New Reporter
12-01-24, 14:12
Feeling the squeeze: Swansong for KTV lounges amid location curbs and corporate belt-tightening?
Jan 12, 2024
THE last few years have been rough for Singapore’s karaoke lounges. Legitimate joints had to close for months on end during the throes of the Covid-19 pandemic; shadier spots were busted for operating without valid licences, casting a cloud over the industry as a whole.
KTV lounges, characterised by booze and staff who join the sing-alongs, differ from family-friendly karaoke outlets that may not even offer alcohol.
For decades, these nightspots have been a mainstay for businessmen who are keen to maintain client relationships or ink lucrative deals. The Business Times understands that they remain a popular option for bosses who want to combine deal-making with a side of carousing.
But even though Singapore has emerged from the pandemic, the KTV industry faces continued obstacles to growth.
On the demand side, KTV lounges might be losing some of their shine, as rising business costs take a bite out of corporate expense accounts. This is compounded by prices having risen considerably at some establishments, compared to pre-pandemic times.
As for supply, zoning restrictions have tightened over the years, meaning that new entrants to the KTV field will be hard-pressed to find suitable areas for operation.
KTV lounges may not quite be facing their swansong – but the industry’s future looks dimmer than before.
How they work
KTV lounges differ from their family-friendly counterparts in one key aspect: the provision of companionship services.
BT understands from industry players that the vast majority of KTV lounges in Singapore are staffed by female hostesses, though there are some lounges that provide male hosts.
Alongside alcohol sales, tips are a key source of revenue for KTV lounges. PHOTO: YEN MENG JIIN, BT
In these establishments, patrons are typically given private rooms with karaoke systems. Alcoholic beverages are readily available, and in some cases must be purchased as part of minimum-spend requirements.
At the start of a session, the lounge’s manager usually brings a line-up of the evening’s staff to the room, inviting patrons to select their companions of choice. But even after this initial selection, hosts and hostesses move from room to room, singing and imbibing with patrons.
If a patron wants a particular host or hostess to stay put in their room, they have to pay for the privilege. This typically occurs through tips, in the form of direct cash payments to the hosts or hostesses.
While prices vary, BT understands that they are now markedly higher than before the pandemic, when each tip used to cost S$50 to S$100. Today, such payments might start at S$200 or S$300 in some establishments.
Alongside alcohol sales, these tips are a key source of revenue for KTV lounges.
For each tip received, the lounge takes a cut of the payment, and the host or hostess keeps the rest. The size of the cut varies by establishment and the staff member’s popularity with patrons. Staff who bring in more tips receive a higher proportion of the sales, as part of talent retention efforts.
Hosts to whom BT spoke said they receive 30 to 80 per cent of their tips – which comprises their total earnings from the job, as they do not draw a basic salary from the lounge operator.
Sexual activities are not permitted within KTV lounges, and most lounges have doors with viewing slits to discourage this.
Business relationships
Many patrons of KTV lounges are businessmen entertaining clients on corporate accounts. The bill for one night – which generally starts in the four-figure range due to minimum-spend requirements – can be tough to swallow without a corporate expense account, one business owner tells BT.
Ang Yuit, president of the Association of Small and Medium Enterprises (Asme), has observed that many company owners host business associates at KTV lounges.
Indeed, in some male-dominated sectors – such as construction, logistics, finance and maritime – it is a longstanding tradition for business relationships and deals to be hashed out in KTV lounges, he says.
These are preferred over regular nightclubs or bars, because the private rooms allow for confidential conversations to be had out of earshot and away from prying eyes.
Due to the long-established role of KTV lounges in such discussions, it can sometimes be difficult to maintain business relationships without patronising such venues, Ang adds. “If your clients ask to go out, it’s very hard to say no. Because then, how are you going to talk to them?”
Chester Leong, managing director of accounting and tax services provider BoardRoom Group, says corporate budgets for entertaining clients are typically 5 to 8 per cent of revenue, depending on the quantum of the deal being negotiated.
He has also observed that many of his firm’s clients host business partners at KTV lounges. Given the size of the bills at such establishments, the agreed deals would at least have to be in the six-figure range for these entertainment expenses to be worthwhile, he says.
With persistently high business costs over the past year, however, both Ang and Leong have seen business owners cutting back on entertainment expenses.
