[UPDATE] What’s next for portfolio deals as shophouse sales dive and prices stabilise
By Cecilia Chow
/ EdgeProp Singapore |
Based on caveats lodged, the first three months of 2023 saw 25 shophouse transactions totalling $284.89 million (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - Singaporean Ben Lim is a property investor and founder of the hospitality business NuVe Group. The Singapore-based hotel chain has six boutique hotels operating under the NuVe brand in heritage areas such as Purvis Street, Lavender Street and Farrer Park. The seventh property is a serviced apartment in Tiong Bahru, Louis Kenne Serviced Residences.
For the past three years, Lim has focused on the Kampong Glam and Little India conservation areas, where he has acquired several shophouses to renovate and reposition. In March last year, he bought three adjoining conservation shophouses at 59, 61 and 63 Jalan Sultan in a bank sale for $8.8 million. Lim is converting them into a 19-room NuVe hotel. Scheduled to open by the end of the year, the hotel is targeted at “free independent travellers from the neighbouring Asean countries”, he says. The room rates are likely to start from $200 a night.
NuVe Group’s Lim: I’m in no hurry to sell (Photo: Ben Lim)
While Lim prefers freehold or 999-year leasehold properties, he is open to 99-year leasehold ones — “as long as there are at least 70 years left on the lease”, says the 44-year-old investor. A case in point is his shophouses at 59, 61 and 63 Jalan Sultan, with 99-year leases from 2007 and a balance of 83 years.
Lim points out that property agents have recently brought family offices and high-net-worth investors from China and Hong Kong to view his investment properties.
“These buyers have returned since travel borders in China reopened at the start of the year,” says Clemence Lee, CBRE executive director of capital markets. Since the beginning of the year, Lee has been conducting “two to three property viewings” each week for buyers from China and Hong Kong.
CBRE’s Lee: We are seeing some buyers waiting on the sidelines for prices to correct before re-entering the market (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Caution reigns
Investors have become warier due to higher interest rates and borrowing costs. “We are seeing some buyers waiting on the sidelines for prices to correct before re-entering the market,” says CBRE’s Lee.
However, family offices and high-net-worth individuals can pay entirely in cash or accept a lower loan-to-value limit. They are less affected by the higher cost of financing, he adds.
Still, sentiment has turned cautious. On the other hand, property owners are reluctant to reduce their selling prices. Lim of NuVe Group is an example of that. He says he will sell his conservation shophouses at Jalan Sultan only if he receives “an offer he cannot refuse”. Lim is equally prepared to operate the new hotel at Jalan Sultan for three to four years. “I’m in no hurry to sell,” he adds.
Source: Huttons Research, URA Realis downloaded as at March 28, 2023
Likewise, Lim says he is “not overly concerned” about higher interest rates. “They will stabilise over time,” he says.
According to CBRE’s Lee, the combination of tight supply and a widening gap of 10% to 15% between bid and ask prices has led to a contraction in the transaction volume of conservation shophouses.
Based on caveats lodged as of March 28, there were 25 shophouse transactions in 1Q2023, compared to 52 deals in 1Q2022. In terms of transaction value. it is a 39% y-o-y contraction to $284.9 million in 1Q2023 from $467.5 million a year ago.
Compared to the 34 transactions worth $308.5 million in 4Q2022, transaction value in 1Q2023 was down 7.6%. While transaction volume may have fallen, prices have held steady, says CBRE’s Lee.
Big-ticket deals pull up average prices
Lee Sze Teck, senior director of Huttons Asia, points to two transactions in 1Q2023 that have pulled up the average transaction price of shophouses: a row of six shophouses along Serangoon Road that fetched $62.5 million in January and a six-storey shophouse at Boat Quay that recently changed hands for $37 million. (See table, “Top nine shophouse deals of 1Q2023”.)
Singapore Maritime Officers' Union was the buyer of the six shophouses at 322 to 332 Serangoon Road at $62.5 million in January this year. PropNex brokered the deal.
Based on the built-up area of 6,460 sq ft, the $37 million purchase price for the six-storey shophouse translates to $5,740 psf and is considered one of the highest psf prices achieved to date (Photo: Savills Singapore)
Meanwhile, the buyer of the 999-year leasehold, six-storey shophouse at 52 Boat Quay that changed hands for $37 million is said to be real estate company Tai Tak Estates. Based on the built-up area of 6,460 sq ft, the price translates to $5,740 psf and is considered one of the highest psf prices achieved to date. Yap Hui Yee, executive director of investment sales and capital markets at Savills Singapore, brokered the deal.
Demand for conservation shophouses in the CBD and Chinatown by family offices and core real estate funds has driven prices of 999-year and freehold conservation shophouses in these areas to the $5,500 to $6,000 psf range, says Simon Monteiro, associate vice president of List Sotheby’s International Realty.
In late 2019, 8M Real Estate purchased the iconic Eu Yan Sang Building at 265 to 271 South Bridge Road for $54 million from Eu Realty (Singapore) in a deal brokered by CBRE's Lee (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Portfolio accumulation
According to Monteiro, some Singapore-based investors who had acquired shophouses in the CBD and Chinatown in Districts 1 and 2 are now looking at the Little India and Kampong Glam conservation areas in the city fringe. For instance, last October, 8M Real Estate acquired a block of five shophouses in Jalan Besar for $40 million in a deal brokered by Monteiro.
