http://www.straitstimes.com/archive/...-rise-20150221

Shophouse sales drop sharply but capital values rise

Published on Feb 21, 2015 1:05 AM

By Rennie Whang


SALES of shophouses have fallen sharply but capital values are still increasing, experts say.

There were 112 transactions last year, down from 206 in 2013 and 290 in 2012, a caveats analysis by commercial real estate services and investment firm CBRE showed. However, median prices per sq ft (psf), based on land area, were up at $3,286 psf last year, from $3,162 psf in 2013 and $2,485 in 2012.

Values on a gross floor area (GFA) basis have risen as well. Prices for District 1 and 2 shophouses have increased from $1,500 to $1,800 psf in 2012, to $1,800 to $2,300 psf in 2013 and last year, said Mr Richard Tan, a PropNex agent specialising in shophouses. Prices had increased only very gradually from 2007 to 2011.

"Demand is coming from Singaporeans and foreigners from Indonesia, Hong Kong, China, and companies. Some are real estate funds, others are in unrelated industries and looking to invest their profits. Cooling measures and looming supply in the residential market have also dissuaded people from investing there," said Mr Tan.

A pair of shophouses in Chinatown is understood to have been sold for $20 million or about $3,500 on a GFA basis last week, one of the highest prices for Districts 1 and 2.

But values have risen far more slowly for shophouses that cannot be purchased by foreigners, who can buy only fully commercial premises. A River Valley Road shophouse, for example, sold last month at $4.7 million, or about $1,800 to $1,900 psf on GFA. While not far from the central city, its mixed-use nature - residential with commercial on the ground floor - means it can be bought only by Singaporeans.

About 30 per cent of 8,900 conservation shophouses are open to foreign buyers, said Mr Simon Monteiro, director at Historical Land, a property agency specialising in shophouses.

Transactions likely fell last year as the number of sellers decreased, with many sellers holding on to their property, said Ms Sammi Lim, associate director of investment properties at CBRE.

The Total Debt Servicing Ratio has also forced speculators to leave the market. "Genuine buyers with long-term investment horizons are now on the prowl for a good buy," said Ms Lim.

Sales this year have started on a strong footing, with six shophouses in Peck Seah Street sold last month for a total of $42.8 million, or $2,150 psf on GFA.

Experts say that rents are now up 10 to 20 per cent from a year back. A ground-floor unit in Club Street or the Tanjong Pagar area may now command $15 to $20 psf per month, with $6 to $8 psf per month for the upper floors.

"Rents today are probably up 50 per cent from three years ago. There is still room for them to grow as the rents are still low, relative to rents at an office tower or shopping centre," said a seasoned investor.

Net yields for freehold shophouses are 2.5 per cent to 3 per cent, while those for leasehold shophouses are about 3.5 per cent on average, said Ms Lim.

But the current level of yields makes it hard for sellers to get the prices they want, said Mr Monteiro. "With the interest-rate hike, it makes more sense to go in if there is a near 4 per cent return. However, it also depends on your risk appetite, as more aggressive players would go in at 3 per cent yield."

Overall, the outlook remains positive due to limited supply, said Ms Lim. "We still foresee a steady increase in capital values... because of the scarcity in supply and the prestige this asset class commands."

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