Saturday, July 10, 2010

Shopping for investments? You can invest in these shops

Most sought-after places for strata shop deals in H1 this year include Peninsula Plaza and Sim Lim Square, says Knight Frank study

THE number and value of strata shops and shophouses transacted in the first half of this year are down slightly from the preceding half-year, shows a study by Knight Frank.

However it predicts the full-year 2010 tally will surpass that for 2009. Assuming businesses continue to be optimistic, this will support demand among entrepreneurs for this property class, says Knight Frank executive director Mary Sai.

As for the relatively subdued interest in strata shops in H1 2010, she attributes this partly to excessively high asking prices by sellers. 'Furthermore, the availability of substitute properties like HDB shops also affects investors' interest in strata shops,' she added.

The property consultancy group's study did not include HDB shops and shophouses.

It showed that 167 private-sector strata shop units were transacted in the first half of this year for a total of $200.1 million, down from the 209 deals worth $214.6 million in H2 2009.

For the whole of last year, the figure was 306 deals worth $278 million.

At the peak of the market in 2007, there were 603 strata shop units that sold for $506 million.

The most popular haunts for strata shop deals in H1 this year include Peninsula Plaza at North Bridge Road and Sim Lim Square, with 12 caveats each.

Sales activity was also rife in the Upper Bukit Timah area, with a total 16 caveats lodged for shop units in three neighbouring malls - Beauty World Centre, Bukit Timah Plaza and Bukit Timah Shopping Centre - perhaps fuelled by the nearby Beauty World MRT Station, which is being built, Ms Sai suggests.

Knight Frank observed that about half of the strata shops that changed hands in H2 2009 and H1 2010 were 99-year leasehold strata shops. 'The bulk of the strata shop space in Singapore has 99-year leasehold title. Such properties are also more affordable and because of their lower capital value, rental yields tend to be higher,' Ms Sai said.

People's Park Complex, High Street Centre, Fortune Centre, Fu Lu Shou Complex, Golden Mile Complex, Sim Lim Square, Beauty World Centre and Bukit Timah Plaza were among the developments on 99-year leasehold sites that were a hive of activity for strata shops in H1 this year.

In the freehold/999-year leasehold category, shop units at Peninsula Plaza, Holland Road Shopping Centre and Katong Shopping Centre were highly sought after.

The most expensive transaction (in terms of per square foot of strata space) in January to June this year was $8,977 psf for a ground-floor unit at Sim Lim Square facing the escalator and main shopping concourse. The 355 sq ft unit was transacted at $3.19 million in May.

The majority of strata shops transacted in H1 2010 were in the lower price range, in line with the historical trend. Units priced below $1 million made up 64 per cent of transactions.

Ms Sai sees a modest increase of about 5-10 per cent in the number and value of strata shop transactions for the whole of this year compared with 2009. 'Some owners may want to unlock their values, especially for properties with shorter balance leasehold tenure and those where values have rebounded substantially from the trough.'

While many of these 99-year shop units are in ageing shopping centres, they have a vibrant, bazaar feel, marked by haggling with shopkeepers and an eclectic tenant mix, which wows some shoppers, says DTZ executive director (consulting) Ong Choon Fah. One factor that has helped to hold up values of this property class is limited stock since over the past two decades, developers by and large have stopped selling shop units in their mall.

Property values tend to hold better in malls which are held under single ownership as that allows better control on management and tenant mix. As well, strata-titling individual shop units and selling them will entail setting up a sinking fund and collective decision of subsidiary proprietors for major matters like substantial works, or a collective sale, Mrs Ong points out.

As for the shophouse market, Ms Sai is predicting that for full-year 2010, there could be about 330 transactions at over $700 million - higher than full-year 2009 figures of 261 caveats for a total of $630 million.

'Buying interest in shophouses will remain strong due to limited supply and the flexibility of usage - for retail, office, boutique hotel or residential,' Ms Sai said.

Knight Frank's analysis of caveats on the URA Realis system shows that in H1 this year alone, the tally stood at 165 caveats lodged at a total $408.7 million, down from 167 transactions at $446.7 million in H2 2009. The decline was amid a fall in transactions of $5 million or more, from 17 deals in H2 2009 to 11 in H1 2010. The bulk or 45 per cent of shophouse deals in January-June this year were in the mid-price band of $1 million-$2 million.

Ms Sai says that most of this year's shophouse transactions were in Chinatown, Little India, Kampong Glam, Geylang and Joo Chiat.

Industry players highlight that those thinking of buying strata shop units or shophouses will have to use cash resources and/or bank loans; the use of CPF savings for the purchase of non-residential properties has been phased out since July 1, 2006.

DTZ's Mrs Ong also advises those eyeing shophouses to do their homework or engage a seasoned property consultant. 'Some shophouses are very old and may not have been renovated; you'll have to check if they are structurally sound.

'You should also check with Urban Redevelopment Authority whether you are allowed to build a taller rear extension.'

Potential buyers should also study the profile of surrounding uses and occupiers to see if they are compatible with their intended use. One drawback about shophouses is a lack of dedicated carpark lots, so occupiers and their guests usually rely on street carparking or public carparks.

Only about a quarter of H1 2010 shophouse deals involved 99-year leasehold properties, 'reflecting buyers' strong desire to have a lasting interest in a freehold shophouse', according to Ms Sai.

Shophouses will remain favourable for buyers, underpinned by their limited supply and unique design and architecture, she reckons. 'When you buy a shophouse, especially if it's in a conservation area, you also own a piece of history,' she said.

Source: Business Times, 10 Jul 2010

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