SINGAPORE (EDGEPROP) - Despite the economic downturn caused by the outbreak of Covid-19 in 2020, 135 shophouses were sold during the year, which surpassed the 123 shophouses sold in 2019 by 10%, according to URA caveats lodged as of Jan 5.
“The demand for shophouses is still strong as they are in limited supply. Shophouses are looked upon as defensive assets that retain their value during an economic downturn,” says Clemence Lee, senior director of capital markets, Singapore at CBRE.
Shophouses, which can be for commercial or residential use, are distinctive terraced houses that typically have a sheltered “five-foot” pedestrian way at the front. There are only some 6,600 in Singapore.
However, even though there were more shophouses sold, the total investment quantum of $822.91 million in 2020 is 10.2% lower than that of $915.94 million in 2019, notes Lee. “Covid-19 has caused investors to become more cautious, therefore the deal size for each shophouse transaction is smaller,” he observes.
According to URA caveats, the top two shophouse deals in 2020 were the transactions of 77 Amoy Street and 89 Amoy Street. Both shophouses sold at $29.8 million each.
The three-storey shophouse at 77 Amoy Street stands on 2,773 sq ft of 999-year leasehold land with a built-up area of around 8,980 sq ft. It sold for $29.8 million or $3,318 psf (built-up area) in October to a Chinese investor.
In November 2020, 89 Amoy Street, a three-storey conservation shophouse with an attic was also sold at $29.8 million or $4,005 psf (built-up area). The shophouse is on 2,854 sq ft of 999-year leasehold land and has a built-up area of around 7,440 sq ft.
The top deal in 2019, in comparison, was the sale of 265 to 271 South Bridge Road for $54 million, or $2,716 psf (built-up area) in December 2019. The four three-storey shophouses stand on a combined land area of 6,262 sq ft and have a combined gross floor area of 19,885 sq ft.
Nonetheless, the shophouse market in 2020 has been active, particularly towards the end of the year. Patrick Poh, senior division director in ERA Realty Network, says, “The shophouse market has been reflecting a pent-up demand since the second half of 2020. Investors are taking advantage of the strong liquidity in the market as well as low interest rates.”
Despite the ongoing economic recession, CBRE’s Lee observes that shophouse sellers were still able to achieve prices set before the Covid-19 outbreak.
This includes the seller of 42 to 46 Smith Street, who sold the three adjoining shophouses for $28.8 million in November 2020. Standing on 2,784 sq ft of freehold land with 9,500 sq ft of built-up area, the transacted price of $3,031 psf on built-up area was similar to pre-Covid prices, notes Lee. It is the fourth largest shophouse transaction in 2020.
“The buyers bought the properties because they were aware that the owners in prime districts have strong holding power and shophouses in these locations are rarely put up for sale. If they did not pay this price, it is unlikely that they can buy the property later on,” adds Lee.
Similarly, 44 to 46 Amoy Street achieved the price that the owner has been looking at since last year, says Lee. The three adjoining two-and-a-half storey shophouses sold for $21.28 million, or $4,433 psf, making it the sixth-largest transaction in 2020. The shophouses stand on 2,646 sq ft of 999-year leasehold land and have 4,800 sq ft in total built-up area.
The buyer of the shophouses is a local family who is purchasing the units for long-term investment gains, says ERA’s Poh, who brokered the sale. The seller, on the other hand, is private equity real estate firm SilkRoad Property Partners. After enhancing and leasing the asset, the firm is taking the opportunity to realise the return and recycle their capital, says Poh.
“Shophouses in D1 and D2 offer an alternative to office towers within the CBD and also allow businesses to establish a unique brand identity. In comparison, shophouses in D15 are typically limited to F&B usage. Hence, the potential rental yield or capital appreciation in D1 and D2 is higher,” says Poh. As there are only fewer than 2,000 shophouses in District 1, Poh believes that they will continue to see rising interest, especially since Singapore is becoming more of a “family office hub”.
Aside from family offices, shophouse buyers in the prime district have predominantly been high net worth individuals, foreign investors, and boutique real estate funds, notes CBRE’s Lee.