This need for corporate belt-tightening, combined with the pricier gratuity, makes KTV lounges less attractive today.
“Before Covid-19, getting a hostess to sit with you costs about S$100, depending on where you go,” one business owner tells BT. “Now, it’s easily S$300 – it’s not cheap at all, and I don’t think revenue has gone up by three times over the same period,” adds the business owner, declining to be named.
Another business owner, also asking to remain anonymous, says he has noticed more patrons – including himself and his clients – aiming to save costs by opting for afternoon time-slots, which tend to have lower minimum-spend requirements.
Tax-deductible merrymaking
However, tax deductions can lessen the sting – and represent another benefit of KTV visits, beyond networking and deal-making opportunities.
Under Singapore’s tax laws, business expenses that are wholly incurred in the production of income – which may include entertainment expenses – can be written off, reducing a company’s taxable income, Leong says. But business owners must be careful not to run afoul of the taxman when doing their books, as not all expenses can be treated as deductibles, he adds.
For an entertainment expense to be deductible, there has to be an existing business relationship between the parties involved, he explains. This could take the form of deals that have already been inked, or invoices that have been issued or paid out.
If a company entertains potential prospects but this does not result in a deal or any sort of business relationship, those expenses cannot be claimed as deductibles, he says.
However, if a business relationship does blossom down the line, earlier-incurred expenses could then qualify for deductions – but only if all the events happened in the same tax window, he adds.
Asme’s Ang highlights another tricky issue with entertainment expenses: the line between personal and corporate expenses can sometimes be blurred.
“These are meant to create better outcomes for your company – you are entertaining to get better profits and better revenue,” he notes.
But in many cases, it can be difficult to draw the line between personal merrymaking and corporate dealmaking, especially if the parties involved already have a strong personal relationship, he adds. “If you go to a KTV to entertain, are you enjoying yourself? Most of the time you would be, so that’s the personal part.”
Tight restrictions
While corporate belt-tightening could mean fewer patrons, tight zoning restrictions could mean fewer new players.
Many areas are off-limits to new nightlife establishments, making it difficult for potential new entrants to enter the market, property analysts say.
https://i.imgur.com/LKMjVKy.jpg
The Urban Redevelopment Authority (URA) has an extensive list of areas and specific development types where new bars, nightclubs and KTV lounges are not allowed.
These include historic conservation areas; shophouses near residential areas; mixed commercial and residential developments; as well as shophouses that are zoned as both commercial and residential, or residential with commercial on the first storey.
Historic conservation areas in Singapore include Chinatown, Little India, Kampong Glam, Boat Quay, Blair Plain, Emerald Hill and Cairnhill.
Not only do these restrictions prevent KTV lounges from entering new areas, they also curb the proliferation of lounges in existing hot spots.
New bars, nightclubs and KTV lounges are also disallowed in areas where a substantial concentration of such establishments already exists, or where government agencies have received adverse feedback on existing outlets.
All this essentially restricts new entrants to very limited areas and acts as a “cap” of sorts on the number of KTV lounges here, says Mogul.sg chief research officer Nicholas Mak.
Many city and city-fringe areas and developments – where many existing KTV lounges are located – are not open to new entrants due to the restrictions, he adds.
But suburban or heartland areas are also unlikely options, he says. New developments there, such as mixed-use developments or shopping malls in the suburban areas, are unlikely to allow or want KTVs.
Landlords are not the only ones who might object. Mak notes that suburban areas have a higher concentration of residential developments, so the potential impact on residents will likely be taken into account by the authorities.
A possible solution could be for new entrants to take up spaces within hotels, he adds. Hotels tend to be located away from residential areas, and are spread widely enough that they can be found outside of the restricted areas.
ERA key executive officer Eugene Lim agrees such an arrangement could be feasible, as URA allows for up to 40 per cent of a hotel’s premises to be used for commercial purposes.
Malls that are located further away from residential developments could also be options for new entrants, Mak says. “If the mall is struggling because they don’t have much footfall, the landlord may be desperate enough to allow KTVs to operate there.”
KTV operators would also want to provide privacy to their clientele, so such an arrangement could be mutually beneficial, he adds.
En bloc risks
Existing KTV lounges cannot rest easy in their current premises, however. Many are located in ageing developments that are at risk of redevelopment.
