the end of holding period | 485,247 |
How much will you earn investing in REITS ?
If passive rental income is your thing, then let’s consider the alternative of deploying the same $286,578 cash capital into a portfolio of real estate investment trusts.
For those that are uninitiated, REITS are trusts set up to invest in a basket of physical real estate across various industrial verticals, from industrial offices to retail malls in Singapore. Retail investors can gain access to it by purchasing it like a stock and it pays a quarterly dividend, derived from the rental it collects.
| Singapore Blue Chip Reits | Dividend Yield(Updated on the date of writing) | Property Type |
| Mapletree Industrial Reit | 6.01% | Industrial |
| Mapletree Logistic Reit | 6.98% | Industrial |
| Mapletree Commercial Reit | 7.17% | Retail, Office |
| Ascendas Reit | 5.78% | Industrial, Business Park |
| Keppel DC Reit | 5.02% | Data Center |
| Netlink Trust | 6.23% | Telecom Infrastructure |
| Capland Integrated Commercial Trust | 5.17% | Retail, Office |
| Average Dividend Yield | 6.05% |
Referencing the table above, the average dividend yield of blue chip reits in Singapore average 6.05% at the time of writing.
If you were to deploy the same $286k cash capital into a basket of blue chip reits you will be looking at a monthly dividend of $1,445. And this comprises the net cash that you will take home. Reits being a tax efficient vehicle is free from property and rental income tax.
| Capital Invested | 286,578 |
| Average Dividend Yield | 6.05% |
| Dividend received per year | 17,342 |
| Dividend received per month | 1,445 |
The right strategy to invest in Singapore Industrial Property ?
Having established in sections above that Industrial real estate may not be an option that stands out when compared to residential real estate investing and reits. We do not let averages and preliminary numbers stop us from learning more.
Taking a deeper look into the transaction data, there is a segment of investors that seems to get the formula right in Industrial property investing.
Time purchase and sale is important for Industrial property investing
From the data that shows averages above, the key problem is that most people hold the property for 8 to 10 years to make an average of $200k.
But by timing your entry, purchasing a unit during an economic uncertainty or economic turmoil provides opportunity to pick up undervalue units.
Referencing the examples below, there is a group of buyers that made their purchase during the pandemic, bearing the brunt of rental income uncertainty and timing the sale when the outlook improved.
Price trend for Vertex Industrial Property
Buyers of Vertex – making entry during pandemic to turn a profit in 3 years
Price trend for Midview Industrial Property
Buyers of Midview City – making entry during pandemic to turn a profit in 3 years
Who should consider investing in Industrial Property ?
In this section, we will discuss the situation in which industrial property investing is most suitable for you.
#1 – If you are a business owner
It would make a lot of sense for you to own an industrial property if you are a business owner currently renting an industrial property as a premise for work. By owning your own industry, essentially you convert your rental expense into building equity in an asset with capital upside potential.
Opportunities to sublet part of the office to another tenant to earn some extra income would be also be available.
#2 – If you are already own your 2nd residential property
For property owners who have already maxed out their names and currently own 2 residential properties and have got substantial cash on hand, industrial property can be an option to consider.
Having substantial cash on hand is an important factor, this allows you to minimise or paydown loan when interest rate increase to manage the overall interest expense and take up reverse equity loan to free up capital when interest rate is low.
#3 – If you own a HDB and wants to own a 2nd property
This is applicable to many readers of decoupling expertise. For home owners that currently own a HDB. You are unable to purchase a 2nd residential property without ABSD as decoupling is not permissible for HDB flat owners.
Purchasing an industrial property is a viable option up for consideration if you are looking to keep your HDB and own a 2nd property.
How to own 2 properties in Singapore ? – Next Steps
Having committed the last 10 mins to reading, let’s take the research to the next steps.
Drop us a text to share what’s on your mind and gather some 2nd opinions and ideals on whether your plan is the best way to purchase the 2nd property without ABSD.
