Investment property sales activity may be generally quiet but a small corner of the market is still seeing healthy interest.
Values of shophouses in the Central Business District have jumped over the past two years, buoyed by their scarcity and demand from funds and foreigners.
In what is thought to be the priciest deal this year on a per square foot (psf) basis, a shophouse in Ann Siang Road recently went for $10.8 million to a foreign investor, or about $3,750 psf in terms of gross floor area (GFA). The owner is believed to be Mr Zain Fancy of Clifton Partners.
In comparison, District 1 and 2 shophouse prices went from $1,500 to $1,800 psf in 2012 to $1,800 to $2,300 psf in 2013 and 2014.
Now, prices of 99-year leasehold shophouses in Chinatown, for example, are already close to $3,000 psf, said Mr Richard Tan from PropNex.
But although capital values have risen, rents have not increased in tandem, said Mr Simon Monteiro, director at Historical Land. "Eight years ago, we were seeing 6 per cent rental yields. Today, yields are 3 per cent or even less than that."
This has not stopped some funds and foreigners from aggressively picking up units.
"They are playing with capital appreciation," noted Mr Monteiro.
They tend to be more active than Singaporeans, who are seeking undervalued properties even though owners are generally not hard-pressed to sell, said Historical Land managing director Cedric Pinto. Funds are under more pressure to deploy capital as well.
Of the 16 CBD shophouse sales with caveats lodged from October, nine were sold to funds or foreigners, a property title check showed.
Just last month, investment group 8M Real Estate picked up a Craig Road shophouse for $6.5 million. The company also has five shophouses in Amoy Street and another in Gemmill Lane.
Transactions completed without caveats early this year included the sale of two shophouses in Pagoda Street to Rio International Investment - one for $12.2 million and the other for $12 million, or about $2,800 psf. The firm is owned by Mr Loi Keong Kuong, owner of Rio Casino in Macau.
The newer entrants to this space include Spanish tycoon Ricardo Peralta - chief executive of Luxembourg-based investment holding firm Ventos and a board member of Danone Spain. He has picked up six conservation shophouses from October, the latest believed to be one in Amoy Street which went for $20.25 million or about $2,411 psf on GFA.
There is a dichotomy between shophouses that have been upgraded - where investors can enjoy an attractive yield - and older and more dilapidated ones, which do not garner as much interest.
The leasing market has softened over the past half year but there is still activity, said a seasoned investor, who recently rented out a Pagoda Street shophouse for over $18,000 a month, or about $12 psf, to a retail tenant in a medical field.
"We are seeing quite good leasing demand, especially if you renovate the unit. For tenants, rents are still at a discount compared with a shopping mall or Grade A office space."
While the number of shophouse deals fell slightly last year, total value of transactions rose 10 per cent, reflecting sustained interest in this asset class, said Ms Sammi Lim, associate director of investment properties at CBRE.
"This year, the pool of serious investors exploring this asset class will widen further with the entry of more boutique institutional funds (looking at) shophouses to add to their entire portfolio."
This article was first published on May 2, 2016.
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