BUYING HERITAGE SHOPHOUSES IN MALAYSIA
Asian Property Review chats with KL See, director of Metro Homes Sdn Bhd who is also the deputy president of the Malaysian Institute of Professional Estate Agents and Consultants (MIPEAC) on the investability of shophouses in Malaysia.
1. Define heritage shophouses in Malaysia.
A heritage shophouse or building is defined under the National Heritage Act 2005 (ACT 645) as a building or groups of separate or connected buildings which, because of their architecture, their homogeneity or their place in the landscape, are of outstanding universal value from the point of view of history, art or science.
2. Given that conservation or heritage shophouses are a limited asset class, do you think its price will hold steady and even increase over the years despite negative factors such as oversupply of new shophouses or sluggish economic conditions?
Yes, the price will hold steady and a marginal increase over the years is expected because of its limited availability. But overall, such shophouses are still subject to town planning laws, etc. For example, rules such as traffic flow, parking requirements will affect the entire area which may contain heritage shophouses. But these external factors will not have a major impact on heritage shophouses.
3. Is it the right time now to buy heritage shophouses in Malaysia? If yes, which are the preferred areas?
Yes, it is always the right time to buy heritage shophouses in Malaysia due to their limited supply. Most of the time, the unit is sold even before it reaches the market as there is always a group of investor ready to buy it.
Penang, Melaka and Kuala Lumpur are popular locations but Ipoh is now the new destination for tourists – be they locals or foreigners.
4. Who are mainly the buyers and why do they prefer heritage shophouses?
The buyers are mainly locals who are already operating a business in a heritage shophouse or are planning to do so. Foreigners who buy are those who appreciate the value of heritage shophouses although in some cases, they might be put off by the cost of conservation or renovation.
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5. Apart from those doing businesses in heritage shophouses, why are heritage shophouses not popular as an investment asset with locals?
Locals don’t see the long term potential value of the shophouse as they are usually in a bad condition due to age, say for example, a 100-year-old shophouse. It is usually 2 storeys only – and furthermore, most of these are located in the city centre which lacks parking space and are usually adjacent to narrow roads. New township shophouses on the other hand have ample parking spaces.
6. For foreigners, what are the limitations, if any?
The only limitation is the same which applies to all foreigners e.g. in KL, it has to be RM1 mil or above.
7. What is the price range (psf) for heritage shophouses in the most sought-after locations and what was the appreciation like since 2009?
For KL, the price per sq foot varies tremendously for example, along Jalan Tuanku Abdul Rahman alone, the price can range from RM800 psf to RM8,000 psf between 2009 – 2017! (See table).
As for Penang, we have many transactions of pre-war shophouses e.g. 80 transactions for Georgetown alone from 2009 – 2017. As an example, as per the table, in Kawasan Jalan Penang, a shop which sold for RM215 psf in 2009 was transacted at RM1,669 psf in 2017. That’s six times plus increase in appreciation.
8. How is the rental yield?
Rental yield is not high – usually around 2-3% and this is also one reason why locals are not so interested because the cost of fund is higher as compared to Singapore and Hong Kong which is below 2%.
After the repeal of the Rent Control Act 1966 in 1997, although owners of pre-war shophouses could increase their rentals, by then many local tenants prefer townships outside of KL city centre.
As for Penang and Melaka, the story is a bit different because some core city centre areas of Georgetown and Melaka were designated as UNESCO heritage sites. This attracted a lot of tourists – continuous government promotion of local tourism and social media also contributed to the interest in shophouses there. As a result, there were a lot of transactions in those areas in the last 10 years.
9. Are newly built shophouses a competition in terms of price and rental yield?
Newly built shophouses are targeted at a different market now – the yield is higher and it usually has more floors such as 4-5 storeys as compared to the 2-storey heritage shophouses.
10. Why are boutique hotels and eateries such popular businesses in heritage shophouses?
These businesses have a lifestyle element where customers have the time to appreciate and live in to understand more about the heritage building. It is unlike selling groceries where the shopper is more concerned about the price and then move on. Retailing is also not popular due to the popularity of e-commerce – it’s not able to survive the high cost of heritage buildings.
11. Is it easy to get a loan to purchase heritage shophouses? Can foreigners obtain such a loan?
Yes, like any commercial property, it is easy to get a loan – the only challenge is the valuation. The bank’s panel of valuers would be adding the restoration cost into the loan amount, etc. As every building condition is different, each case is approved on a case by case basis. Can foreigners get a loan? Yes but at a lower margin. In any case, I believe most foreigners come in with a bigger capital and big operation plans like running a designer hotel.
12. What is your advice for foreign investors interested in buying a heritage shophouse in Malaysia? Are there any downsides or risks?
Foreign investors must come in with a plan and must be familiar with the town planning rules as well as get all the required approvals and permits.
The downside is that if the area is not popular, then it is harder to resell. So, it is better for the foreigners to group together or on their own buy and develop not just one unit but the entire row of heritage shophouses; or restore the entire street, if need be. Only then can it have an impact and attract tourists and locals alike with its eateries and fine dining restaurants, etc.
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