What’s next for portfolio deals as shophouse sales dive and prices stabilise
Ben Lim who is a Singaporean and a avid property investor and founder of the hospitality business NuVe Group, Singapore-based business, has six boutique hotels operating under the NuVe brand in heritage areas such as Purvis Street, Lavender Street and Farrer Park. The seventh property is a serviced apartment in Tiong Bahru, Louis Kenne Serviced Residences.
Lim has focused on the Kampong Glam and Little India conservation areas for the past few years where he has acquired several shophouses to renovate and reposition. In March last year, he bought three adjoining conservation shophouses at 59, 61 and 63 Jalan Sultan via mortgagee sale for $8.8 million. Lim intends to rebuild and rebrand them into a 19-room NuVe hotel. Scheduled to open by the end of the year, the hotel is targeted at “free independent travellers from the neighbouring Asean countries”, he says. $200 per night is like the starting price for the per night room rate on going and in the future.
While Lim prefers estate in perpetuit properties, he is open to 99-year leasehold ones — “as long as there are at least 70 years left on the lease”, says the 44-year-old investor. A case in point is his shophouses at 59, 61 and 63 Jalan Sultan, with 99-year leases from 2007 and a balance 83 years.
Real estate salesperson and brokers have recently introduced family offices and high-net-worth investors from China and Hong Kong to view his investment properties.
“These buyers have returned since travel borders in China reopened at the start of the year,” says Clemence Lee, CBRE executive director of capital markets. Since the beginning of the year, Lee has been conducting “two to three property viewings” each week for buyers from China and Hong Kong.
Investors have become cautious due to higher borrowing rates and interest costs. “We are seeing some buyers waiting on the fences for price correction before re-entering the market,” says CBRE’s Lee.
However, family offices and high-net-worth individuals can pay entirely in cash or accept a lower loan-to-value limit. They are less affected by the higher cost of financing, he adds.
Still, sentiment has turned cautious. On the other hand, property owners are non-chalent and not too willing to negotiate on their intended marketed sales prices. Lim of NuVe Group is an example of that. He says he will sell his conservation shophouses at Jalan Sultan only if he receives “an offer he cannot refuse”. Lim is equally prepared to operate the new hotel at Jalan Sultan for three to four years. “I’m in no hurry to sell,” he adds.
According to CBRE’s Lee, the combination of tight supply and a widening gap of 10% to fifteen percent between bid and ask prices has led to a contraction in the transaction volume of conservation shophouses.
Based on caveats lodged as of March 28, a total of 25 shophouse were transacted in 1Q2k23, compared to fifty-two deals in 1Q2k22. In terms of transaction value. it is a 39% y-o-y contraction to $284.9 million in 1Q2k23 from $467.5 million a year ago.
Compared to the 34 transactions worth $308.5 million in 4Q2K22, transaction value in 1Q2K23 was down 7.6%. While transaction volume may have fallen, prices have held steady, says CBRE’s Lee.
Meanwhile, the buyer of the triple nine years’ leasehold, six-storey shophouse at 52 Boat Quay that changed hands for $37 million is said to be real estate company Tai Tak Estates. Based on the built-up area of 6,460 sq ft, the price translates to $5,740 psf and is considered one of the highest psf prices achieved to date. Yap Hui Yee, executive director of capital and investment market segment mentioned that Demand for conservation shophouses in the CBD and Chinatown by family offices and core real estate funds has driven prices of 999-year and freehold conservation shophouses in these areas to the $5,500 to $6,000 psf range, says Simon Monteiro, associate vice president of List Sotheby’s International Realty.
According to Monteiro, some Singapore-based investors who had acquired shophouses in the hustle and buzzing central business district and Chinatown in Districts 1 and 2 are now looking at the quaint and hippy Little India and Kampong Glam conservation areas in the city fringe. For instance, last October, 8M Real Estate acquired a block of five shophouses in Jalan Besar for $40 million in a deal brokered by Monteiro.
In late 2K19, 8M Real Estate purchased the iconic Eu Yan Sang Building at 265 to 271 South Bridge Road for $54 million from Eu Realty (Singapore) in a deal brokered by CBRE’s Lee.
