Super-rich zooming in on conservation shophouses

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/ EdgeProp Singapore
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August 3, 2018 9:00 PM SGT
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With buying interest diverted from the residential property sector, record prices are likely to be achieved in the commercial shophouse sector, which has received increased attention in the past year

It may have been 12 years ago, but Jerry Tan can still vividly recall the reaction to his $2.8 million purchase of the three-storey conservation shophouse at 65 Club Street in 2006: “Everybody — from ex-colleagues to property valuers — scolded me and asked whether I was serious, as it was then valued at $2.3 million to $2.4 million,” he says.
Tan then spent $1.2 million restoring and renovating the shophouse before moving in on Aug 18, 2007. Since then, it has been the headquarters of JTResi, the boutique luxury marketing agency that he founded in 2001.
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The exterior of the conservation shophouse at 65 Club Street which has three levels and an attic
Tan has made a name for himself and his firm by marketing the most luxurious projects in Singapore and setting benchmark prices, notably at The Marq on Paterson Hill. In 2007, he sold the first unit in Singapore that crossed the $5,000 psf threshold. It was for a 6,232 sq ft unit in the Signature Tower of The Marq that comes with a lap pool and it fetched $31.4 million, or $5,100 psf. Tan set another record when he sold a 3,089 sq ft unit in the Premier Tower for $17.54 million, or $5,842 psf, in May 2011. That enabled the developer, SC Global, to sell the next two units at prices above $6,000 psf and to hit a high of $6,842 psf.
At TwentyOne Angullia Park, he repeated the feat by selling the first 10 units at the $4,000 psf price level in 2012/13. In 2010, even before Goodwood Residence on prime Bukit Timah Road was launched, Tan brought the project to Indonesia on roadshows and sold the first 27 units.
The 999-year leasehold property is located on a quiet cul-de-sac on a hillslope, off the Club Street thoroughfare with its ubiquitous clubs and restaurants (Credit: Samuel Isaac Chua/EdgeProp Singapore)

Cul-de-sac location

For Tan, the shophouse at Club Street is more than an office: It is a sales gallery and venue for client events and parties. “We’ve had a lot of great parties and networking sessions here,” he says.
What Tan likes about the property is its location. The 999-year leasehold property is located on a quiet cul-de-sac on a hillslope, off the Club Street thoroughfare with its ubiquitous clubs and restaurants. The entry to the hilltop is marked by Liberty House, the headquarters for Liberty Insurance, at 51 Club Street.
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The shophouse at 65 Club Street is more than an office: It is a sales gallery and venue for client events and parties (Credit: Samuel Isaac Chua/EdgeProp Singapore)
There are only 10 conservation shophouses on the cul-de-sac. Across from Tan’s shophouse on the hilltop is a millionaires’ club — the Chinese Weekly Entertainment Club. “It’s a gentlemen’s club,” says Tan. “You can see all the Rolls-Royces driving up here in the evenings.” The private millionaires’ club at 76 Club Street dates back to 1891 and is adjacent to the 112-year-old Goh Loo Club at 72 Club Street. The owners of the shophouse continue to occupy the upper levels, although the first level is for lease. Tan’s shophouse is right at the end of the cul-de-sac and accessible to Ann Siang Park.
Tan feels it is time to move on, as the shophouse at 65 Club Street is underutilised today. “Our priority has also changed,” he says. “I want to focus on projects that I enjoy.” The conservation shophouse at 65 Club Street has three storeys and an attic. It occupies a site of 2,088 sq ft and has a built-up area of 5,641 sq ft.
The office on the second level of 65 Club Street (Credit: Samuel Isaac Chua/EdgeProp Singapore)
He has decided to put the shophouse on the market for sale at an undisclosed price by expressions of interest (EOIs). “It’s been a great office gallery and, being at the end of a cul-de-sac, it will be a conducive location for a family office.”
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‘Flavour of the year’

While Tan may feel a little nostalgic, he says: “As with everything, we need to seize the right moment. Conservation shophouses are obvious ly the flavour of the year and will continue to be so, especially for prime freehold or 999-year leasehold property, which are limited in number.”
In terms of timing, it could not be better. With the property cooling measures introduced on July 6 taking a toll on en bloc sales and the residential market, owners of strata-office and shophouses could emerge the biggest gainers, says Tay Huey Ying, JLL Singapore head of research & consultancy.
The shophouse at 65 Club Street has an internal staircase as well as another one leading to the street (Credit: Samuel Isaac Chua/EdgeProp Singapore)
“The government’s swift response to curb home price growth has dampened the prospects of residential properties as attractive investments,” says Tay. “Investors looking for [options in which] to park their money could divert their attention to the strata office and shophouse markets, as they are not subject to the restrictions in this latest round of measures.”
Across the street from JTResi’s office, another corner conservation shophouse — at 64 Club Street — was put up for sale on April 16 with a $25 million price tag. The two-storey shophouse, which has a basement and an attic, occupies a 999-year leasehold site of 2,250 sq ft and has a gross floor area of 5,618 sq ft.
The corner shophouse at 64 Club Street is on the market for $25 million (Credit: JLL)
Zain Fancy, the owner of 64 Club Street and founder of Clifton Real Estate Partners, purchased the shophouse in March 2013 for $12.98 million. He spent another $3 million refurbishing the property two years ago. The shophouse has been approved for full restaurant use and leased to Caffé B, a Japanese-Italian fusion restaurant that relocated from Marina Bay Sands.
The tender for the property at 64 Club Street closed on June 1. According to its marketing agent, JLL associate director of capital markets, Clemence Lee, the property is currently under “advanced negotiations”.