If the developments in which they are located undergo a successful collective sale, these KTV lounges would have to relocate, putting them in the same position as new entrants, property analysts say.
The URA lists 13 developments where new bars, nightclubs and KTV lounges are not allowed, due to an existing concentration of such establishments there.
Of these, two have seen successful collective sales in recent years. Golden Mile Complex was sold for S$700 million in May 2022, while the combined Peace Centre and Peace Mansion development traded hands for S$650 million in December 2021.
Another five developments on the list – Golden Sultan Plaza, Orchard Towers, People’s Park Centre, People’s Park Complex and Sim Lim Square – have made attempts at collective sales in the past two years.
Granted, analysts say the en bloc market for mixed-use and commercial developments is likely to remain quiet in the near to middle term, following 2023’s tepid sales.
For the year till Nov 26, 2023, some S$1.53 billion worth of mixed-use and commercial deals were concluded – 15 per cent less than that for the whole of 2022, according to data consolidated by real estate consultancy CBRE.
“I do not rule out that they will keep trying, (but) most of the en blocs that have tried and are not successful are largely due to the price, and also because interest rates have risen quite significantly,” says ERA’s Lim.
Yet even without collective sales, existing KTV lounges are in danger of not having their licences renewed.
Orchard Towers is a prime example. In July 2022, the police announced that it would not grant or renew licences for public entertainment outlets there, as part of efforts to manage law and order and disamenities. A collective sale of the development gained traction as a result, but eventually fell through as the collective sale committee did not obtain the required consent threshold of 80 per cent of unit owners.
However, Mak observes that the non-renewal of licences at Orchard Towers may not necessarily bode poorly for other developments.
A key consideration is the locale’s notoriety, with few places having quite the reputation of Orchard Towers. “Other developments may not have the same colourful history, may not have had that many fights – I think the main thing is that they do not (become) a public nuisance.”
Additional reporting by Cheryl Tang, Goh Ruoxue, Michelle Zhu, Yong Hui Ting and Zhao Yifan
https://www.businesstimes.com.sg/opinion-features/feeling-squeeze-swansong-ktv-lounges-amid-location-curbs-and-corporate-belt
Jan 12, 2024
THE last few years have been rough for Singapore’s karaoke lounges. Legitimate joints had to close for months on end during the throes of the Covid-19 pandemic; shadier spots were busted for operating without valid licences, casting a cloud over the industry as a whole.
KTV lounges, characterised by booze and staff who join the sing-alongs, differ from family-friendly karaoke outlets that may not even offer alcohol.
For decades, these nightspots have been a mainstay for businessmen who are keen to maintain client relationships or ink lucrative deals. The Business Times understands that they remain a popular option for bosses who want to combine deal-making with a side of carousing.
But even though Singapore has emerged from the pandemic, the KTV industry faces continued obstacles to growth.
On the demand side, KTV lounges might be losing some of their shine, as rising business costs take a bite out of corporate expense accounts. This is compounded by prices having risen considerably at some establishments, compared to pre-pandemic times.
As for supply, zoning restrictions have tightened over the years, meaning that new entrants to the KTV field will be hard-pressed to find suitable areas for operation.
KTV lounges may not quite be facing their swansong – but the industry’s future looks dimmer than before.
How they work
KTV lounges differ from their family-friendly counterparts in one key aspect: the provision of companionship services.
BT understands from industry players that the vast majority of KTV lounges in Singapore are staffed by female hostesses, though there are some lounges that provide male hosts.
Alongside alcohol sales, tips are a key source of revenue for KTV lounges. PHOTO: YEN MENG JIIN, BT
In these establishments, patrons are typically given private rooms with karaoke systems. Alcoholic beverages are readily available, and in some cases must be purchased as part of minimum-spend requirements.
At the start of a session, the lounge’s manager usually brings a line-up of the evening’s staff to the room, inviting patrons to select their companions of choice. But even after this initial selection, hosts and hostesses move from room to room, singing and imbibing with patrons.
If a patron wants a particular host or hostess to stay put in their room, they have to pay for the privilege. This typically occurs through tips, in the form of direct cash payments to the hosts or hostesses.
