http://www.straitstimes.com/archive/...ouses-20141018

Investors eye rich pickings in shophouses

Median prices of shophouses have surged by 50% in the last two years

Published on Oct 18, 2014 12:42 AM

By Cheryl Ong


SHOPHOUSES are fast emerging as an attractive prospect for investors confronted by dwindling investment opportunities in a downbeat property market.

While the residential market is now a pale shadow of itself from two years ago, deals in the shophouse space have picked up.

Just this month, two units at 10 and 12 Gemmill Lane changed hands for $10 million, according to sources. A 99-year leasehold unit at nearby 22 Gemmill Lane was also sold for $14 million at about the same time.

Based on the built-up area, the price works out to about $2,000 to $2,300 per sq ft (psf) each.

At least four units in Pagoda Street were snapped up for between $14 and $18 million each this week. Caveats from the Urban Redevelopment Authority revealed that one unit at 16 Gemmill Lane changed hands for $10.5 million last month and another one at 43 Keong Saik Road went for $7.8 million in August.

Shophouses, which are limited in supply, have traditionally been held by owners who inherited them and feel no pressure to sell. The units are therefore harder to buy, experts said.

But the landscape is fast changing, with investors jumping into the commercial market after eight rounds of cooling measures and stringent mortgage lending rules squeezed many out of the residential segment.

Mr Richard Tan, a realtor specialising in shophouses at PropNex, said: "Many do not realise the huge gains they're sitting on until investors offer them a deal they cannot refuse."

Shophouses are popular with foreign buyers as they do not face restrictions such as the additional buyer's stamp duty, unlike in the residential segment.

Also, conserved shophouses are concentrated in the prime Central Business District (CBD) and offer a cultural charm, said Mr Tan.

Mr Zain Fancy, founder of Clifton Real Estate Group, a firm investing mainly in shophouses, said the main draw is in "restoring units to their former glory".

"It's like owning a landed property with your own building with a piece of Singapore history."

URA data, based on land area, shows median prices of shophouses have surged by 50 per cent to $3,412 psf in the last two years.

"Generally, people who buy shophouses believe in capital appreciation. Shophouse rents have not moved as fast as capital values," said Mr Ian Loh, director and head of investment and capital markets at Knight Frank.

One drawback cited by industry players is that information on the units' built-up areas and rents is not freely available, resulting in a market that is still fragmented.

So landlords have not raised rents in line with the market, said Mr Tan. But this represents potentially better rental yields.

He cited a tenant who recently renewed a lease at $29,000 for a 4,000 sq ft three-storey shophouse in Tanjong Pagar - up from $18,000 three years ago.

Ms Chia Siew Chuin, director of research and advisory at Colliers, said shophouses have become popular with food and beverage outlets, budget hotels and even firms that do not require Grade A office space. CBD office rents can fall between $7 psf for older buildings and $12.50 psf in the Marina Bay financial district.

However, Mr Loh noted that shophouses are costlier to invest in, compared with other commercial assets such as strata office or retail space. A conserved shophouse in the CBD, for instance, can cost at least $7 million.

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