Investing in Melaka Heritage Shophouses Returns vs risks

Heritage shophouses in Melaka which used to command premium prices are selling at a bargain now.
Text & Photography by Jan Yong
Heritage shophouses are in a class of their own– rare collector’s items whose prices will appreciate over time. But collector’s items also means prices depend very much on supply and demand despite its higher intrinsic value.
Heritage shophouses that have attracted the most attention are those in Melaka, less so in Penang, Ipoh or Kuala Lumpur. This is because of the additional factor in the form of Singaporean buyers who are only about less than three hours’ drive away.
With Melaka being a favourite weekend getaway for many Singaporeans, it’s only natural that they want to invest in Melaka. With their higher value Singaporean dollar, they could easily buy a million-ringgit property in Malaysia, which is equivalent in price to a three-room resale HDB flat back in Singapore.
Furthermore, the status of Melaka’s historic core as a UNESCO World Heritage Site since 2008 has pushed up its intrinsic value further as such zones naturally attract a continuous flow of international tourists. Every weekend, traffic jams were endemic and all accommodations were fully booked. Such was Melaka’s tourism heyday when it was the number one state in Malaysia attracting the most visitors at almost 20 million compared to its entire population of 900,000!
This means customers are constantly thronging the streets in Melaka’s historic core, namely Jonker Street (Jalan Hang Jebat), Heeren Street (Jalan Tun Tan Cheng Lock) and Harmony Street. Prices of property then even reached a peak of RM3,000 psf (see table) while rentals can reach between RM17K – RM20K in the most sought-after spots.
The interesting thing is that prices can vary a lot even if the shoplots are on the same street (see table), as this depends on the footfall. Most of the shophouses have been turned into restaurants, cafes, souvenir and foodstuff shops, boutique hotels, Airbnb guesthouses and even private museums. Melaka probably has the highest concentration of private museums in one location compared to anywhere else in Southeast Asia.

Rental Plunge

Those were the good old days. Nowadays, with Malaysia’s unending lockdowns and international and interstate border closures, Singaporeans and KL-lites have stopped coming. With customers gone, tenants are not able to sustain their businesses hence are asking for lower rentals. Landlords have no choice but to accede to their request with some even reducing the rental by more than half.
Says a long-time resident, some shophouses used to rent for about RM7K, now it’s down to RM3,000 or less per month for a 2-storey shoplot. The majority of the shoplots are between 2 – 2 1/2 storeys, with very few one-storeys.
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Yet, some businesses are closing down; this made the situation worse especially from the perspective of landlords from Singapore. With no signs of the borders reopening anytime soon, some Singaporeans have decided to offload their collector’s items at a huge discount, partly motivated by fears that it would be difficult to manage the properties without being able to travel to Melaka.
One such lucky buyer was real estate investor Michael Tan who figured that this was a great buy. He reckons that in all likelihood, once the borders reopen, land travel will boom as many from the Klang Valley and Singapore would visit the city due to its proximity. Foreigners will also beat a path to the most historic city in Malaysia.
“Melaka is an international tourist destination attracting millions of visitors every year during pre-pandemic times. This is good for business especially when the visitors are relatively high income earners who tend to spend more,” notes Tan, who is also a business coach.
He believes prices would eventually go up “just like prices of antiques”. “In the last six years, prices have gone up by 600 – 1,000 per cent and rentals in a good location can fetch up to RM20K per month for a two-storey shophouse!”
His first choice of location is along Jonker Street, followed by the parallel Heeren Street (also known as Millionaires Row).
Tan also enthuses over the fact that the shoplots, if renovated properly, would be very Instagrammable. “Nowadays, Generation Z likes to take photos. If you make your unit very unique, people would come to take photos and patronize your business.”
But the investment consultant cautions that the shoplots are very dependent on tourism and retail business. Without these two, the shoplots would not thrive. This is borne out by the rental plunge of 30-50% during the lockdowns (30% in Jonker Street). “As the rental has dropped by more than half, the owner decided to dispose of the units,” says Tan, recalling how he managed to secure two units at a prime location.
“In Jonker Street itself, based on my visual checking, about 6-7 shoplots are vacant and are advertised for rent. Previously, the rental was about RM18K – RM20K per month,” he observes.
When it comes to renovations, one has to use an architect who has experience working on such heritage buildings. This is because they are protected under several heritage laws that require the original architectural style to be retained. Tan reveals he has spent a few hundred thousand ringgit just on renovation on his two units.

Sustaining Power

Despite the prolonged lockdown in Malaysia, Tan is still gung ho on heritage shophouses. His advice: “When people cannot travel, locals should go and grab the gems now.”
A local estate agent who identifies by C.S. agrees, with the caveat that one should only buy now if “you can sustain it because it would take some time to recover to pre-pandemic times. Prices were at its peak then because there were so many tourists.”
KL See, Executive Director of Metro Homes Realty Bhd, concurs. “You need to have sustaining power because the tourism industry will take a long time to recover with year 2025 being a worst-case scenario. You must also be prepared to buy cash or have other additional resources.”
He adds: “Given that sale prices are now more than 20% lower (still negotiable) than pre-pandemic times, it’s a good time to buy. The sellers are usually locals who have inherited it from one generation to another, or who are too old to manage it while some have emigrated. But many locals still prefer to keep it as a long term recurring income because of the high rental.”
Malaccan CS agrees saying during pre-pandemic times, there was strong demand from Singaporeans thus keeping prices high. “With the pandemic, rentals have dropped drastically. Even then, it’s difficult to get tenants because there are no customers now to sustain a business.”
During our site visit, we noticed that there were at least 20 shoplots for sale or rent along several streets in the historic core.
Upon enquiry, we found out that there were several shophouses for sale along Jalan Hang Lekiu and Heeren Street, all with expiring tenancies in 2021. Prices range from RM1 mil – RM7 mil depending on the land size and location. Land sizes range between 600 sq ft – 4,000 sq ft. Most of the owners own several units and prefer to sell them en bloc.
A check at CBRE | WTW website as of June showed a corner shoplot asking rental of RM2,500 per month which is still negotiable.
So are Melaka heritage shophouses a good buy now? We tend to agree that now is the time to grab one provided you have holding power for the long term.

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