Eye on conservation shophouses
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There are investment opportunities in this unique segment of the property market
ALAN CHEONG
28 September 2012
With the imposition of ABSD (Additional Buyer’s Stamp Duty) on residential developments, investment money flows have been routed to the strata industrial, office and retail space. Those have been analysed till death. However, what has been slipping through the investment radar is conservation shophouses.
Conservation shophouses are those located in areas gazetted by the Urban Redevelopment Authority (URA) as such. To date, conservation status has been accorded to over 7,000 buildings in more than 100 areas, including the entire historic districts of Chinatown, Kampong Glam and Little India. This brief hopes to shed light on this segment of the market that is unique in the sense that the data available is not as fully refined as what has been developed for other segments of the real estate market.
District 1
Conservation shophouses located in District 1 have shown reliance in terms of prices and rentals. Transactions have been relatively active in District 1 with prices trending upwards since 2007. The average quantum per transaction has been relatively stable, being mostly in the $5 million to $10 million range over the same period of time.
It should be noted that the average price on the land is only a very rough guide because data from the URA does not show whether each shophouse is two- or three-storey high.
When compared to CBD office rentals, conservation shophouses in District 1 have outperformed the former since Q1 2007. Shophouse rents are also more volatile than those of offices. That is because shophouses are more location and orientation sensitive to tenants than a general purpose built office. Hence, it is important that investors know how to position their unit to maximise rental values.
On a dollar per square foot ($psf) per month basis, average gross rents are about $5.75 for conservation shophouses located in District 1.
Using Amoy and Telok Ayer streets as a case study, the average transacted prices for conservation shophouses there have been clearly trending up since 2007. For Q2 2012 average transaction prices were at an estimated $1,700 psf of gross floor area (GFA). At this rate of increase, it should surpass $2,000 psf in due course.
Uses
Conservation shophouses can have a variety of uses. These can be:
1. Offices
Compared with CBD office spaces which are going northwards of $7.50 psf per month, conservation shophouses cater to a niche segment of users who prefer the quaint and easy going atmosphere of operating in such spaces.
Unlike CBD office developments which cater to larger space users, conservation shophouses offer floor plate sizes that meet tenants that require smaller space.
2. F&B establishments
Offices with F&B uses on the ground and second floors have already been applied in the area, for example Killiney Kopitiam located at 21 Amoy Street. F&B outlets can command a gross rental of between $6 and $8 psf per month. Offices in bare state are currently asking about gross $6 psf per month for the Telok Ayer Street area.
There exists potential for more up-market F&B establishments in such units. In District 1, the next phase of evolution for F&B comes when more CBD apartments are completed over the next few years; by 2015, the population of private residential city dwellers could swell by 1,420 per cent over 2007 numbers. This will create additional spin-offs as the new, higher income residents would exact a change in the F&B landscape from the mid-tier to up-market.
Back in the early 2000s, the popular locations for the most trendy restaurants and bars were Club Street, Far East Square and Capital Square. Raffles Place or Shenton Way on the CBD were widely seen as 5.5-day lunch time business and hence less viable locations for F&B operators who preferred to stay in the Orchard Road, Dempsey or Holland Village areas which attracted dinner and drinks crowds seven days a week.
Take Amoy and Telok Ayer Streets as examples. These two thoroughfares are sandwiched between Club Street and the Marina Bay area, with the latter two areas fast sprouting discerning F&B concepts. The former two streets are expected to be transformed as well, thereby spurring greater rental demand.
Another area which is already thriving, but will see even greater activity is the Kampong Glam district. Once the site (the Malaysia-Singapore joint venture development) slated for office, residential and hotel use that is sandwiched between Ophir/Rochor Road is completed in 2016, traffic flow to conservation shophouses there should increase significantly. In fact, the conservation district in the vicinity acts in symbiosis with this M&S development, enhancing its residential and hotel uses and as an F&B destination for office workers after work.
3. Hotel
Hotel use is also an attractive proposition. Conservation shophouses are suitable for boutique hotels. Recent transactions for such hotels have been healthy with prices moving up on each sale.
For the latest boutique hotel sale at Jalan Sultan in December 2011, the price per room for the leasehold property worked out to $518,000.
Investment alternative
The investment quantum of a clutch of conservation shophouses puts it in the range of a Good Class Bungalow (GCB). Conservation shophouses present an attractive investment opportunity for those who want an alternative to buying a GCB. Not only are conservation shophouses priced like GCBs, their yields are also very similar, which lead one to imply that these two investments are alternatives.
Similar to GCBs, conservation shophouses are limited in supply. In the future, as the intensity of use and investment into real estate in Singapore can only become greater, the restricted supply of conservation shophouses would increasingly turn this type of real estate into a prized asset, much like prized art and antiques. This means that in the long-run, the weight of money should naturally lift all conserved shophouses.
The writer is head of research, at Savills Singapore