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Thread: Shophouses in prime districts snapped up; owners put more assets on market

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    Default Shophouses in prime districts snapped up; owners put more assets on market

    Shophouses in prime districts snapped up; owners put more assets on market

    "Robust interest" in such properties is seen continuing into the next year

    Fri, Dec 11, 2020

    RACHEL MUI
    RAPHAEL LIM


    SOFTER asking prices in Singapore's shophouse market have continued to pique buyer interest for tightly-held assets in prime locations, and the flurry is showing no signs of abating.

    "During the last few years when there was a run-up in prices for shophouses, many interested buyers were priced out of the market," Clemence Lee, senior director of capital markets at CBRE, told The Business Times (BT).

    Such properties, especially conservation shophouses, also tended to have sticky prices because of their rich heritage value and limited supply, said Steven Tan, Colliers International's senior director of investment services.

    But with the Covid-19 pandemic this year, sellers who need to let go of their properties are becoming "more realistic" with their pricing, according to CBRE's Mr Lee. "As such, we're starting to see demand coming back from buyers who were previously priced out and are now looking capitalise on the situation to purchase a central business district (CBD) shophouse at a slight discount," Mr Lee noted, adding that demand for these "well-priced" shophouses remains strong.

    Pent-up demand and selling interest during the height of the coronavirus outbreak in Singapore earlier this year has also helped revive the market lately. JLL Singapore director of capital markets Ong Zhen Hao has observed buyers and sellers showing more confidence and cautious optimism now, with the pandemic kept under control in Singapore and economic activity gradually revving up.

    Likewise, Colliers' Mr Tan has recently seen an "increased appetite" for shophouses, especially those in Districts 1 and 2 and that are zoned for commercial use, as there is no additional buyer's stamp duty imposed on such properties.

    Based on caveats lodged with the Urban Redevelopment Authority (URA) this October and November, transacted shophouses in the two prime districts fetched prices ranging from S$3,684 per square foot (psf) to S$10,747 psf based on land area. The upper end of the range was from a S$29.8 million sale of a 999-year leasehold shophouse on Amoy Street.

    A year ago, shophouses in District 1 had changed hands in October and November 2019 for around S$4,253 psf to S$12,405 psf based on land area, according to caveats lodged then. In addition, more shophouses in the same localities have emerged on the market of late, marketed by different real estate service firms. One "cluster" includes three neighbouring shophouses along New Bridge Road, which were separately offered in November with guide prices of S$1,605-3,174 psf based on gross floor area.

    Freehold or 999-year leasehold shophouses are still attracting strong interest as they have proven to retain value "very well" even in times of uncertainty, according to JLL's Mr Ong.

    Edmund Tie's executive director of regional investment advisory and China desk Tan Chun Ming said that with the current volatility in equity and other asset classes, real estate may be an alternative for investors seeking to hedge against risks by diversifying their portfolios.

    And with a smaller investment quantum per unit, shophouses appeal to a wider range of investors, especially with the current low interest rate environment keeping the cost of credit low, he added.

    Colliers' Mr Tan also said that shophouses appeal to investors as they can be versatile depending on what type of space is in demand. An owner may apply for a change of use, for example, to convert an existing property into offices, a co-working space, co-living areas, a boutique hotel or a service apartment, subject to the authorities' approval.

    Prime shophouses, particularly those in the CBD, also still garner strong interest as they are seen as "trophy assets" and offer stability during economic uncertainty, according to Mr Lee from CBRE.

    "With the travel restrictions in place, Singaporeans have been spending more of their time out of their homes. This bodes well for food and beverage (F&B) destinations such as Amoy Street, Keong Saik Street, Cuppage, Club Street, Mosque Street and Liang Seah Street where we can see restaurants being packed during the evening time," Mr Lee told BT.

    CBRE has also noticed an uptick in demand for suburban shophouses such as those in the Katong/East Coast vicinity, Mr Lee said. He added that this could be due to people frequenting their residential neighbourhoods more often as they work from home, giving a boost to F&B and retail businesses there.

    Overall, Edmund Tie's Mr Tan anticipates the "robust interest" in shophouses to continue into the next year. "More institutional investors such as family offices and funds are becoming more receptive to shophouses, as there are lesser value propositions in traditional assets such as office buildings, industrial properties and malls," he noted.
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