For foreign investors, Districts 1 and 2 still remain the most popular locations as they are familiar with the area, says Yap Hui Yee, director of investment sales & capital markets at Savills Singapore. “In addition, Singapore remains a safe haven amid an unstable global outlook,” she adds.
Loyalle Chin, associate division director at PropNex Realty, concurs, “Overseas investors from Hong Kong and China are most comfortable with purchasing shophouses in the CBD, followed by Bukit Pasoh, Chinatown and Bugis areas. Those at Tan Quee Lan Street and Liang Seah Street have been popular.”
PropNex brokered the sale of 198 South Bridge Road, a three-storey corner shophouse approved for F&B usage that faces South Bridge Road and Cross Street. With a built-up area of 6,256 sq ft, the shophouse transacted at $27 million, or $4,316 psf (built-up area). It was the fifth largest shophouse transaction in 2020.
Yap also notes that investors are also drawn to the fact that D1 and D2 will benefit from the CBD Incentive Scheme launched by the government in 2019, which will redevelop aged office buildings into mixed developments. This was one of the reasons why a private equity fund bought 8, 9, 10 Craig Road for $29.28 million, or $2,388 psf (built-up area), a sale brokered by Yap. The three adjoining shophouses, currently leased to several cafes and restaurants, sit on 5,948 sq ft of 99-year leasehold land and are within five minutes walk to Tanjong Pagar MRT station. It was the third-largest transaction last year.
In 2020, the percentage of shophouse transactions in prime Districts 1 and 2 dropped to 18%, as compared to 23% last year. Lee says that this could be because investors’ demand for city-fringe and suburban shophouses have increased as there are more people under work-from-home arrangements, leading to higher foot traffic to businesses in suburban shophouses.
Additionally, since the “circuit breaker” lockdown, certain long-time shophouse owners in the CBD who have holding power withdrew their assets from the market, says Savills’ Yap, leading investors to seek assets outside of the CBD. “We are seeing increasing interest in the city fringe and District 15, in particular. During the marketing exercise for 101, 103, and 105 East Coast Road, I received numerous enquiries and offers,” she adds. The three shophouses, which stand on a combined freehold land area of 3,405 sq ft, transacted at $14 million in October.
Shophouses in the city fringe are also more affordable with slightly higher yields. They attract high net worth individuals and family offices who are seeking to diversify their portfolio, says CBRE’s Lee. He foresees that interest in shophouses in the city-fringe areas such as Jalan Besar, Beach Road, Serangoon Road, Geylang, Joo Chiat and East Coast will continue to increase in 2021.
Currently, Savills’ Yap is marketing 111 and 117 Frankel Avenue in District 15. The owners are asking for $5.65 million ($1,920 psf) for each shophouse. She says that since there are only around 20 shophouses in the Frankel Avenue landed enclave, the shophouses, which are currently fully leased, will be highly sought after.
While prices of shophouses have not dropped significantly, Lee says that opportunities are present for bargain hunters as there is a group of sellers who are seeking to cash out after their businesses were hard hit by Covid-19. “This group of buyers will typically be willing to provide a discount of between 5% and 10%. Due to the strong demand from buyers for shophouses, these owners who require liquidity are also able to offload them quickly,” he adds.
For instance, CBRE is marketing three two-storey shophouses at 14, 16, 18 Baghdad Street in Kampong Glam. When launched in September last year, it had an indicative price of $7.65 million, or $3,000 psf (built-up area). The guide price has since been reduced to $6.8 million, or $2,670 psf (built-up area).
With the successful deployment of vaccines globally, ERA’s Poh believes that the global pandemic will settle and the prices of shophouses will be on the increase next year. In 1H2021, PropNex’s Chin also foresees that overseas buyers will continue to enter the market to purchase shophouses, particularly in the CBD and the Bugis area.
Check out the latest listings near South Bridge Road, Craig Road, Tanjong Pagar MRT station, East Coast Road, Jalan Besar, Beach Road, Serangoon Road, Geylang, Frankel Avenue, Baghdad Street