Sunday, March 18, 2012

End of road for food stall profiteers

Straits Times: Sat, Mar 17
INVESTORS who paid top dollar to take over hawker stalls in the hope of chasing high yields could be regretting that decision soon.

Property experts said that the value of a stall will crash to nearly zero following recent rule changes that outlaw the transferring of operating licences.

And the stratospheric amounts that some investors forked out in recent months cannot possibly be recouped through rentals alone.

Their comments come in the wake of news that two food stalls at Kovan 209 Market and Food Centre were recently transferred for over $300,000 each, according to Chinese evening daily Lianhe Wanbao earlier this week.

Property agent Doris Tan told The Straits Times that food stalls at popular Serangoon Gardens hawker centre Chomp Chomp have also been transferred at similarly high amounts in the past.

Hawker stalls are operated with licences obtained from the National Environment Agency (NEA). Currently, licensees are allowed to 'assign' or permanently transfer the right to operate the stall to someone else.

The practice has led to unofficial 'transfer fees' being exchanged, especially in prime areas which are accessible and have high human traffic.

The fees are usually paid by investors who then sublet the stalls. A quick calculation shows that a monthly rent of $2,000 on a $300,000 investment in 'transfer fees' translates to a healthy 8 per cent annual yield for the investor.

But these calculations will now change drastically when a new government rule to disallow the transfer of stalls kicks in on April 1.

Any hawker stall that has its licence renewed after that date also cannot be operated by anyone other than the licensee, effectively outlawing the practice of subletting.

The move is expected to stabilise rents and reduce costs for stallholders, which will make food more affordable, said Senior Minister of State (Environment and Water Resources) Grace Fu in Parliament last week.

But Mr Nicholas Mak, head of research and consultancy at SLP International Property Consultancy, warned that investors, who generally do not operate the stalls themselves, may be 'stuck' once the changes kick in.

If a stallholder cannot transfer his stall, the 'transfer value' of it will fall almost to zero.

And while the new rule allows subletting for a grace period of up to three years, investors who paid recently transacted prices will require much longer to break even on their investment.

A transfer fee of $340,000, for example, will require the investor to sublet the stall at a rent of $5,000 for about six years before he recoups his capital.

'He's stuck. He basically has to write off this amount or recoup it from high rental, or by operating the stall himself,' said Mr Mak. 'The new rule will help hawkers and keep food prices low, but in the meantime, there will be some casualties.'

The prospect of big losses may spur some investors to try to quickly reassign their stalls before the April 1 deadline and exit their investment.

But who will pay to take over these stalls?

'Genuine hawkers,' said property agent Jason Tan. 'It's their last chance to get a spot in a location they really want.'...

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Martin Koh/ Sherry Tang
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