Shophouses - firm foundation for big gains

This row of five shophouses at Amoy Street was bought in 2010 for $24.5 
million and sold a year later for $34.4 million. In recent years, some 
commercial units have been turned into budget hotels and hostels. 
Small-office users also like them for their lower rentals. -- ST PHOTO: 
RAJ NADARAJAN

Straits Times: Mon, Mar 26

NOT only are shophouses key elements of Singapore's architectural heritage, they are increasingly coveted as investments. Prices have been shooting up, and savvy investors who caught the wave in recent years have made huge gains. Consultancy CBRE said the cooling measures targeted at the residential market have driven more investors, local and foreign, to look elsewhere, and the humble shophouse has come into its own. Last year, there were 292 shophouse sales worth $1.13 billion in total - just short of the $1.17 billion transacted in 2010 but almost double the $563 million seen in 2009. Two in three units sold last year went for $1.7 million to $5.5 million each, although larger ones changed hands at between $10 million and $12.5 million per unit. Prices have risen sharply: In terms of land area, the median per sq ft (psf) price went up 21 per cent to $1,867 last year, against $1,547 in 2010, the report said. 'What's more surprising is that the median price for last year was 74 per cent higher than that in 2007, when Singapore's overall real estate market was at its peak,' said Ms Petra Blazkova, CBRE's head of research for Singapore and South-east Asia. 'This is a clear indication of a structural change in investors' appetite for shophouses,' she noted. Tidy profits have been made by some of these savvy investors. For instance, a row of five shophouses in Amoy Street was bought for $24.5 million in 2010 and sold for $34.4 million a year later. And two units at Tanjong Pagar bought for $6.5 million in 2009 were sold for $12.5 million last year - garnering a profit of 92 per cent. Most commercial shophouse acquisitions are by locals, but interest is increasing among buyers from markets such as China, Hong Kong and Indonesia. Foreigners cannot buy residential-zoned shophouses, while permanent residents (PRs) can buy them only if they get permission from the Government. CBRE data shows that while foreign investors - including PRs - accounted for about 20 per cent of all buyers in 2010, their share increased to between 30 per cent and 35 per cent last year. In recent years, some commercial-zoned shophouses have been turned into budget hotels, hostels, boarding houses or dormitories. Examples include The Club Hotel at Club Street, the Five Stones Hostel at South Bridge Road and Matchbox the Concept Hostel at Ann Siang Hill. In addition, there has been renewed interest in using shophouses as offices because of surging rents in office buildings in the central areas, CBRE noted. Grade B office rents in the core central business district have risen by 36 per cent over the past two years, averaging $7.90 psf a month during the fourth quarter of last year. In contrast, shophouse office space commanded rents of just $3 psf to $5.50 psf a month. 'These affordable rentals appeal to small-office users such as boutique law firms, architectural firms, and creative and IT businesses,' Ms Blazkova said. 'Another advantage is that they provide flexible hours in terms of air-conditioning, which enables tenants to save on their electricity costs.' For shophouses used for office space, gross yields range between 3 per cent and 4 per cent for freehold properties, and 4 per cent and 4.5 per cent for leasehold. Two years ago, the yields were around 4.5 per cent to 6 per cent, but as with yields for office properties, they have suffered as rising prices outpaced rental hikes, Ms Blazkova added. One shophouse investor, Mr Lim JH, said he entered the market five to six years ago as he saw an investment opportunity in the limited supply of shophouses and their conservation value. Shophouses were also priced much lower than offices then, which made them attractive, he said. With more investors flocking into the market and prices up significantly, he has no plans to invest further for now. 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. [e-mail] Source: The Straits Times