Published February 1, 2007

Interest rises in apartments, shops with en bloc potential

Conservation shophouses also in play to tap rising office rents


INVESTORS and speculators who find units at high-end property launches beyond their budgets are turning to older strata apartments and commercial property with collective sale potential.

Such properties have been generating strong interest at auctions, says DTZ Debenham Tie Leung auctioneer and director Shaun Poh.

Some investors are also hoping to get a piece of the booming office rental market by picking up conservation shophouses with a view to renting out the upper floors as offices.

'There's a dearth of strata office units in the market which small investors can buy, so buying conservation shophouses can be an avenue for them to get exposure to rising office rents,' Mr Poh says.

At a DTZ auction last week, a second-floor shop unit at The Adelphi, in the City Hall area, attracted strong interest from investors who had got wind of proposals for a collective sale of the property.

Eureka Office Fund, a 50-50 joint venture between CapitaLand and Ergo, now controls about 62 per cent of share values in the 999-year leasehold Adelphi.

Bidding for the 366 sq ft shop unit there began at $350,000, and it was eventually sold at $460,000 or $1,257 psf. This was about 30-40 per cent above a recent valuation commissioned by the mortgagee - reflected as Hong Leong Finance, according to a search - that sold the property.

Separately, a two-bedroom apartment on the 13th floor of Odeon Katong, a freehold mixed development at East Coast Road, was sold at the same auction on behalf of mortgagee DBS Bank for $505,000 or $546 psf. There has also been talk of an en bloc sale proposal for Odeon Katong.

'Both properties attracted interest from investors who studied the units in great detail before the auction, enquiring about their potential for a collective sale,' Mr Poh says.

'The profile of these bidders is different from those who go to auctions with a view of finding a home for owner occupation. They're not couples, but individuals or small groups of men.'

The attraction of such property is the 'the investment outlay is relatively small - around $500,000 or even less - making it a more affordable punt compared with speculating in the high-end residential market where the price could be several million dollars', he explains.

Taking a different view, another market watcher points out that deferred payment schemes at residential launches - a downpayment of 10-20 per cent and the rest when a development is completed - can considerably reduce the outlay required to speculate at the luxury end.

But other agents bear out DTZ's view. Colliers International executive director and auctioneer Grace Ng also reports growing interest in strata shop units in ageing buildings in the Orchard Road belt.

'Some investors see old buildings in the location as having potential for en bloc sale, but sellers' asking prices have also gone up tremendously,' Ms Ng says. Units in older buildings like Orchard Towers and Orchard Plaza - where strata unit sales were relatively inactive in the past - are now seeing a surge in interest.

Still, as Ms Ng points out: 'Buyers have to factor in the risk that if they pay a very high premium for the property thinking there will be a collective sale, there's a risk that they may end up holding the baby if the en bloc sale fails to go through.'

Another factor driving interest in older apartments - even those without early en bloc sale potential - is high prices of new top-end property nearby.

'This has generated interest in older apartments, where the prices may be at least 20-30 per cent lower,' Ms Ng says.

'For instance, following the launch of Marina Bay Residences, there has been renewed interest in properties like Pebble Bay and Costa Rhu in the Tanjong Rhu area. Seeing this, however, some owners are raising their asking prices, although mortgagee properties are still priced closer to valuation. As a result, buyers are zooming in on older mortgagee apartments at auctions.'

Another class of property generating greater interest at auctions is shophouses. DTZ's Mr Poh says conservation shophouses in areas like Serangoon Road, Ann Siang Hill, Club Street, other parts of Chinatown and Boat Quay are popular with investors who want to ride the expected escalation in office rents.

And Colliers's Ms Ng confirms the trend.

It costs at least $2 million for a 99-year leasehold conserved shophouse and about $3 million upwards for a freehold one, although shophouses with shorter leases of 40-50 years can still be bought for $1.5 million or even less, she says.