SINGAPORE (EDGEPROP) - Since the Covid outbreak, neighbourhood cafés have become important hubs at the intersection of life and work. In Katong, Neptune, a new café concept by Atlas Coffeehouse group that opened in March 2021, has given the corner of East Coast Road and Lorong Stangee a new lease of life.

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Neptune has taken the place of Firebake, a bakehouse and restaurant that boasted a wood-fired oven, built from 37 tonnes of bricks shipped in from Australia. The restaurant opened in 2017, and was famous for its woodfire-baked pizza and sourdough bread. However, it closed in August 2020.

Rina Raj, a 31-year-old, self-styled shophouse investor, is undaunted. She owns the corner shophouse at 237 East Coast Road. “Covid and work from home [WFH] has brought the crowds back to the neighbourhood,” she says. “You can see people coming in at all times of the day — for breakfast, lunch and dinner.”

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That’s one of the reasons why Raj, the CEO of B Capital, wants to focus on shophouses in established neighbourhoods such as Katong, Serangoon Gardens, Tiong Bahru and Bukit Timah.

Having grown up in the Katong area, it’s only natural that her first shophouse acquisition should be in her own neighbourhood.

She used to frequent the former coffeeshop, Carlton Restaurant, at 237 East Coast Road when she was studying at CHIJ Katong just down the road. The coffeeshop, which had been there for more than 20 years, was famous for its roast duck and roast pork.

Upon hearing that the siblings who owned the building were looking to sell, Raj decided she had to buy it. And she succeeded in purchasing it for $10.8 million in November 2014. “Some people said that the price I paid was rather high then,” she relates. “But such corner shophouses rarely come by.”

The makeover

As the 1950s three-storey shophouse was dilapidated, Raj and her appointed architect, RSP Architects, decided to gut the interiors and build a new extension at the rear. “The only thing we didn’t tear down was the façade wall, which had to be conserved,” she says.

Rebuilding the property was a lot more challenging than she had anticipated. It took about a year to complete, and cost an estimated $3 million. The original zoning for the shophouse was commercial use on the first level and residential use on the upper two levels. Raj applied for change of use, and succeeded in obtaining full commercial use for all three floors. “We prefer to do full commercial shophouses as it’s easier to bring tenants in,” she adds. What’s more, if she decides to sell it in the future, the pool of buyers will not be restricted to just Singapore citizens. With its full-commercial zoning, even foreigners would be eligible to purchase it. (Find Singapore commercial properties with our commercial directory)

The shophouse occupies a freehold site of 2,504 sq ft. Prior to the revamp, the built-up area was 4,850 sq ft. After the redevelopment and extension, it was increased to 7,500 sq ft. Right from the start, Raj wanted to position the property as a “one-stop lifestyle hub” — with a café on the first level, yoga studio on the two upper levels and a rooftop garden. She says: “It’s nice to own a piece of history, and to know that I did something to help rejuvenate the area.”

The debut of Firebake and Yoga Movement in 2017 was followed by the opening of Project Acai, an acai and smoothie bar on the first level of Tides commercial building nearby. Two more cafes opened across the road: Forty Hands at 226 East Coast Road opened in 2018; and Brawn & Brains Coffee at 218 East Coast Road, a year later. “We are really happy that with just one corner shophouse, we managed to bring about such a big change to the neighbourhood,” says Raj.

East Coast Road revival

Across the road, Chin Mee Chin Confectionery, the Tan family-owned traditional Hainanese-style coffeeeshop has been revived, in partnership with Ebb & Flow Group CEO Lim Kim Chuan, who also grew up in the area and was a long-term customer. Chin Mee Chin had closed in 2018, citing “lack of succession and manpower issues”, However, it has undergone a revamp and re-opened last September.

“I was quite sad when I heard they were closing, because I used to go there quite often,” says Raj. “I actually wanted to buy it, but at that time, the agent handling the shophouse said that the condition of the purchase was that the new owner would have to operate it too. I’m not an F&B operator, so I didn’t go ahead with the purchase. But it’s been really good for the area since it reopened.”

Last August, Raj purchased another shophouse at 199 East Coast Road, just one row away from her corner unit. She paid $8.5 million for the intermediate three-storey shophouse at 199 East Coast Road. Built in the 1950s, it sits on a freehold site of 1,795 sq ft, with a built-up area of about 4,010 sq ft. Prior to Raj’s purchase, the shophouse had been tenanted to Boon Tong Kee chicken rice restaurant for more than 15 years.

While the façade of the shophouse has been conserved, asset enhancement works to the interiors are underway, and expected to be completed within the next four months. The property was also changed from commercial-and-residential use to full commercial use. Tenants have been secured for all three levels. Plain Vanilla café will be taking up the first level, and will be operating its sixth outlet. A playgroup centre will be taking up the second level and an office tenant is moving into the top level.

