Are shorter industrial leases a problem?

[SINGAPORE] The government's move to shorten industrial land tenures to help industrialists better manage costs is all well and good. Going by simple comparisons, it has even worked. Land prices have indeed fallen for plots rolled out from July 2012 whose leases have been halved to 20-30 years, from a maximum of 60 years previously.

Let's take two examples of plots situated close to each other that were sold before and after the 30-year lease cap was implemented. In March 2011, an Ubi Ave 4 site with a 60-year lease attracted the highest tender of $72.2 million, or $2,333 per square metre per plot ratio (psm ppr). Two years later, another site in the vicinity sold for $16.2 million, or $1,851 psm ppr. That's a 21 per cent price drop. Both sites were zoned Business-1.

Another example: a 58-year lease Serangoon North Ave 4 industrial site received a winning bid of $47.1 million, or $2,332 psm ppr, in March last year. Eight months after that, a nearby site at Ave 5 sold for $27 million, or $1,439 psm ppr - a stunning 38 per cent price drop.