Investing in conservation shophouses during a pandemic
By Valerie Kor
/ EdgeProp Singapore |
SINGAPORE (EDGEPROP) - The biggest conservation shophouse deal so far this year was the sale of 14 Mohamed Sultan Road. Occupying 2,476 sq ft of land area, the 999-year shophouse fetched $12.2 million on July 17.
The second highest deal was concluded in June for 297 Tanjong Katong Road. The four-storey shophouse, which has a land area of 3,811 sq ft and total gross floor area of about 11,530 sq ft, was sold for $11 million or $954 psf on gross floor area. It was put on the market by family trustees.
Most recently on Aug 11, a two-storey shophouse at 52 Amoy Street was purchased by a Hong Kong-based buyer for $8.5 million. It has a land area of 952 sq ft and a total floor area of 2,255 sq ft, which translates to $3,769 psf on built-up area. The deal was concluded by Loyalle Chin, associate division director at PropNex Realty, who specialises in selling shophouses.
Due to the economic downturn, deal sizes of shophouses have dropped, shares Chin. Last year, the largest deal was the sale of four adjoining three-storey conservation shophouses, at 265 to 271 South Bridge Road, also known as the Eu Yan Sang Building. Sitting on a combined land area of 6,262 sq ft with a gross floor area of 19,885 sq ft, the 999-year leasehold property fetched $54 million or $2,715 psf on built-up area. It was sold with a leasehold tenure of 199 years from the date of completion of the sale.
Last year, four adjoining shophouses, also known as the Eu Yan Sang building, sold at $54 million (Photo: JLL)
More shophouses are being put on the market as well. Mary Sai, executive director of capital markets (strata sales) at Knight Frank Singapore, says that it could be because of increased divestments.
“During Covid-19, businesses are affected, so landlords need to give rental waivers to tenants. There may be higher vacancy rates as well because F&B outlets are succumbing to falling patronage. Thus, the rental yield may have fallen during this period of time and some landlords want to divest their shophouse properties as they are unsure how long Covid-19 will last,” she adds.
At the same time, bargain hunters are on the lookout, expecting prices to drop. She says: “When prices fall below $4,000 psf on land area, buyers will not delay their purchase.”
As for shophouses in the CBD, PropNex’s Chin cites the lack of residential developments as a factor behind lower demand. On weekends and after office hours on weekday evenings, foot traffic in the CBD is significantly lower. This is exacerbated by Covid-19, since people are working from home (WFH) even in Phase Two of reopening.
However, Chin says that when more office buildings are redeveloped to mixed-use developments under the CBD Incentive Scheme — announced in March last year — footfall will likely become more consistent. Shophouse owners, whose tenants are predominantly F&B operators, boutique offices, health and beauty salons, will benefit from it in the long run.
A buyer’s market
Right now, a number of conservation shophouses are being put on the market, offering prime pickings for potential shophouse investors. The majority of them are asking for prices above $8 million.
Adjoining 99-year leasehold shophouses at 65 to 67 Syed Alwi Road are on the market for $8.8 million (Photo: Edmund Tie)
Three adjoining two-storey with mezzanine shophouse units along Syed Alwi Road have been put up for sale at a guide price of $8.8 million. With a combined land area of 3,542 sq ft and a total gross floor area of 6,723 sq ft, the price translates to $1,309 psf on built-up area.
The shophouses, solely marketed by Edmund Tie, are 99-year leasehold and located near Jalan Besar MRT Station. They command a prominent frontage of 17 metres. In the URA Master Plan 2019, they are zoned for commercial use under Little India Historic District.
Over at Kreta Ayer Road, a freehold conservation shophouse has just been put up for sale starting from $11.88 million ($2,160 psf on built-up area). With a land size of 1,568 sq ft and total floor area of around 5,500 sq ft, 35 Kreta Ayer Road is tenanted to Korean restaurant Don Dae Bak on the first floor and Align Yoga Studio on the upper floors. The shophouse is near the upcoming Maxwell MRT Station on the Thomson-East Coast Line, which will be completed in 2021, and is only a four-minute walk to Outram Park MRT Station.
According to Chin, shophouses along Kreta Ayer Road have rarely transacted due to scarce supply. The most recent transaction in the vicinity was for a shophouse at Keong Saik Road in December 2018, which sold at $16.48 million or $4,000 psf on floor area.
Chin adds that 35 Kreta Ayer Road will benefit from the redevelopment of Chinatown Plaza and One Pearl Bank, as well as future developments on the Pearls Centre site.
The three-storey mezzanine shophouse at 182 Telok Ayer Street is located less than 250m from Telok Ayer MRT Station (Photo: PropNex Realty)
Another property that is also being marketed by Chin is a three-storey mezzanine shophouse at 182 Telok Ayer Street in the prime Telok Ayer Conservation Area. The 999-year leasehold property is located less than 250m from Telok Ayer MRT Station on the Downtown Line and is approved for F&B usage. The shophouse, which has a total floor area of around 3,845 sq ft, is currently tenanted to a restaurant. The indicative price starts from $15.5 million, translating to $4,031 psf on built-up area.
Compared to recent transactions, the psf pricing of the Telok Ayer shophouse is reasonable. A nearby shophouse at 198 Telok Ayer Street transacted at $14.88 million or approximately $3,951 psf on built-up area in September last year, whereas 31 Pagoda Street transacted at $16.25 million in October last year, which was approximately $4,779 psf on built-up area.
13 Ann Siang Road is being offered for $8.5 million (Photo: Knight Frank)
Chin says: “Shophouses in the Telok Ayer Conservation Area would benefit most from URA’s CBD Incentive Scheme unveiled last year as it is close to CBD developments across Cecil Street and Robinson Road.”
