THE Housing and Development Board (HDB) is aligning the subletting policy for its industrial land with JTC Corporation's, to ensure that Singapore's scarce industrial land is used more productively.
From June 1, new and existing tenants of HDB industrial properties will not be allowed to sublet - a change from the current policy which allows them to lease out up to 50 per cent of their factory floor space.
Tenants with existing approved subletting arrangements will be allowed to renew their subletting agreements up to Dec 31, 2017, so they have time to adjust.
This is in line with JTC banning its tenants from subletting with effect from Oct 2014. As for other end-user lessees and third-party facility providers (eg real estate investment trusts and private funds), it also cut the maximum allowable sublet quantum from 50 per cent to 30 per cent of gross floor area (GFA).
HDB on Monday said: "The main purpose of HDB's industrial space is to support industrialists in operating their core businesses... This revision also seeks to promote more responsible and productive use of scarce industrial land, by encouraging tenants to rent only the amount of space that they need."
HDB manages close to 12,000 industrial properties island-wide, including workshops, warehouses and factories. These buildings house industries such as clean and light trades, woodworking, motor vehicle repairs and food manufacturing.
About 98 per cent of HDB's industrial space is rented out on tenancies ranging from one to three years. Only two per cent of its industrial space is owned by lessees.
That said, only about 380 tenants, or 3 per cent of the total tenants, are currently subletting space in their industrial properties.
HDB's stock of industrial space also makes up just 4-5 per cent of Singapore's total industrial space as of end-2014, Colliers estimates. In other words, the affected group is very small, property consultants said.
HDB is encouraging tenants with excess space to downsize to smaller units and renew their tenancy for a lower quantum at the end of their lease term.
SLP International executive director Nicholas Mak said subtenants that have to relocate as a result of this policy change may lead to a marginal increase in occupancy levels in the private industrial market over the next two years. They stand to benefit from the current soft industrial prices and rentals and ample supply.
But Chia Siew Chuin, Colliers' director of research and advisory, pointed out that not being able to sublet will give HDB's industrial tenants less flexibility to instantaneously rescale their space requirements to respond to any change in business climate during their lease term.
Nevertheless, HDB's policy alignment with JTC shows a consistent and clear stance from the government in its effort to protect genuine industrialists' interests from those looking to profit from it, she said.
Ms Chia believes that a larger impact will still be felt from JTC's reduction of the allowable space for subletting. "Since Q4 2014, some subtenants of industrial facilities on JTC's land have sought alternative premises and this trend will continue into 2015," she said.
JTC's subletting policy tweak works hand in hand with its other amendments such as the upfront land premium third-party facility providers have to pay when buying industrial buildings from sellers on JTC-leased sites, and the requirement for a three-year minimum occupation period for subsequent anchor subtenants after the original anchor subtenant has ended its tenancy.
All these policies work to benefit industrialists over investors, and taken together, will likely slow down transactions of industrial properties on JTC-leased land, Ms Chia said.
Amendment: An earlier version of this article included a table describing how recent subletting policy revisions would affect end-user lessees and third-party facility providers. To be clear, these refer to JTC end-user lessees and third-party facility providers. The table has been updated to reflect this.