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New URA policy will affect shophouse demand


A NEW Urban Redevelopment Authority (URA) policy to tighten approval of new development applications for hotel, boarding house and backpackers’ hostel uses will likely dampen demand for contiguous shophouses – unless they already have prior approval for such use.

In a circular last week, URA noted that hotels, boarding houses and backpackers’ hostels – which provide accommodation for visitors to Singapore – are generally found in commercial areas. “However, such uses should not dominate and displace other commercial activities in these areas. In addition, they are generally not permitted within or at the fringe of residential estates so as to protect the amenity of nearby residents,” URA said.

The planning authority added that in recent years, it has received more applications for new hotels, boarding houses and backpackers hostels, including change-of-use proposals to such uses on sites that are not zoned for hotel use.

“To address the potential proliferation of such developments”, URA minted the new policy, which took effect on July 7; it will be reviewed in two years.

Within the Central Area, proposals for new hotels, boarding houses and backpackers’ hostels, including any change-of-use proposals to such uses on sites that are not zoned or permitted for hotel use, will generally not be allowed within certain areas inside the Outram, Rochor, Downtown Core and Singapore River Planning areas.

The affected areas include a big chunk of Chinatown and Little India shophouses.

In Chinatown, the affected area is bounded by Upper Cross Street, New Bridge Road, Cantonment Road, Neil Road, Craig Road, Tanjong Pagar Road and South Bridge Road. The stretch includes Mosque, Pagoda and Temple streets, Keong Saik and Kreta Ayer roads, Duxton Hill and Duxton Road.

In Little India, the affected area is bounded by Sungei, Race Course and Kitchener roads extending to Rochor Canal. Other areas hit by the new policy include a stretch near Bugis MRT Station – covering Tan Quee Lan, Liang Seah, Purvis and Seah streets.

Also affected is an area surrounded by North Canal, South Bridge, Upper Circular and New Bridge roads.

For proposals in other parts of the Central Area, URA will evaluate them individually, considering its planning intention for the locality and the potential traffic impact generated by the proposal.

Although there was no mention of “shophouse” in URA’s circular, Mary Sai, executive director at Knight Frank, said: “We interpret these locations straightaway as shophouses because these streets are dominated by shophouses.”

According to Ms Sai, from a planning point of view, URA is not allowing change of use for shophouses in certain areas not only to hotels but also food and beverage outlets, as that would add to traffic congestion and parking woes.

“Morever, in some areas, we’re seeing commercial amenities like retail shops, bakeries, coffee shops, all being replaced by hostels and hotels,” she added.

URA’s new policy is expected to dampen demand for bigger chunks of shophouses. “The entry price for this segment is usually higher and with this ruling, it will reduce the attractiveness of rows of shophouses to be sold together – unless buyers see potential for other uses such as restaurants or corporate offices,” said Ms Sai.

Currently, most people buy a row of adjoining shophouses with the intention of converting them to a hotel or hostel.

On a brighter note, Ms Sai points out that one segment of shophouse owners will benefit from the new policy. “Over the years, shophouses in the affected areas that have been approved for change of use to hotels – whether they are zoned full commercial; or residential with commercial on first storey; or commercial and residential – these are the types of shophouses that will be well sought after by investors and hotel operators keen on boutique hotels.”

URA, in its circular, also stated that Outside the Central Area, it will generally not allow proposals for new hotels, boarding houses and backpackers’ hostels including any change-of-use proposals to such uses, on sites that are not zoned or permitted for hotel use.

As for existing approved hotels and boarding houses on sites that are zoned or permitted for hotel use, any proposed intensification of the gross floor area (GFA) will continue to be subject to evaluation.

Expansion of the existing approved boarding house and backpackers’ hostel uses that are on Temporary Permission (TP) will be considered individually, up to the total GFA of the existing building that it occupies. “URA will only allow further renewal of the TP for these uses if they have not caused any adverse traffic impact and disamenity to the surrounding users,” according to the circular.

Summing up the impact of the new policy, Ms Sai said: “While demand for shophouses may be dampened by the new rules, on the other hand, owners of shophouses already approved for hotel use will find their assets rise in value over time because of difficulty in getting hotels sites.”

Affected areas:


Shophouses demand weakens


PRICES of shophouses here have started to see resistance from the market, said a report from Knight Frank, which noted an increasing mismatch between sellers’ high asking prices and prices that buyers are willing to pay.

Sellers who need to let go of their properties have thus had to lower their asking price, which has sent the prices of shophouses down.

The average transacted prices of freehold shophouses have taken a tumble, falling 10.8 per cent from $3,626 per sq ft in H2 2013 to $3,235 per sq ft in H1 2014.

The demand for shophouses among food and beverage (F&B), and retail businesses is also waning, pushing their prices down, said the report.

Prices of leasehold shophouses registered a steeper drop of 23 per cent, from $6,163 per sq ft in the second half of 2013 to $4,717 per sq ft in the first half of this year.

The sharper fall was due mainly to a high base in the preceding half-year, where a property on Duxton Hill went at $8,779 per sq ft and one on Peck Seah Street for $7,818 per sq ft.

On sellers’ high price expectations, Knight Frank Singapore’s executive director and head of commercial sales Mary Sai said they may see their property as scarce, especially in central locations where conserved shophouses are not easily available for sale.

There has been pressure on rental yields following H2 2013, mainly resulting from sellers’ high price expectations.

She added that current owners may be getting decent rental yields from having paid less for their properties previously.

If buyers are unwilling to meet their prices, these sellers are able to hold on to the property for the longer term, considering that replacement units do not come easy, said Ms Sai.

Buyers who pay high prices will face the prospect of compressed rental yields – to as low as 2.5 per cent.

For commercial property, investors seek a minimum rental yield of 3.5 to 4 per cent, she said.

Mortgage loan constraints from the property cooling measures could have also shrunk the pool of prospective buyers.

The report pointed out that the heightened competition from foreign players in the F&B and retail space has also hit demand for shophouses.

On top of this, hiring difficulty and a crunch on manpower have put a crimp on businesses’ expansion plans. They may choose to rent instead of buying.

Transaction volumes for the first half of the year totalled 40, a drop from 49 transactions in the preceding half-year.

While transactions for leasehold properties held steady at seven, transactions for freehold properties in this half fell to 33, from 42 in the previous half.

With shophouse owners holding on to their assets betting on the limited supply of such properties, buyers waiting on the sidelines and retailers opting to lease, Knight Frank expects prices of shophouses to fall 10 to 15 per cent in the next six to eight months.