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LATE last month, an investor bought a freehold two-storey shophouse at Chun Tin Road, off Bukit Timah Road, at an auction for a whopping $4.12 million, after a fierce round of bidding that started at about half that figure - $2.3 million.

 

Why such intense interest in what seems at face value to be a fairly run-of-the-mill property? The answer lies partly in the healthy yields that shophouses can bring, in terms of rental income.

 

In this case, the buyer will reap a rental yield of 5.5 per cent, regarded as a fairly typical return for shophouses. And if the opening bid had won, the yield would have been an eye-popping 9.9 per cent.

 

Auctioneer Shaun Poh, a director at property consultancy DTZ Debenham Tie Leung, noted that the shophouse is near prime residential areas and occupied by a family clinic paying $19,000 a month. The buyer probably wants to set up his own medical business there, he said. Also, an MRT stop on the Bukit Timah Line is slated to be built nearby.

 

Another key point is that the shophouse was a rare opportunity in the area. 'For years, no one could buy a shophouse there as none was up for sale,' he said. 'At $4.12 million, it may be a one-off transaction, but there were still more than five bidders when the bidding reached $3.3 million.'

 

While the price achieved at this forced sale may be one-off due to the intense bidding and the site's appeal, consultants say well-located shophouses are becoming increasingly popular because of their yields. Mr Poh said he had seen stronger demand for commercial properties at his recent auctions, partly because of limited shophouse supply.

 

Generally, shophouse yields range from 4 to 6 per cent, said Savills Singapore managing director Michael Ng. 'If you get a dilapidated shophouse, do it up nicely and get a good tenant, you may be able to get a high yield,' he said.

 

Mr Poh said the 6 to 8 per cent yields achievable at well-located shophouses stack up well against general office yields of 4 to 5 per cent. Indeed, some that have been rented out to eating houses or coffee shops can generate yields of up to 10 per cent, said property consultancy Colliers International's executive director and auctioneer Grace Ng. At the other end of the scale, residential yields are about 2 to 4 per cent, consultants said.

 

Just last month, Colliers auctioned a shophouse at 17A Kampong Bahru Rd for $920,000, which gives the buyer - an individual investor - a 6.3 per cent yield, based on the monthly rental of $4,800. The ground-level tenant is a cafeteria.

Prime shophouse areas include Boat Quay, Amoy Street and Circular Road. Choice locations include Chinatown, the main street of Jalan Sultan and Little India, Club Street, Syed Alwi Road and Neil Road.

 

'Shophouses are in a recovery phase,' said Ms Ng. 'What we are seeing at our auctions now is strong demand for well-located residential properties, especially landed ones and those in districts 9,10 and 11. Shophouses will follow through.'

'Shophouses in good locations are traditionally the favourite among investors...Still, if commercial properties such as 2/2A Chun Tin Road had been put up for sale half a year ago, I don't think the response would have been as good,' said Mr Poh.