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Shophouses in the vogue again among investors

Investment in Singapore shophouses has stabilised and shows signs of picking up after taking a hit following the introduction of a loan curb in 2013. Total transaction value has been rising in the past two years even though the number of caveats lodged remained fairly steady at just over 100 a year.

Transaction value rose by about 7.6 per cent to $707.07 million last year, from $657.3 million in 2015. Demand for shophouses fell off a cliff in 2014, after the imposition of the total debt servicing ratio (TDSR) framework at the end of June 2013.

Three adjoining 999-year tenure shophouses in Amoy Street in Tanjong Pagar were recently acquired by an institutional fund for $59.6 million, or about $2,500 per sq ft, based on the floor area. In another deal, a family office bought a shophouse at 54 Boat Quay for $12.9 million or about $2,985 psf on the floor area.

Office properties, seen as a proxy for shophouses, have faced challenging leasing environment as a deluge of new office buildings weighed on rents in recent years. The average rental yield for shophouses ranges from 2.5 to 3.5 per cent, depending on the tenure of the asset.


Boom in real estate volumes expected in 2015

The number of real estate transactions in Asia will grow substantially next year, according to Collier International’s Asia Property Outlook 2015.

This is because pent-up demand from investors will be gradually satisfied by a growing volume of new supply anticipated in 2015, said Mr Dennis Yeo, Interim Chief Executive Officer (Asia) of Colliers International.

Besides new stock, there will also be more willing sellers of institutional-grade real estate because “considerably more” real estate funds will expire in 2015, Colliers said in a news release on Tuesday (Dec 9).

Globally, investors have also re-examined their allocations and are set to devote more capital to Asia, Colliers added.

However, Colliers said conditions will be tougher for Asian investors to put their money to work. One challenge is the narrowing of the gap between yields in Asia and in overseas markets.


According to Collier’s report, the capital, office and retail markets in Singapore are expected to grow and remain stable for the next year. The local industrial sector, however, is expected to slow down in 2015.

Ms Chia Siew Chuin, Director of Research and Advisory of Colliers International, attributed this trend to new government measures and policies that continue to filter through the market.

She raised the example of JTC’s revised sub-letting policy and other earlier policy changes which are expected to slow down en bloc sale transactions of properties built on JTC land, as well as to increase the difficulty in executing Sale and Leaseback transactions.

These “could hurt the rents and yields achievable by third-party facility providers in the medium term,” said Ms Chia.


Property Investors now look increasingly to Office and Retail Segments


LED by rising rents and limited supply in the near-term, investment activities are expected to hold up for office and retail space. The absence of additional buyer’s stamp duty (ABSD) and seller’s stamp duty (SSD) in the commercial space is also making this segment more appealing to investors.

Knight Frank executive director Mary Sai noted that the Singapore retail and office markets are among top picks in Asia for foreign investors, who face heftier ABSD than locals in the residential market.

“Robust economic growth, stable government, low unemployment, strength of Singapore dollars, are some compelling pull factors for foreign investors in our commercial properties,” she said at the National Real Estate Congress yesterday.

“Another reason why people move over to commercial property is because the absolute sum of capital to be paid is affordable,” Ms Sai added, citing the example of Alexandra Central, which had 43 per cent of transactions below S$1 million. The project that was launched in January last year had 98.3 per cent of strata-titled retail space sold out within one day.