THE SAIL

RENTING SHOPHOUSE

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The Sail @ Marina Bay is in the heart of Singapore’s Marina Bay and Raffles Place. Perfect  for Expats for relocation, short term and long term stays. It is everyone dream to have a corporate housing in the heart of the Marina Bay and Raffles Place entertainment and financial district in Singapore especially Living in The Sail.

THE SAIL RENTING SHOP HOUSE

THE SAIL RENTING SHOP HOUSE

 

Shop houses are now more costly to own than ever due to its ever rising capital values. On average, the median price of shop houses has risen by nearby 20% annually over the last 10 years and now stands at a historical high of $4,111 psf.

Median transaction price of shop houses rose 5 times over the period from 2004 to 2013. On average, prices grew by 20% annually during the same period, making it the best-performing commercial properties in terms of capital appreciation.

The Unique Charm

The hype over shophouses is not unfounded. Shophouses are usually well-located in central region, with excellent frontage, and offer greater flexibility in terms of allowed use as opposed to the rigidness of other types of commercial properties.

In contrast to shops and office units, which are largely (more than 99%) strata-titled, most shop houses on the other hand, are land-titled. In addition, 85% of shop houses that changed hands since 1995 are freehold, whereas the other types of commercial properties

Shop houses hold great intrinsic value serving as an embodiment of Singapore’s historical and cultural heritage, forming the main bulk of Singapore’s gazetted conservation buildings, and are sought after for their scarcity and dearth in supply.

In view of the Land Acquisition Act where the government has the right to acquire land compulsorily for public development projects such as in the case of constructing new MRT lines, shop houses located in conservation areas may have the added advantage of being protected from such redevelopments.

After the introduction of the Total Debt Servicing Ratio (TDSR) in June 2013, sales dropped by 60.5% immediately in the following quarter to 30 transactions, and have since remained at that level. Sales value however, continued the down trend, suggesting that the TDSR has affected the higher-value segment more. In fact, 1Q14 saw the lowest sales value since 3Q09 and can be attributed to a drastic drop in transactions above $10m.

Rental Yield

Rental yield for shop houses has been on a down trend. Over the period from 1Q07 to 1Q14, capital values rose by more than 4 times while overall rents increased by only 72.8%. The rental yield compression does not appear to be slowing down as capital values are still on the rise despite the implementation of TDSR, which only slowed down sales volume.

THE RENTAL SINGAPORE MEDIAN TRANSACTION PRICE AND RENTAL OF SHOP HOUSES

THE RENTAL SINGAPORE MEDIAN TRANSACTION PRICE AND RENTAL OF SHOP HOUSES

THE SAIL ESTIMATED RENTAL YIELD

THE SAIL ESTIMATED RENTAL YIELD

Profitability

The number of unprofitable transactions has also declined over the years and has remained below 5% since 2010.

Total gross profits from resale transactions peaked in 2013 with $358m, a 25% increase y-o-y, although the number of profitable transactions is actually lower by 25%, suggesting that the profit per transaction rose significantly due to the increased capital value over the year.

72.9% of the profits generated in 2013 came from first half of the year, before the TDSR was implemented.

Potential Risk

Should the government roll out cooling measures for the commercial property sector, such as introducing the Seller’s Stamp Duty (currently imposed on residential and industrial properties) the poor rental yield will be a huge drawback.

In addition, the TDSR has brought down sales volume, especially those above $10m, which may result in more volatile capital values.

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