Finance

Sit Out Trump’s Trade War — in a Singapore Shophouse

The smart money’s flocking to these vintage dwellings.

Their yields can survive vicissitudes in global trade better than a mall in, say, Jurong East.

Photographer: Mura/Getty Images

As a hiding place from President Donald Trump’s trade war against China, a cozy corner of Singapore’s real estate holds much appeal.

A two- or three-story terrace close to the city’s central business district, home quite often to a wine bar or gastropub at street level with a massage spa or music lounge tucked away upstairs, has been in bigger demand this year than industrial sheds.

Shophouses are mixed-use buildings constructed between the 1840s and the 1960s that formed the majority of the pre-World War II urban fabric of the old city center. Deals of more than S$5 million ($3.7 million) for these conservation dwellings increased 281 percent from a year earlier to a record S$478.6 million in the first quarter, according to Colliers International Group Inc. The broker attributes the surge to strong demand from local and foreign high-net-worth individuals, as well as property funds and investment firms.

The contrast with industrial developments is stark. Strip out a land sale by the government for a shared executive learning center (more a services business than a manufacturing operation), and total investment sales for the quarter — transactions worth S$5 million or more — came to just S$276 million, according to Colliers. For a couple of industrial sites authorities had made available, there were no bids.

Life in Color

Residential properties in Singapore saw S$9.1 billion of investment sales during the first quarter of 2018; but in other categories, pre-World War II shopouses beat gleaming new retail developments

Source: Colliers International

*Investment sales defined as transactions over S$5 million.

Mind you, brokers do expect an increase in interest for industrial properties, particularly from wannabe landlords of logistics units. Amazon.com Inc., for example, brought its Prime delivery service to Singapore last year. However, investors also have reason to exercise caution. Any escalation of a Washington-Beijing trade spat and dislocation of a China-centric electronics supply chain would hurt the city-state, too. 

Houses are undoubtedly safer bets. Residential property prices are on the mend after a government-engineered cooling. That, and an expensive Hong Kong home market, is attracting investors. Developers, meanwhile, are scrambling to build land banks, spending nearly S$6 billion in the first three months alone to buy out existing residential sites.

The outlook for the city’s office market is firming, though oversupply is still an issue. By contrast, there are fewer than 7,000 shophouses. The ones at Boat Quay and Circular Road that Jones Lang LaSalle Inc. was engaged to sell have a great location in the heart of the city. The S$82.5 million check that local investment firm 8M Real Estate Pte wrote for a bouquet of 10 such terraces in March takes its total holdings to 40 conservation shophouses, valued at about S$500 million, in Colliers’ estimates.

Shopping Habits Are Changing

Singapore's biggest mall REIT last year saw a drop in rates at which new leases were signed, or old ones renewed

Source: Company reports

*Change in rental from previous tenancy agreement, typically struck three years prior.

Tenancies at shopping malls are getting renewed at rates that won’t exactly make landlords jump with joy. Online shopping is one reason to be gloomy; banks’ desire to boost their digital presence (and save money on physical branches) is another. 

Shophouses aren’t completely insulated from economics. But their yields can survive vicissitudes in global trade better than a mall in Jurong East, whose footfalls and fortunes are tied to global oil prices. Outside of the central business district, gentrification — for instance of the Joo Chiat neighborhood into a hipster hub — is also a pull.

It isn’t easy to find good shophouse deals, and those that are part residential aren’t available to foreigners. Still, last year saw 148 transactions, topping S$1 billion, a 40 percent jump over 2016, according to CBRE’s analysis.

This isn't a fluke. Short of a pandemic like SARS, which forces people to stay home, a heritage shophouse in all its pastel glory may be a safe haven for smart money in the age of Trump.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Andy Mukherjee at amukherjee@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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