Investors benefit as keen demand and limited supply fuel prices
Published on Sep 22, 2012
By Esther Teo Property Reporter
SHOPHOUSES have been consistently good performers for investors this year, with the value of transactions going through the roof.
There were 192 shophouses sold in the first eight months of the year, worth $944 million in all.
That beats the $892 million worth of deals chalked up in the same period last year, although there were 233 transactions, according to property consultancy CBRE.
Experts say the limited supply of these architectural gems, particularly conservation shophouses in areas like Chinatown, is sustaining demand.
Centrally located shophouses typically have lower yields but higher capital appreciation, while it is the reverse for suburban shophouses, they add.
Median prices have surged 35 per cent, from $1,867 per sq ft (psf) last year to $2,520 psf in the first eight months of this year, said CBRE.
"The supply of good street- frontage shophouses is limited and, with keen demand for such properties, prices tend to escalate in a rising market," added Mr Ong Teck Hui, Jones Lang LaSalle's national director of Singapore research. "Using median prices from caveats lodged as a gauge, shophouse prices seem to have doubled over the past three years."
Ms Sammi Lim, CBRE's senior manager of investment properties, noted that central districts like Telok Ayer and Amoy Street, as well as the eastern districts of Geylang and Serangoon Road, have enjoyed the greatest buyer interest. For instance, a row of shophouses in Amoy Street with a land area of 8,051 sq ft sold for $32.9 million in February. Another row with a land area of 12,561 sq ft at Lorong 25 Geylang went for $33 million in April.
Ms Lim said gross yields hover at around 3 per cent to 4 per cent with strong tenant interest largely from food and beverage firms and boutique firms in the information technology, creative design and service sectors.
Savills Singapore research head Alan Cheong noted that conservation shophouses, in particular, are like good class bungalows in that supply is constrained.
This scarcity value tends to secure returns through capital appreciation rather than rental yields, which hover in the 2 per cent to 3 per cent range.
The advantages for owner occupiers in buying a shophouse are privacy and trophy value, but the disadvantages are illiquidity and maintenance, he added.
"The bite size of a shophouse is quite hefty and, in some cases, the asking prices are much higher than valuation, leaving one to cough up a sizeable amount of cash for the difference," Mr Cheong said.
Experts add that the life-cycle cost of a shophouse can also be high because it is built to an older design and so certain edifices and materials need to be conserved.
Still, some shophouse investors have made tidy profits. For example, a shophouse in Duxton Road was bought for $3.15 million in 2010 and sold for $4.5 million two years later - a capital gain of 43 per cent. A $2 million shophouse bought in January last year in Balestier Road was sold for $3.2million about a year later.
Investor L.S. Han, 34, who bought a shophouse in District 1 about a year ago, said he has seen the valuation of his unit increase by more than 20 per cent. He rents it out to a foreign IT company and enjoys gross yields of about 3 per cent.
"I am keen on fully commercial shophouses in the central areas as there is a strong trend of foreign businesses setting up offices in Singapore.
"Shophouse offices give them a good corporate image and so there is still demand for such space... I think prices can still go up," Mr Han added.
Shophouses - built from the early 1820s to as late as the 1970s - are generally made up of two to five storeys.
Most are in the three conservation areas: the historic districts of Boat Quay, Chinatown, Kampong Glam and Little India; the historic residential districts of Blair Plain, Cairnhill and Emerald Hill; and secondary settlement areas such as Balestier, Joo Chiat, Mount Sophia, Tanjong Katong and Tiong Bahru.
There are about 5,600 conservation shophouses in these areas.