Monday, April 4, 2011

More shopping for shophouses

IT WAS the Asian financial crisis in 1997 that got investor Anil Thadani interested in the seemingly unglamorous idea of putting money into shophouses.


Property prices then were at an all-time low and Mr Thadani, 46, used his savings to snap up three adjoining units in Dunlop Street.


'Back then we paid $1.65 million for those units,' he said. 'Now, the value is almost three times what it was.'


Mr Thadani has since bought more than 10 shophouses and is part of a small but growing number of investors ploughing cash into the sector.


Shophouses have become an increasingly attractive option for seasoned property investors, especially in the wake of government measures to cool the housing market, said Mr Ong Kah Seng, property consultancy Cushman and Wakefield's senior manager for Asia-Pacific research.


He said there is less risk of government intervention in commercial properties such as shophouses, unlike for residential properties, where affordability remains a key concern.


Rising office rents have also prompted small businesses to look for cheaper space, creating greater demand for alternative properties including shophouses.


'Two years ago, there were fewer buyers (of shophouses). But since the improvement in office rents last year, more investors have come forward eager to buy such properties,' said Ms Grace Ng, managing director of real estate firm Colliers International.


Ms Ng believes shophouse demand will improve further this year, in line with Singapore's economic growth.


Cushman and Wakefield's analysis of Urban Redevelopment Authority (URA) data shows that there were 380 shophouse transactions last year, up 44 per cent on the 263 sales in 2009.


There were 53 shophouse deals in the first quarter of this year, compared with 78 in the same period last year, according to URA data. But analysts say this year's figure is likely to rise as not all the transactions have been captured yet.


Prices are rising in line with demand. Mr Ong said prices of shophouses went up 10 per cent last year, with rental yields at about 4 per cent.


Median rents of centrally located shophouses grew to $4.07 per sq ft (psf) per month in February, 4 per cent more than that for the same month last year, according to URA data.


'Rents of shophouses have held steadier in comparison to strata shops in malls, as shophouses are generally unique and the supply is limited,' Mr Ong said.


Mr J. Chen, an investor in his 40s, said his shophouses are better investments than homes in the same area. He owns a portfolio of conservation shophouses, many in Tanjong Pagar.


Newly launched homes in Tanjong Pagar are selling at above $2,000 per sq ft (psf) with a rental yield of up to 3 per cent, he said.


In contrast, a 99-year leasehold conservation shophouse in the same area would go for about $1,200 psf and have a rental yield of up to 4.5 per cent.


But conservation shophouses in the central district, which includes Chinatown and Tanjong Pager, do not come cheap. CBRE Research figures show that a 2,971 sq ft shophouse in Tanjong Pagar Road sold for $9.38 million in December.


In city fringe areas like Serangoon, Kallang and Geylang, however, smaller shophouses can be bought for under $2 million, said Mr Ong.


HDB shophouses also tend to be more affordable, added Colliers' Ms Ng. Single-storey properties are typically priced below $1 million, while two-storey units with residential quarters upstairs go for around $1.2 million to $1.5 million.


Ms Ng said suburban shophouses can have rental yields of 5 per cent to 6 per cent, and may offer good value to investors as they come with existing tenants.


Investors The Straits Times spoke to say first-floor tenants of shophouses are almost always retail businesses. The upper floors are typically taken up by offices, but can be leased out to residential tenants if the shophouse is not zoned for commercial use.


But potential shophouse investors should take note that these properties come with their own set of risks and considerations. Central Provident Fund savings, for instance, cannot be used to buy non-residential properties.


Ms Ng also said investments in commercial property are not as straightforward as those in homes.


To gauge whether a shophouse is investment-worthy, buyers need to take into account the property's location, age, maintenance costs and even the attractiveness of the shop frontage.

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