November 7, 2013
"$42,000, not a dollar less," the 77-year-old man wanted to assign the lease of his shop to me, saying that his 3 children, now working graduates, wanted him to retire. That was 3 days ago. "My son had forced sold my van so that I will not injure myself doing deliveries," he elaborated. "This shop business was set up by me in 1985 and had provided money to enable my 3 children to study and become graduates. I am reluctant to let it go. If I stop working, I will die the next day."
So, was he assigning or not?
" $42,000 is nothing nowadays with such low interest," he showed ma a realtor's name card. "It is my retirement income. This realtor says I can get $45,000! My neighbour had made me an offer but I do not want to assign to him!"
"Is his offer too low?' I asked.
The old man would not say.
"I know that the new HDB rules mean that the new tenant cannot assign to anyone but must return the industrial unit to the HDB if he does not want to continue business," he knew I am a licensed realtor and would know of the new ruling aimed at preventing property rental increases as new tenants sublet and re-assign, making a tidy profit in the previous years, leading to property prices going up. Now foreigners are into the act too and they have lots of cash, especially the Chinese Nationals.
Today, I did my research by asking another tenant who is active in community work. He sells hardware to small contractors. Mr Lim said: "The old man was offered $25,000, dropped from $30,000 but he was angry. In any case, the HDB is very strict, allowing only 50% of the space to be sublet and the officials enforce this ruling by checking the premises. Previously it was 75%. As there is no more money to be made for re-assigning by the new tenant, even $25,000 means a loss if there is no business for the 3-yearly lease. I will offer him $20,000 as I need space for my pipes which are in demand but I have no storage space here."
"Will the HDB sell the industrial unit?" I asked him. A prospect of sales may recover the $42,000 or may not but it is a risk as in all investments in real estate.
"No," he said. "At first there was a discussion for 30-year-lease sale but the complaint was that the prices were too steep. Then, 10-year-lease was considered but the feedback was it was too short a lease. So, the idea of sale is shelved!"
So is $42,000 for a 3-year lease with option to extend, at probable market rental of $1,800 for 600 sq ft industrial shop, a good deal? Ground floor units are in demand. The asking price is high as there is no chance of re-assigning the unit for money as the unit must be returned to the HDB in its original condition, cleaned and painted.
There is no talk of demolition of the estate, unlike in Defu Industrial Park. It is unlikely for the next 6 years. Who really knows what the government is planning? Demolish and build new units to get higher land use and rentals or convert the area to the building of new HDB flats and condos, getting rid of the small enterprises.
On the ground research about market prices and government policies with well-informed incumbent tenants are necessary to be a good realtor.