While prices vary, BT understands that they are now markedly higher than before the pandemic, when each tip used to cost S$50 to S$100. Today, such payments might start at S$200 or S$300 in some establishments.
Alongside alcohol sales, these tips are a key source of revenue for KTV lounges.
For each tip received, the lounge takes a cut of the payment, and the host or hostess keeps the rest. The size of the cut varies by establishment and the staff member’s popularity with patrons. Staff who bring in more tips receive a higher proportion of the sales, as part of talent retention efforts.
Hosts to whom BT spoke said they receive 30 to 80 per cent of their tips – which comprises their total earnings from the job, as they do not draw a basic salary from the lounge operator.
Sexual activities are not permitted within KTV lounges, and most lounges have doors with viewing slits to discourage this.
Business relationships
Many patrons of KTV lounges are businessmen entertaining clients on corporate accounts. The bill for one night – which generally starts in the four-figure range due to minimum-spend requirements – can be tough to swallow without a corporate expense account, one business owner tells BT.
Ang Yuit, president of the Association of Small and Medium Enterprises (Asme), has observed that many company owners host business associates at KTV lounges.
Indeed, in some male-dominated sectors – such as construction, logistics, finance and maritime – it is a longstanding tradition for business relationships and deals to be hashed out in KTV lounges, he says.
These are preferred over regular nightclubs or bars, because the private rooms allow for confidential conversations to be had out of earshot and away from prying eyes.
Due to the long-established role of KTV lounges in such discussions, it can sometimes be difficult to maintain business relationships without patronising such venues, Ang adds. “If your clients ask to go out, it’s very hard to say no. Because then, how are you going to talk to them?”
Chester Leong, managing director of accounting and tax services provider BoardRoom Group, says corporate budgets for entertaining clients are typically 5 to 8 per cent of revenue, depending on the quantum of the deal being negotiated.
He has also observed that many of his firm’s clients host business partners at KTV lounges. Given the size of the bills at such establishments, the agreed deals would at least have to be in the six-figure range for these entertainment expenses to be worthwhile, he says.
With persistently high business costs over the past year, however, both Ang and Leong have seen business owners cutting back on entertainment expenses.
This need for corporate belt-tightening, combined with the pricier gratuity, makes KTV lounges less attractive today.
“Before Covid-19, getting a hostess to sit with you costs about S$100, depending on where you go,” one business owner tells BT. “Now, it’s easily S$300 – it’s not cheap at all, and I don’t think revenue has gone up by three times over the same period,” adds the business owner, declining to be named.
Another business owner, also asking to remain anonymous, says he has noticed more patrons – including himself and his clients – aiming to save costs by opting for afternoon time-slots, which tend to have lower minimum-spend requirements.
Tax-deductible merrymaking
However, tax deductions can lessen the sting – and represent another benefit of KTV visits, beyond networking and deal-making opportunities.
Under Singapore’s tax laws, business expenses that are wholly incurred in the production of income – which may include entertainment expenses – can be written off, reducing a company’s taxable income, Leong says. But business owners must be careful not to run afoul of the taxman when doing their books, as not all expenses can be treated as deductibles, he adds.
For an entertainment expense to be deductible, there has to be an existing business relationship between the parties involved, he explains. This could take the form of deals that have already been inked, or invoices that have been issued or paid out.
If a company entertains potential prospects but this does not result in a deal or any sort of business relationship, those expenses cannot be claimed as deductibles, he says.
However, if a business relationship does blossom down the line, earlier-incurred expenses could then qualify for deductions – but only if all the events happened in the same tax window, he adds.
Asme’s Ang highlights another tricky issue with entertainment expenses: the line between personal and corporate expenses can sometimes be blurred.
“These are meant to create better outcomes for your company – you are entertaining to get better profits and better revenue,” he notes.
But in many cases, it can be difficult to draw the line between personal merrymaking and corporate dealmaking, especially if the parties involved already have a strong personal relationship, he adds. “If you go to a KTV to entertain, are you enjoying yourself? Most of the time you would be, so that’s the personal part.”
Tight restrictions
While corporate belt-tightening could mean fewer patrons, tight zoning restrictions could mean fewer new players.
Many areas are off-limits to new nightlife establishments, making it difficult for potential new entrants to enter the market, property analysts say.
https://i.imgur.com/LKMjVKy.jpg
The Urban Redevelopment Authority (URA) has an extensive list of areas and specific development types where new bars, nightclubs and KTV lounges are not allowed.
