Three shophouses in Mosque Street – Nos. 48, 49 and 50 (above) – were sold for $64.8 million and converted into a boutique hotel, while four shophouses at Rail Mall a stretch of shopping and dining outlets in Upper Bukit Timah Road, were sold for $63.2 million earlier this year, said PropNex Realty. ST PHOTO: JONATHAN CHOO
Cooling measures have shifted investor focus to commercial-zoned shophouses
Their rich architectural heritage and distinctive Art Deco facades with decorative motifs make prime conservation shophouses a sought-after asset for investors.
While this type of property has been gaining favour with boutique real estate funds, family offices and high-net-worth people in recent years, shophouses on fully zoned commercial sites have seen higher transaction activity and price growth after the July 6 cooling measures.
Total transaction values are projected to hit $1.4 billion this year, up from $1 billion last year and $709 million in 2016, analysts say.
The cooling measures have definitely shifted investor focus to commercial real estate, said Mr Steven Tan, director of capital markets & investment services at Colliers International.
Analysts said that is because commercial-zoned shophouses are exempt from additional buyer’s stamp duty (ABSD) and seller’s stamp duty and enjoy fewer restrictions on financing compared with residential properties. Foreigners are not allowed to acquire landed homes in good-class bungalow areas, but they can buy commercial-zoned shophouses.
“There are more options in terms of conversion of use for shophouses, compared with residential and industrial properties,” said Mr Terry Wong, Cushman & Wakefield’s senior manager of capital markets.
“Shophouses are like small commercial buildings, so investors find it more attractive and palatable to acquire multiple blocks of shophouses, compared with acquiring an entire commercial building, which might be too large a quantum or too huge an exposure.”
Some investors are looking at converting shophouses in the Central Business District (CBD) and Chinatown (the old postal districts 1 and 2) into co-working spaces as an alternative source of income.
District 1 includes Boat Quay, Club Street, Amoy Street, Telok Ayer Street, Temple Street and Pagoda Street. District 2 includes Bukit Pasoh Road, Jiak Chuan Road, New Bridge Road, Keong Saik Road and Teck Lim Road.
There are 6,760 shophouses gazetted for conservation, making up most of 7,200 such buildings, according to the Urban Redevelopment Authority. Of the 6,760, nearly half or 3,320 are in the historic districts of Boat Quay, Chinatown, Kampong Glam and Little India.
Built between the early 1800s and mid-1900s, the most popular residential locations are in Emerald Hill Road, Spottiswoode Park Road and Cairnhill Road. Some of the plummest areas are along Singapore River, in Telok Ayer Street, Amoy Street, Club Street and Ann Siang Hill.
Commercial-zoned shophouses are usually slated for establishments such as cafes, bakeries, dessert parlours and Michelin-starred restaurants, or hostels and hotels.
Increasingly, they are attracting interest from fitness studios, legal and architecture firms, galleries and creative industries keen to explore non-conventional office layouts and spaces, said Ms Sammi Lim, CBRE director of capital markets.
Shophouses in the CBD usually command higher premiums because of the prime location. But in recent years, city-fringe locations like Jalan Besar, Kampong Glam and Little India, as well as East Coast Road and Joo Chiat Road, have become popular because of rental upside and capital gains potential.
Average prices have jumped nearly 20 per cent to $4,469 psf in the year to date, from $3,736 psf last year, according to Savills Singapore senior director Alan Cheong.
Increased supply is driving sales activity. A substantial portfolio of shophouses in the Boat Quay/Circular Road and New Bridge Road areas was put on the market by the family of the late businessman and philanthropist Lee Wee Nam. The nine shophouses and one commercial building were acquired in March for $82.5 million by property investment group 8M Real Estate, with the shophouses going for $45.5 million.
Earlier this year, four shophouses at Rail Mall, a stretch of shopping and dining outlets in a rustic part of Upper Bukit Timah Road, sold for $63.2 million, said PropNex Realty. Three shophouses in Mosque Street – Nos. 48, 49 and 50 – sold for $64.8 million, the agency said. Both deals were the highest recorded transactions since 2012.
Adjoining units of shophouses are prized assets as they offer higher efficiencies, Ms Lim said.
Buying a row of shophouses is akin to buying a boutique building, she said, adding: “It gives the flexibility to explore change of use of the property. Single-storey shophouses remain attractive as their quantums are more palatable. Demand for shophouses and strata offices should remain consistent in the next two to three years amid tight office supply and rising rents.”
However, Mr Tan noted that shophouses zoned “commercial and residential” are not exempt from ABSD and the seller’s stamp duty, which reduces their appeal to investors. Shophouse owners also have to deal with many restrictions and regulations relating to conservation guidelines and maintenance costs, due to the age of the buildings.
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