In late 2019, 8M Real Estate purchased the iconic Eu Yan Sang Building at 265 to 271 South Bridge Road for $54 million from Eu Realty (Singapore) in a deal brokered by CBRE's Lee.
Meanwhile, RB Capital bought the former 138-room Porcelain Hotel at 48 Mosque Street for $90 million in December 2021. The seller was JForte Group.
RB Capital acquired the former 138-room Porcelain Hotel at 48 Mosque Street for $90 million in December 2021 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
“Over the years, some real estate funds, family offices and corporate companies have been accumulating their portfolio of shophouses,” says CBRE’s Lee. “Other investors cannot easily replicate such portfolios as they take time to acquire.”
Last December, a stretch of six shophouses at 311 to 321 Geylang Road changed hands for $42.6 million. The buyer was Aspen Prop, an entity linked to Lawrence Leow, chairman and CEO of conglomerate Crescendas Group.
The price tag on the row of shophouses at 489, 491 and 493 Geylang Road is $23 million or $3,113 psf based on the floor area (Photo: CBRE)
On the market
CBRE has launched for sale a row of three adjoining two-storey conservation shophouses at 489, 491 and 493 Geylang Road. The shophouses have a combined land area of 3,830 sq ft and a total floor area of 7,388 sq ft, with a 44m frontage along Geylang Road and Lorong 27 Geylang. The price tag on the row of shophouses is $23 million, or $3,113 psf based on the floor area. The expression of interest (EOI) exercise for the shophouses at 489 to 493 Geylang Road will close on April 19.
On Feb 14, a trio of freehold, two-storey non-conservation shophouses at 30, 32 and 38 South Buona Vista Road was put up for sale by EOI. The shophouses have a 20m frontage along South Buona Vista Road. The first floor is zoned for commercial use, while the upper floor is for residential use.
The price for 30 and 32 South Buona Vista Road is $13 million, or $2,056 psf, based on the combined floor area of 6,323 sq ft. The corner shophouse at 38 South Buona Vista Road has an asking price of $9 million, or $2,155 psf on the total floor area of 4,176 sq ft. The EOI for the three shophouses closed on March 22. CBRE’s Lee declines to comment on the deal as negotiations are underway.
Weave Suites – Midtown, opened at 33 Jalan Sultan on March 8, 2023 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Prominent deals
Over the past decade, Lee reckons he has brokered $1.5 billion worth of shophouse transactions. Some of his notable deals in 2022 involved sales of portfolios of shophouses. For instance, in March 2022, he brokered the sale of a row of 17 shophouses at 17 to 33 Jalan Sultan for $74.8 million.
The buyer was an 80:20 joint venture between Hong Kong-based accommodation operator Weave Living and Singapore-listed property developer SLB Development, while Hotel Clover was the seller. After extensive refurbishments, the new 65-unit serviced apartment property, Weave Suites — Midtown, opened at 33 Jalan Sultan on March 8.
Lee also brokered the sale of Lavender Place, a block of 11 shophouses at the junction of Lavender Street and Foch Road. The buyer was Hafary Holdings, and the seller was Broadway Coffeeshop, with the deal completed in July 2022 for $71.28 million.
Lavender Place, a block of 11 shophouses at the junction of Lavender Street and Foch Road, was purchased by Hafary Holdings for $71.28 million last July (Photo: Samuel Isaac Chua/EdgeProp Singapore)
In May 2022, Hilltop Capital — whose shareholders are Aw and Sons Capital and Aw Kim Cheng Realty, entities linked to Kimen Group — sold the 45-room Hotel Soloha on Teck Lim Road, just off Keong Saik Road. The transaction price was $53.4 million, and the buyer was said to be a high-net-worth individual. Lee brokered the deal.
“Such buyers are interested in purchasing commercial shophouses as there is no additional buyer’s stamp duty, unlike residential property,” says Lee. (Find Singapore commercial properties with our commercial directory)
‘Long-term investment horizon’
He sees these buyers adopting a long-term investment horizon: “They believe that the value of conservation shophouses will continue to rise over time due to their limited supply, unique architecture and heritage value.”
Hilltop Capital purchased the former Chinatown Hotel on Teck Lim Road, off Keong Saik Road, for $31 million in 2017. After refurbishing and repositioning the property as the 45-room Hotel Soloha, it was sold to a high-net-worth investor for $53.38 million in May 2022 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Across Singapore, there are fewer than 7,000 conservation shophouses, with most built in the early 1800s to mid-1900s.
Meanwhile, some owners who purchased their shophouses three to four years ago are considering selling them. “They feel it’s an opportune time to divest their existing portfolio and to reinvest in alternative assets,” says List Sotheby’s Monteiro.
While Chinese and Hong Kong investors generally prefer freehold or 999-year leasehold properties, some are open to 99-year leasehold properties. “After looking around for some time, some investors may find the 2% gross yields for freehold properties too low and the 3% to 3.5% gross returns for 99-year leasehold properties to be more attractive,” CBRE’s Lee says.
Check out the latest listings near Boat Quay, Mosque Street, Geylang Road, Teck Lim Road, South bridge road, Serangoon Road, Jalan Besar, South Buona Vista Road, Lavender Place
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