Shophouses in demand among investors again

Investment in Singapore shophouses has stabilised and shows signs of picking up after taking a hit following the introduction of a loan curb in 2013.

Data tracked by consultancy CBRE shows the total transaction value has been rising in the past two years even though the number of caveats lodged remained fairly steady at just over 100 a year.

Transaction value rose by about 7.6 per cent to $707.07 million last year, from $657.3 million in 2015.

Demand for shophouses fell off a cliff in 2014, after the imposition of the total debt servicing ratio (TDSR) framework at the end of June 2013.

The TDSR restricts the availability of loans as it limits a borrower's total monthly debt obligations to 60 per cent of his gross monthly income.

There were 109 caveats lodged with a transaction value of $592.29 million in 2014, down from 206 caveats worth $1.27 billion in 2013.

"We are seeing rising demand for shophouses because investors still believe there's growth potential in such assets as they have historical value and supply is limited," said Ms Sammi Lim, director for investment properties at CBRE.

Citing recent deals that CBRE brokered, Ms Lim said there has been greater interest in shophouses among very wealthy investors, family offices and international property funds with investment budgets of $10 million to $50 million.

Three adjoining 999-year tenure shophouses in Amoy Street in Tanjong Pagar were recently acquired by an institutional fund for $59.6 million, or about $2,500 per sq ft, based on the floor area.

In another deal, a family office bought a shophouse at 54 Boat Quay for $12.9 million or about $2,985 psf on the floor area.

"Generally, shophouse prices have been fairly resilient. This year, we could see a moderate rise in capital value as rents in the office sector start to stabilise," Ms Lim added.

Office properties, seen as a proxy for shophouses, have faced challenging leasing environment as a deluge of new office buildings weighed on rents in recent years.

Ms Lim estimates that shophouse prices could climb by up to 5 per cent this year, while sales volume may edge up slightly as more units are put on the market.

CBRE is marketing three commercial shophouses - in Holland Village, Chinatown and Kampong Glam: 22/22A, Lorong Mambong is priced at $20 million; 54 and 56, Pagoda Street at $28 million; and 780, North Bridge Road at $6 million.

Investor Benedict Choa, who is looking to invest in a shophouse, told The Straits Times that prices are still firm and there is a mismatch of expectations between buyers and sellers.

"The asking prices are still high and, given the softer rents, will affect the yield. I will continue to monitor the market," Mr Choa said.

CBRE noted that the average rental yield for shophouses ranges from 2.5 to 3.5 per cent, depending on the tenure of the asset.

Source: Straits Times, 16 Mar 2017