Raj expects Plain Vanilla to be another crowd-puller in the neighbourhood. Plain Vanilla, founded in 2011, has five existing outlets: at Cluny Court, Tiong Bahru, Telok Ayer, Neil Road and Ion Orchard.

‘Mother and daughter team’

Raj would like to focus on shophouses in the Katong area, but assets are tightly held by families, she laments. Competition for assets has intensified too. “Recently, we missed out on a shophouse just down the road [at East Coast Road] because it was sold within a day,” she says. “So it’s about how fast you can get back with an offer.”

B Capital, essentially “a mum and daughter team”, is able to make swift decisions, says Raj. Founded in 1999 by her mother Judy Chan, the company was originally named Baby Capital, as her intention was to pass the business to the next generation. “I’m the only daughter, and she had always wanted us to work together,” says Raj.

For over two decades, B Capital focused primarily on investing in strata shops in prime buildings such as shops in Far East Plaza on Scotts Road and The Adelphi at Coleman Street; the ground-floor retail podium at Eastgate, a 10-storey commercial building with 49 strata units; as well as apartments at The Sail @ Marina Bay.

After Raj graduated with a degree in Sociology and a post-graduate degree in Real Estate Finance at the National University of Singapore, she joined B Capital. Initially, she helped her mother with managing the firm’s assets. There are only four staff in B Capital, including Raj and her mother. When the opportunity came to purchase the corner shophouse at 237 East Coast Road, Raj convinced her mother to take the plunge and “do something different”.

Chan enjoyed the process of acquiring, revamping and repositioning the shophouse at 237 East Coast Road with her daughter, and encouraged her to pursue more shophouse opportunities.

Serangoon Gardens

The next acquisition that Raj made was at 65 Serangoon Garden Way near the roundabout of the Serangoon Gardens private housing estate. The shophouse was previously occupied by Pow Sing Restaurant, a Hainanese chicken rice place that had opened in 1983. Raj paid $8.8 million for the shophouse in December 2018.

The property at Serangoon Garden Way sits on a 2,168 sq ft site with a 999-year lease from 1956. It has a built-up area of about 3,800 sq ft. Once again, Raj chose to work with Atlas Coffeegroup, which opened Apollo Coffee Bar on the first level of the shophouse a year later. The second floor has been tenanted to a home office.

Now that she owns one shophouse, Raj is raring to purchase more at Serangoon Gardens. While there is a lot more competition from other investors including family offices and real estate funds for a portfolio or a row of shophouses, Raj reckons there’s a smaller pool of potential buyers for the lone shophouse. This is because the amount of time spent revamping one shophouse is sometimes equivalent to rejuvenating the entire row, she explains.

While Raj is open to considering 99-year leasehold shophouses, her focus so far has been on freehold or 999-year leasehold assets. Freehold shophouse transactions in 2021 were at an all-time high, totalling 194 units with a gross sales value of $1.5 billion, according to a Knight Frank research report on Jan 24.

Rising capital values, yield compression

“Investor interest in shophouses as a defensive asset class soared during the pandemic,” says Knight Frank. “The recent imposition of cooling measures could lead to more spillover demand into the shophouse market, as commercially zoned shophouses remain unaffected by the latest government measures.”

Demand for shophouses from local Singaporean investors and family offices is expected to remain strong. “These investors are looking at capital preservation, and are investing with a mid- to long-term investment horizon,” says Yap Hui Yee, Savills Singapore senior director of investment sales & capital markets.

Over 30% of freehold shophouse transactions in 2021 were in the city fringe of District 8 and more than 25% in the east (Districts 14 and 15), based on the Knight Frank research report.

Savills’ Yap attributes this trend to a change in consumer behaviour arising from WFH arrangement. “Shophouse performance in mature residential enclaves has been resilient throughout the pandemic,” notes Yap. “Many investors have shifted their focus to the city fringe and suburban areas, such as East Coast and Joo Chiat,  Jalan Besar-Lavender area and Serangoon Gardens.”

Against a backdrop of limited stock, capital values of shophouses continue to rise. Hence, Yap expects yields to be compressed further in 1H2022. B Capital’s Raj, however, intends to beat yield compression by focusing on assets where she can add value through asset enhancements. This will in turn drive up both capital values and yields over the long term, she adds.

“We definitely want to focus on Katong, Serangoon Gardens and other established neighbourhoods such as Bukit Timah and Tiong Bahru,” says Raj. “I’m very comfortable with shophouses in these neighbourhoods — they have their own charm, as they are landed, standalone assets.”

Check out the latest listings near East Coast Road, Katong, Serangoon Gardens, Tiong Bahru, Bukit Timah, Far East Plaza, The Adelphi, The Sail @ Marina Bay, Serangoon Garden Way

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