http://www.straitstimes.com/Money/St...ry_824564.html

Strata retail units show healthy gains

Those in mixed developments offer good rental yield, capital appreciation

Published on Jul 21, 2012

By AMANDA TAN


MOST investors who have bought strata-titled shops in mixed developments in recent years have made money, at least on paper, property consultants say.

Such properties are gaining traction among investors given their healthy rental yields and capital appreciation. They are also unaffected by recent market cooling measures.

The limited supply of strata retail units here has also helped prices to stay resilient. Only a handful of mixed projects with strata shops have been built in the last five years, including Alexis and Southbank.

At least another eight, such as East Village at Tanah Merah, Millage at Geylang and The Promenade@Pelikat achieved good take-up rates and are due to be ready in the next five years.

In all, at least 600 strata shops will be added to the market here.

A Knight Frank report showed that 669 strata shops were transacted in the first half of the year, exceeding the 624 sales over the whole of last year.

While strata shops can also be found in malls such as Sim Lim Square, investors like those in mixed developments as they are mostly well located, cheaper and have a ready pool of traffic from residents, experts said.

Strata units in mixed projects overtook other such units, like those in malls, in the resale and subsale market in the first half of the year, noted Mr Alan Cheong, Savills Singapore's head of research.

Prices have also soared, in line with market conditions.

For instance, a retail unit at Southbank, in Lavender, was marketed for an average of $1,508 per sq ft (psf) in 2006, but was last sold in the resale market at $2,295 psf in 2010.

The trend is also borne out by some older mixed projects like Aquarius by the Park and Bukit Timah Plaza, achieving a 21.5 per cent annual compounded rate of return over the past five years.

For example, a 312 sq ft strata shop space at Bukit Timah Plaza went for $800,000, or $2,563 psf, last month. In 2007, a similar- sized unit there cost $300,000, or $961 psf.

Ms Mary Sai, executive director (commercial sales) at Knight Frank said: 'In the past, there were fewer good shops available for retailers (or) investors to purchase as most malls were held by developers for investment and not for sale.'

She said it has been only in the last two years that more strata shops have been put up for sale.

'As the newer shops are smaller with lower absolute price quantum, they become more affordable as alternative investments.'

Experts say rental yields for strata shops could range from 3.5 to 6 per cent, which is fairly attractive. But returns could be lower for those who bought units through a costlier subsale.

R'ST Research director Ong Kah Seng said the capital appreciation of such units depends on the project and the time of purchase.

'Generally those who held the units long enough, for at least three years, may be able to expect at least 15 per cent capital appreciation,' he said, noting, however, that new supply coming onstream could moderate that.

Upcoming mixed developments have a larger number of strata shops, which require a bigger catchment of consumers beyond residents there, he said.

Their success is also dependent on the tenant mix at the development. But retailers in strata malls benefit from not having to go through 'long channels of mall management approval', which can lead to more innovative offerings, Mr Ong said.

Mr Feroz Khan, 38, bought three units at the upcoming Millage for $2.6 million recently.

He heads his family's clothing and traditional medicine business, which currently rents several shop spaces in the Geylang area.

'I chose a mixed development because there will be residents here (to patronise our shops)... We sell daily necessities that they would need,' he said.

'There is also demand for shop spaces here... so I will consider leasing the new units out, which will likely fetch over $6,000 a month,' he added.

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