He fancies shophouses in Singapore

Zain Fancy of Clifton Partners expects to keep his focus on shophouses in the next few years although he has started to evaluate a few high-end residential transactions here.

April 24, 2017

KALPANA RASHIWALA


ZAIN Fancy is passionate about shophouses.

"It is not just about the satisfaction of making a good investment. It is more about an obsession to create the highest quality spaces within our properties," said the founder and managing director of property investment management firm Clifton Partners. "Constantly bursting the boundaries of renovation and quality can be quite satisfying."

The 43-year-old was speaking to The Business Times at his office at Craig Road. Clifton leased the top level of the three-storey conservation shophouse after selling the property in late-2015 for S$12.5 million. It had paid S$7.88 million for the asset in May 2013 , based on caveats information.

Over the past four years, the group and its affiliates have also sold eight other conservation shophouses on Duxton Hill, Neil Road, Ann Siang Road, Peck Seah Street, Club Street and Pagoda Street. The total sales value of the nine shophouses was about S$90 million.

"We more than doubled our investment," said Mr Fancy. The lowest pre-tax internal rate of return for a monetised shophouse was 18 per cent.

Currently Clifton and its affiliates hold 11 shophouses in places like Boat Quay, Club Street, Jiak Chuan Road and Pagoda Street - the combined value of which he estimates at nearly S$170 million. Four of the shophouses - two in Pagoda Street and one each in North Bridge Road in the Kampong Glam area and Lorong Mambong in Holland Village - are on the market for sale through a tender that will close on April 28.

Although Clifton is divesting some shophouses, it is also in advanced negotiations to buy a few more. So why has the Pakistani-turned-Singaporean taken a liking to shophouses? It goes back to the time when he decided to sink his roots here.

Soon after he moved to Singapore in 2007 as head of Morgan Stanley's Asia real estate investment unit, he decided he wanted the republic to be his home for the familiar set of reasons: Singapore is clean, safe and a good place to raise children.

"Moreover it is a melting pot of cultures and people - which makes it easy for a foreigner to fit in." So he became a Singapore citizen in 2009 and decided to "own a piece of Singapore's history and heritage" through investing in shophouses.

Although these may also be found in neighbouring countries, what sets apart those in Singapore is that a very high proportion of them have been renovated and gentrified. "Here you can find an entire street of shophouses that retain their individual character and are nicely conserved."

Mr Fancy credits the Urban Redevelopment Authority's Conservation Master Plan and the enforcement of conservation guidelines for the high quality of Singapore's pre-war shophouse stock.

"The uses are also very actively managed. The authorities have done a good job of cleaning up a lot of areas, such as Duxton Hill, which used to have seedy pubs, and Chinatown, which was full of massage parlours."

When he set up Clifton in 2011, it initially operated out of a serviced office in Singapore Land Tower in Raffles Place. But he soon moved to a rental shophouse in Duxton Hill and "fell in love with the area".

"I thought the rents and capital values are attractive relative to office buildings and retail shop units, so maybe there is a play to buy this asset class." In 2012, the shophouse market had been very steady for many years and prices had not gone up.

The investment appeal of conservation shophouses also lies in their limited supply, so in early 2013, the group bought its first handful.

Clifton, which typically gears at 60 per cent on its property investments, has partnered two Singaporean families and a Hong Kong-based institutional investor for most of its property investments.

The group typically looks for conservation units which, though they may have been restored some time ago, have potential for value-adding and refurbishment with a view to enhance rentability.

"No one renovation of a shophouse is exactly like another. We aim to create unique spaces that blend modern elements with the traditional features of pre-war shophouses, like exposed ceiling beams and carved wooden doors'' said Mr Fancy.

Clifton's 12 team members keep honing their skills of investing in and sprucing up of shophouses, coming up with more creative ideas to stay ahead of the game. "Our knowledge gives us an advantage, we can move faster. We know what works, so we are able to do a better job of conserving the property and making more money over the long term."

But it is not just about making money, added Mr Fancy. "When we renovate, we try and use the best quality materials that can last for 30 or 40 years."

The yield on Clifton's shophouses - measured by net operating income divided by sum of acquisition cost and renovation expenses - ranges from 3 to 6 per cent per annum.

Mr Fancy has also invested, in his personal capacity, in Singapore's high-end residential market - including bungalows in Good Class Bungalow Areas and on Sentosa Cove. Most of these have been sold and he is now left with just three luxe residential assets: a bungalow on Treasure Island, a penthouse unit at The Oceanfront @ Sentosa Cove and a Bukit Timah bungalow.

"The worst is over for the Singapore luxury residential market, but I do not see a price or rental recovery for the next 12 to 18 months." A recovery will hinge on creating local and expat jobs in the financial services, oil and gas, tech and other sectors. Any serious geopolitical event in the region may further delay the recovery, he said.

For the next few years, Clifton expects to continue focusing on shophouse investments although it has started to "seriously evaluate" a few high-end residential transactions including bulk purchases here.

Currently invested only in the Singapore property market, the group is studying the possibility of making commercial property acquisitions in Central, Hong Kong with some partners.

Mr Fancy named his company Clifton, after the affluent part of Karachi where he was born. He attended boarding school in the US, where he also furthered his education. He holds a BSc in international economics from Georgetown University School of Foreign Service.

He plays tennis to keep fit and to fight stress. He and his wife have a five-year-old daughter.

How did his family name come to be Fancy? "My great-grandfather, in East Africa, used to dress meticulously, so he got this nickname which then stuck on."