These include historic conservation areas; shophouses near residential areas; mixed commercial and residential developments; as well as shophouses that are zoned as both commercial and residential, or residential with commercial on the first storey.
Historic conservation areas in Singapore include Chinatown, Little India, Kampong Glam, Boat Quay, Blair Plain, Emerald Hill and Cairnhill.
Not only do these restrictions prevent KTV lounges from entering new areas, they also curb the proliferation of lounges in existing hot spots.
New bars, nightclubs and KTV lounges are also disallowed in areas where a substantial concentration of such establishments already exists, or where government agencies have received adverse feedback on existing outlets.
All this essentially restricts new entrants to very limited areas and acts as a “cap” of sorts on the number of KTV lounges here, says Mogul.sg chief research officer Nicholas Mak.
Many city and city-fringe areas and developments – where many existing KTV lounges are located – are not open to new entrants due to the restrictions, he adds.
But suburban or heartland areas are also unlikely options, he says. New developments there, such as mixed-use developments or shopping malls in the suburban areas, are unlikely to allow or want KTVs.
Landlords are not the only ones who might object. Mak notes that suburban areas have a higher concentration of residential developments, so the potential impact on residents will likely be taken into account by the authorities.
A possible solution could be for new entrants to take up spaces within hotels, he adds. Hotels tend to be located away from residential areas, and are spread widely enough that they can be found outside of the restricted areas.
ERA key executive officer Eugene Lim agrees such an arrangement could be feasible, as URA allows for up to 40 per cent of a hotel’s premises to be used for commercial purposes.
Malls that are located further away from residential developments could also be options for new entrants, Mak says. “If the mall is struggling because they don’t have much footfall, the landlord may be desperate enough to allow KTVs to operate there.”
KTV operators would also want to provide privacy to their clientele, so such an arrangement could be mutually beneficial, he adds.
En bloc risks
Existing KTV lounges cannot rest easy in their current premises, however. Many are located in ageing developments that are at risk of redevelopment.
If the developments in which they are located undergo a successful collective sale, these KTV lounges would have to relocate, putting them in the same position as new entrants, property analysts say.
The URA lists 13 developments where new bars, nightclubs and KTV lounges are not allowed, due to an existing concentration of such establishments there.
Of these, two have seen successful collective sales in recent years. Golden Mile Complex was sold for S$700 million in May 2022, while the combined Peace Centre and Peace Mansion development traded hands for S$650 million in December 2021.
Another five developments on the list – Golden Sultan Plaza, Orchard Towers, People’s Park Centre, People’s Park Complex and Sim Lim Square – have made attempts at collective sales in the past two years.
Granted, analysts say the en bloc market for mixed-use and commercial developments is likely to remain quiet in the near to middle term, following 2023’s tepid sales.
For the year till Nov 26, 2023, some S$1.53 billion worth of mixed-use and commercial deals were concluded – 15 per cent less than that for the whole of 2022, according to data consolidated by real estate consultancy CBRE.
“I do not rule out that they will keep trying, (but) most of the en blocs that have tried and are not successful are largely due to the price, and also because interest rates have risen quite significantly,” says ERA’s Lim.
Yet even without collective sales, existing KTV lounges are in danger of not having their licences renewed.
Orchard Towers is a prime example. In July 2022, the police announced that it would not grant or renew licences for public entertainment outlets there, as part of efforts to manage law and order and disamenities. A collective sale of the development gained traction as a result, but eventually fell through as the collective sale committee did not obtain the required consent threshold of 80 per cent of unit owners.
However, Mak observes that the non-renewal of licences at Orchard Towers may not necessarily bode poorly for other developments.
A key consideration is the locale’s notoriety, with few places having quite the reputation of Orchard Towers. “Other developments may not have the same colourful history, may not have had that many fights – I think the main thing is that they do not (become) a public nuisance.”
Additional reporting by Cheryl Tang, Goh Ruoxue, Michelle Zhu, Yong Hui Ting and Zhao Yifan
https://www.businesstimes.com.sg/opinion-features/feeling-squeeze-swansong-ktv-lounges-amid-location-curbs-and-corporate-belt