IMPACT OF DIVESTMENTS OF JTC INDUSTRIAL PROPERTIES ON SURROUNDING INDUSTRIAL PROPERTIES

Abstract

The studies on impact of public divestment and its provision of welfare are widely studied in the past literatures. However little studies had been done in the evaluation of economic externalities of divestments in the real estate market. This paper uses the two divestments exercise of JTC strata-titled properties in 1st July 2008 and 2011 (Event I) and its subsequent events, the expiration of respective Rent Escalation Clauses (RECs) (Event II) and the Initial Public Offering (IPO) of the purchaser as Real Estate Investment Trust (REIT) (Event III) as the exogenous events for the quasi-experiment design to test for the effects on industrial real estate values and rent. Based on the industrial sales transactions from January 1995 to August 2017, it was found that the average prices of strata-titled industrial properties located within a 1km boundary from the divested properties increased by 4% (2008) and 6.9% (2011) relative to strata-titled properties outside 1km boundary after the respective divestments. Event II and III yield mixed results as only one out of the two divestments exercise attained significant positive increased in prices, signifying difference between the two divestment portfolio. All in all, the increase in prices of surrounding strata-titled properties can be attributed to the intention of purchasers to list divested properties under REIT as it reduces the supply of purchasable strata-title industrial asset as the divested properties only operates in the real estate space market. Aggregate rental transactions from 2000 to 2017 were used to test for the impact of the abovementioned events on rents of strata-titled industrial properties located within the same postal sector and/or street level as the divested properties. However, no determination could be made due to insignificant results. This is likely due to the usage of median rent as a proxy for rent, which lacks in granularity as compared to actual rent transactions.