Conservation shophouse market abuzz again

Over the past year, the conservation shophouse segment has seen a flurry of activity. The total sales value of conservation shophouses that changed hands tripled from $59.92 million in 1Q2016 to $182.54 million in 2Q2016, and rose a further 14.7% to $209.32 million in 3Q2016.

Driving this demand were boutique funds, family offices and foreign high-net-worth individuals looking for alternative investment asset classes that are safe havens amid global economic uncertainty.

The biggest deal in 2016 so far was the $81.4 million purchase of a portfolio of seven shophouses by boutique property fund 8M Real Estate from veteran international property investor Stanley Quek. The deal was conducted in April and comprised five shophouses at 15-23 Tanjong Pagar Road for $57.40 million; the shophouse at 18 Genmill Lane for $11 million; and 71 Neil Road for $13 million.

Who are the buyers?

Set up in 2014, 8M Real Estate is said to have acquired 15 shophouses worth $200 million over the past two years. These include 37 Craig Road, which it acquired in April for $6.5 million; 31 Hong Kong Street, purchased in July for $14.45 million; and 22 Genmill Lane, which it picked up for $14.25 million in October 2014. Its maiden acquisition was a row of five shophouses at 112 to 116 Amoy Street, for which it paid $50 million two years ago.

In addition to boutique property funds, shophouses have attracted even foreign billionaires such as Ricardo Portabella Peralta, CEO of Luxembourg-based Ventos, which invests in companies involved in the real estate, food processing, venture capital, financial holdings, energy and environment industries. Ventos has operations in Europe, North America and Asia. Peralta is said to have purchased five shophouses in a period of just 12 months. The spending spree started with the acquisition of two adjoining shophouses at 120 and 122 Telok Ayer Street for $18.2 million in October 2015, followed by two more shophouses at 20 and 37 Duxton Road for $13.7 million a month later, and a shophouse at 7 Craig Road for $12.5 million last December. In March this year, he paid $20.25 million for a three-storey shophouse at 83 Amoy Street.

The Leong family that started the Axe Brand medicated oil is said to have paid $25 million for two shophouses on Bukit Pasoh Road in Chinatown in September. And the family that owns Hong Kong-based developer Wincome Group is said to have acquired three adjacent shophouses in Joo Chiat for $23 million last December.

Heritage value

Conservation shophouses are attractive investments, owing to their heritage value. Built from the early 1800s to early 1900s, these shophouses are generally two to three storeys high and formed much of the pre-war urban fabric of Singapore’s old city centre and other parts of the island.

Rapid urbanisation has resulted in many of these shophouses being torn down to make way for skyscrapers. Today, only 6,500 have survived, and they have been gazetted for conservation by URA. Owing to the limited supply, conservation shophouss offer good capital appreciation potential over the long term.

This has resulted in some extraordinary gains for investors. For instance, the five conservation shophouses on Amoy Street that were purchased for $34.43 million in June 2011 changed hands for $50 million in 2014 when 8M purchased them. This means a capital appreciation of 45.2% over a three-year period. Likewise, 7 Craig Road was purchased for $12.5 million in December last year by Peralta. Prior to that, the unit traded for $7.88 million in May 2013.

Investors can further unlock the value of their shophouses by repositioning the asset, changing the trade mix or refurbishing the interiors. Some shophouses also offer development opportunity via a multi-storey extension in the rear.

Steady income stream

Conservation shophouses have the potential to generate a steady income stream for investors as they are supported by healthy leasing demand. Ground-floor shophouses that have prominent frontage are sought after by niche retailers and F&B operators. The upper floors of these shophouses tend to attract people in the creative industries, such as architectural firms and interior design and startup companies.

In recent years, conservation shophouses have also drawn buyers as they are not subject to additional buyer’s and seller’s stamp duties. This year saw more owners willing to put their properties on the market, which contributed to the flurry of activity. However, before buying a conservation shophouse, investors should do their homework and study the conservation, planning and development guidelines of the area in which the property is located.

Tay Huey Ying is head of research at JLL Singapore.

Source; The Edge Singapore, 28 Oct 2016