PRICES of conservation terraced shophouses in Tanjong Pagar have shot up in recent years as new developments in the area give it a fresh lease of life.
Analysts say the investment outlook for shophouses remains bright as the upcoming Maxwell MRT station on the Thomson Line will bring in more crowds.
Shophouses, particularly centrally located conservation ones, appeal to investors because of their high potential for capital appreciation, said R'ST Research director Ong Kah Seng.
Over the past two years, shophouse prices, on average, have grown about 20 per cent each year, Mr Ong added, though prices vary by location and the condition of the unit.
SLP International research head Nicholas Mak said prices climbed 23.4 per cent over the past year to an average of $4,981 per sq ft (psf).
There were four shophouse resales within the Tanjong Pagar conservation area in the first three months of this year, according to Urban Redevelopment Authority data. Transaction amounts ranged from $6 million to $25.2 million.
Outside the Tanjong Pagar conservation area, transacted prices of shophouses along nearby roads ranged from $3.7 million for a shophouse on a 818 sq ft site at Tanjong Pagar Road to $14.44 million for a shophouse sitting on a 2,777 sq ft land parcel at Amoy Street.
Prices have been partly pushed up by investors who have been deterred from investing in residential property by recent rounds of cooling measures.
These investors have instead turned their gaze to commercial property and other segments of the market that are less affected by the curbs.
The recent price appreciation has squeezed rental yields.
Rents were $4.67 psf per month on average in the first quarter of last year, but have increased only 7.1 per cent to $5 psf per month in the period from January to March this year, Mr Mak said.
This means a tenant would have to pay about $4,000 a month on average to rent the ground floor of a typical 700 sq ft to 800 sq ft shophouse. Restaurant owners may have to pay up to $10,000 a month for that same space, he said, adding some restaurants will rent adjoining units.
The rental figures translate to a gross rental yield of 1.2 per cent for the first quarter, compared with 1.39 per cent in the corresponding period last year.
The Tanjong Pagar shophouses are occupied by a mix of companies in the creative industry, food and beverage, professional services and entertainment sectors plus small wedding boutiques.
Mr Ong said as these shophouses receive lower shopper traffic than malls, tenants are likely able to pay less rent than mall tenants, meaning there is a limit to how much rents can be raised.
Other disadvantages of the area include the lack of parking space. Apart from the iconic Pinnacle@Duxton development, the Housing Board flats in the area are also small and ageing.
But analysts say the impending rejuvenation of Tanjong Pagar will be a boon to investors.
New high-rise apartments like Altez and Skysuites@Anson are being built, along with a mixed-use development on Peck Seah Street by Guocoland. The Carlton City Hotel is also expected to open later this year.
These will add to the contemporary vibe of the area, which is already known for its many high-rise offices, and is right next to Singapore's financial district.
Farther down the road, one welcome development will be that of Maxwell MRT station, which will be on the planned Thomson Line, set for completion in 2021.
This is expected to draw fresh crowds to the area, including residents from across the Causeway.
Source: Straits Times, 13 Apr 2013