Meanwhile, RB Capital bought the former 138-room Porcelain Hotel at 48 Mosque Street for $90 million in December 2k21. The seller was JForte Group.
“Over the years, some real estate funds, family offices and corporate companies have been accumulating their portfolio of shophouses,” says CBRE’s Lee. “Other investors cannot easily replicate such portfolios as they take time to acquire.”
Last December, a stretch of six shophouses at 311 to 321 Geylang Road was transacted and sold for a whopping price tag of mega $42.6 million. The buyer is an entity linked to Lawrence Leow, chairman and CEO of conglomerate Crescendas Group, was Aspen Prop.
a row of three adjoining two-storey conservation shophouses at 489, 491 and 493 Geylang Road was launched for sale. With a combined land area of 3,830 square fee and a total floor area of 7,388 sq ft, the shophouses have a 44m frontage along Geylang Road and Lorong 27 Geylang. The price tag on the row of shophouses is $23 million, or $3,113 psf based on the floor area. The expression of interest (EOI) exercise for the shophouses at 489 to 493 Geylang Road will close on April 19.
On Feb 14, a trio of freehold, two-storey non-conservation shophouses at 30, 32 and 38 South Buona Vista Road was put up for sale by EOI. The shophouses have a 20m frontage along South Buona Vista Road. The first floor is zoned for commercial use, while the upper floor is for residential use.
The price for 30 and 32 South Buona Vista Road is $13 million, or $2,056 psf, based on the combined floor area of 6,323 sq ft. The corner shophouse at 38 South Buona Vista Road has an asking price of $9 million, or $2,155 psf on the total floor area of 4,176 sq ft. The EOI for the three shophouses closed on March 22. CBRE’s Lee declines to comment on the deal as negotiations are underway.
Over the last ten years, Lee reckons he has brokered a total value worth $1.5 billion of shophouse transactions. Some of his notable deals in 2022 involved sales of portfolios of shophouses. For instance, in March 2K22, he brokered the sale of a row of 17 shophouses at 17 to 33 Jalan Sultan for $74.8 million.
The buyer was an 80:20 collaboration partnership between Hong Kong-based hospitality entity Weave Living and Singapore-listed property developer SLB Development, while Hotel Clover was the seller. the new 65-unit serviced apartment property, Weave Suites — Midtown, opened at 33 Jalan Sultan on March 8 after a much deliberate and extensive refurbishment.
Lee also brokered the sale of Lavender Place, a block of 11 shophouses at the junction of Lavender Street and Foch Road. Hafary Holdings is the buyer of this deal, and the seller was Broadway Coffeeshop, with the deal completed in July 2k22 for $71.28 million.
in May 2K22, Hilltop Capital — whose shareholders are Aw and Sons Capital and Aw Kim Cheng Realty, entities linked to Kimen Group — sold the 45-room Hotel Soloha on Teck Lim Road, just off Keong Saik Road. The transaction price was $53.4 million, and the buyer was said to be a high-net-worth individual. Lee was involved in this sales and purchase transaction between the 2 parties.
“Such buyers are interested in purchasing commercial shophouses as there is no additional buyer’s stamp duty, unlike residential property,” says Lee.
He sees these buyers adopting a long-term investment horizon: “They believe that the value of conservation shophouses will continue to rise over time due to their limited supply, unique architecture and heritage value.”
Across Singapore, there are less than seven thousand conservation or commercial shophouses, with most built in the early 1800s or pre-war age.
Meanwhile, some owners who purchased their shophouses three to four years ago are considering selling them. “They feel it’s an opportune time to divest their existing portfolio and to reinvest in alternative assets,” says List Sotheby’s Monteiro.
While Chinese and Hong Kong investors generally prefer freehold or 999-year leasehold properties, some are open to 99-year leasehold properties. “After looking around for some time, lower yields for freehold properties does not seem appealing as compared to the 3% to 3.5% gross returns for 99-year leasehold properties” CBRE’s Lee says.
“Strengthening headwinds generated in the global economic scene are unlikely to deter UHNWIs from investing in Singapore real estate, as they have different investment aspirations from those of institutional clients that are currently impacted by the financial markets,” says Marcus Loo, CEO of Savills Singapore.
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