Chin adds that interest from foreign buyers in shophouses in the CBD is high. Enquiries are 50% from locals and 50% from China and Hong Kong.
According to a PropNex research report, 71.5% of shophouse purchases last year were by foreigners. Chin says that this year, the percentage of foreign buyers has fallen compared to the previous three years but still constitutes more than 60%.
The ground floor of 18 Ann Siang Road is currently leased to an F&B outlet while the upper floors are leased to a consultancy firm (Photo: Knight Frank)
Meanwhile, two conservation 999-year leasehold shophouses on Ann Siang Road have been put on the market by Knight Frank as well. They are being sold by a trust company. 13 Ann Siang Road is a 2,468 sq ft, two-storey shophouse with an attic and basement that is being offered for $8.5 million or $3,444 on built-up area. It sits on a land of 1,250 sq ft and is fully tenanted at the moment.
The other shophouse, 18 Ann Siang Road, is on 1,367 sq ft in land area and has 4,326 sq ft in floor area. With three storeys and a basement, it is being put on the market for $13 million ($3,005 psf on built-up area). The ground floor is currently leased to an F&B outlet, while the upper floors are leased to a consultancy firm.
Additionally, Knight Frank is marketing a freehold three-storey corner shophouse at 3 Keong Saik Road with a guide price of $9 million ($2,781 psf on built-up area). The shophouse is sitting on 1,287 sq ft of land and has a built-up area of 3,236 sq ft. It is currently tenanted by co-working operator The Working Capitol.
3 Keong Saik Road is a corner shophouse off Neil Road in the Bukit Pasoh Conservation Area (Photo: Knight Frank)
Knight Frank’s Sai says that enquiries for the Ann Siang Road and Keong Saik Road shophouses are from family offices and individual investors who want to have their own office space since the shophouses are near the CBD. She adds: “The $8.5 million shophouse at 13 Ann Siang Road has received more enquiries as it is a bite-sized quantum for smaller property investors.”
Clemence Lee, senior director of capital markets at CBRE, says that supply of CBD conservation shophouses has remained relatively low since many of them are held by boutique real estate funds, family offices and high-net-worth individuals. These shophouse owners have strong holding power which gives them the ability to ride through the economic downturn. Many of them have withdrawn their properties from the market.
“As such, even with the current Covid-19 situation, prices for CBD shophouses have still remained relatively resilient — discounts range between 2% and 5% at most — as seen from recent sales transactions,” he says. However, as sellers become more realistic about the pricing, demand is returning from buyers who were priced out in the past few years, he adds.
CBRE has concluded the sale of two conservation shophouses this year. A two-storey shophouse at 452 Joo Chiat Road on 1,066 sq ft of freehold land was sold for $3.1 million in April, while a three-storey shophouse on 1,604 sq ft of freehold land at 460 Geylang Road was sold for $4.8 million in March.
“There is increased interest in city-fringe or suburban shophouses because they cater to people who are WFH and frequent their surrounding neighbourhoods. Compared to the CBD, city-fringe shophouses also have a smaller investment quantum and slightly higher yields,” says Lee.
With limited availability of shophouse choices in the CBD, buyers, be it high-net-worth individuals or family offices, will look to the city fringe, says Lee. “It’s also a way of diversifying,” he adds.
Flexibility and cultural value
Despite the current economic climate, shophouses continue to offer flexibility and cultural value for their owners and tenants, says Yap Hui Yee, director of investment sales & capital markets at Savills Singapore.
Particularly, adjoining shophouses with larger floor plates, like the above-mentioned row of shophouses at Syed Alwi Road, can be a hybrid of commercial, accommodation, retail and hospitality spaces.
Shophouses also offer flexibility in terms of interior design. A shophouse owner is not constrained by the management of a shopping mall, says Knight Frank’s Sai. Yap concurs, adding that shophouse owners can maintain a shophouse’s “old vintage charm” but revamp the interior in line with today’s needs.
While the two shophouse at 52 Foch Road has a traditional conservation shophouse facade, internally, the current owners have extended the rear portion to four storeys and included a lift that accesses all floors (Photo: Savills Singapore)
She cites a pair of freehold corner shophouses at 52 Foch Road as an example. The adjoining shophouses in the Jalan Bear Secondary Settlement conservation area retain the existing two-storey conservation facade with an 18m-wide frontage. Internally, the current owners have extended the rear portion to four storeys and included a lift that accesses all floors. The shophouses sit on a land site measuring 2,848 sq ft and have a built-up area of 8,417 sq ft. Currently marketed by Savills Singapore, they are being offered at a guide price of $13.2 million ($1,568 psf on built-up area).
Aside from F&B tenants, conservation shophouses also attract boutique offices — those of design and FinTech companies — looking for non-conventional spaces. The buildings hold cultural value, and independent air-conditioning units and en-suite toilets offer more privacy and flexibility for longer working hours compared to a regular office building.
When purchasing conservation shophouses, not having to pay additional buyer’s stamp duty or seller’s stamp duty is a plus for property investors, adds Yap.
The downside to having a conservation shophouse, however, is that the owners must strictly comply with URA regulations in maintaining elements that have been restored and conserved, in order to upkeep their appearance. Additionally, the usage is not as flexible. Some do not allow F&B operations, and in primary areas, owners cannot add additional floor area and must maintain the shophouses’ original structure. Nonetheless, conservation shophouses still command a premium of about 20% as they are like “collectors’ items”, according to Knight Frank’s Sai.
Check out the latest listings near Jalan Besar MRT Station, Maxwell MRT Station, Outram Park MRT Station, Telok Ayer MRT Station
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