Improving fundamentals

The 112-year-old Goh Loo Club at 72 Club Street where the owners occupy the upper levels but the first level is for lease (Credit: Samuel Isaac Chua/EdgeProp Singapore
According to Lee, as both local and foreign property investors are hit by higher stamp duties in the residential sector, owing to the latest property cooling measures, they have started to shift their focus to commercial property. “We have started to receive enquiries from owners who have recently sold their residential units via a collective sale and are looking to invest their proceeds in a shophouse,” says Lee.
Other than the cooling measures, investors are also encouraged by improving office market fundamentals, which is having a positive impact on commercial shophouses too, notes Lee. For commercial shophouses in the CBD area, ground floor units zoned for F&B use have transacted rents at $10 to $15 psf per month, while upper floors for office use have transacted at $6 to $7.50 psf per month.
As rents are improving, prices have also been rising correspondingly. As such, gross yields have remained relatively unchanged at 2% to 2.5% for freehold and 999-year leasehold conservation shophouses in the CBD, notes Lee. For 99-year leasehold properties, gross yields are in the 3%-to-3.5% range.
Investors are also encouraged by improving office market fundamentals, which is having a positive impact on commercial shophouses too (Credit: JLL)
Investors who are attracted to the heritage value of these shophouses are willing to enter at lower yields to buy a piece of history, says Sammi Lim, CBRE director of capital markets. “Otherwise, buyers tend to favour stabilised and refurbished shophouses with higher yields to provide them with greater stability, especially in a rising interest rate environment,” she adds.

Family offices gravitate to Districts 1 and 2

JLL’s Lee sees family offices still actively looking to purchase conservation shophouses, particularly in the prime CBD areas of Districts 1 and 2.
According to Lee, the Club Street area is likely to benefit from the upcoming hotel site offered for sale on the confirmed list of the 2H2018 government land sales (GLS) programme. The hotel site is where the existing open-air public carpark is.
The property at 19 Hongkong Street underwent an extensive $7 million redevelopment, which was completed in 2015, and the lease topped up to a fresh 99 years (Credit: JLL)
Elsewhere in the CBD, JLL is marketing a brand-new commercial shophouse at 19 Hongkong Street, off New Bridge Road. It is offered for sale by EOI, which will close on Aug 8. The building sits on a 99-year leasehold site of 1,858 sq ft and has a total gross floor area (GFA) of 7,792 sq ft, with a roof terrace of 1,050 sq ft.
The property at 19 Hongkong Street underwent an extensive $7 million redevelopment, which was completed in 2015. The original four-storey shophouse was completely redeveloped and a six-storey rear extension was added. The lease tenure was also topped up to a fresh 99 years from October 2015.
The price tag on the property at 19 Hongkong Street is $18 million, or $2,300 psf, based on GFA. If the roof terrace is included, the price tag would translate into $2,035 psf. Interest in the property has been strong, says JLL’s Lee.

Big deals

A row of four adjacent shophouses at 332 to 338 Tanjong Katong Road was sold for $18.2 million in January (Credit: CBRE)
Along the same row, 9 Hong Kong Street was sold for $18.8 million ($2,513 psf), according to a caveat lodged on June 22. The seller purchased the shophouse for $800,000 in 2004. The recent deal at 9 Hong Kong Street was brokered by CBRE’s Lim. Meanwhile, 6 Hongkong Street was sold in May for $13.75 million ($2,750 psf). The seller paid $6.3 million for the freehold unit in August 2010.
Last November, Far East Organization purchased a shophouse at 23 Ann Siang Road for $10.38 million in a deal brokered by CBRE. The property has been approved for F&B use.
Aggressive buying by property funds, family offices and high-net-worth investors has driven up prices of shophouses in the CBD. That has also spilled over to the city fringe, notes CBRE’s Lim. In January, for instance, she brokered the sale of a corner shophouse at 452 Serangoon Road for $13 million and a row of four adjacent shophouses at 332 to 338 Tanjong Katong Road for $18.2 million.

‘Pushing boundaries’

The Millionaires' Club - Chinese Weekly Entertainment Club - at 76 Club Street (Credit: Samuel Isaac Chua/EdgeProp Singapore)
Attention for now could, however, be directed to the two shophouses located opposite each other — 64 and 65 Club Street. JTResi’s Tan is known for setting record price transactions even in bad times.
In May 2014, when owners of properties in the rest of the Core Central Region (CCR) were reeling from the effects of the total debt servicing ratio introduced in June 2013 — that came on top of eight earlier rounds of property cooling measures — JTResi brokered the sale of a 4,682 sq ft, ground floor unit at Goodwood Residence for $11.5 million. The unit was purchased by one of Tan’s clients for $8.5 million in April 2010 when the project was first launched. The gross profit for the sale of the unit at Goodwood Residence was $3 million. It was done when most resale deals in the CCR were sustaining losses.
“I love pushing the boundaries,” says Tan, who hopes to similarly achieve a new price benchmark on Club Street.
He is likely to have the last laugh at the expense of the detractors of his property purchase 12 years ago.