The allure of the Singapore shophouse goes beyond its architectural history and aesthetics or even its limited supply; ultimately, it’s about owning a part of Singapore’s history.

A treasure trove of historical assets are changing hands at record prices in Singapore. On 31st March 2018, the headline in Singapore’s Straits Times read: “8M buys shophouses, building for $82.5m.” That averages about SGD10 mil for each shophouse.
In land-scarce Singapore, landed properties are priced at a massive premium and this naturally applies to all shophouses particularly conservation or heritage shophouses.
Conservation shophouses are heritage buildings that were given conservation status by the Urban Redevelopment Authority of Singapore (URA), says Simon Monteiro, Associate Director at Savills Singapore specialising in heritage buildings. “There are about 8,900 estimated  buildings in primary and secondary areas that are gazetted. This means their façade needs to be maintained. For those located in the primary core areas such as Boat Quay, Amoy Street, Telok Ayer Street and Boon Tat Street, you can’t do much to them whereas you could still increase a few levels to 4-5 storeys for those in the secondary areas.”
Due to their very limited number, the heritage shophouses command an even bigger premium and are sought after by real estate funds, family offices, foreign companies specialising in design, finance, investment and business consultancy as well as Ultra High Net Worth Individuals (UHNWIs) – from Singapore and abroad.
Examples of funds include 8M Real Estate, Silk Road Partners, Clifton Real Estate & Arc Assets.
Heritage shophouses in Singapore are equivalent to rare vintage collectibles – they are collected due to their intrinsic historical and cultural as well as artistic value. There is also the advantage of staggering capital appreciation due to their limited quantity. “The high net worth buyers don’t buy them for rental returns because the return is dismal, falling from 7 – 8% back in the 1980s to about 2 -3 % these days,” Monteiro reveals.
The inverse relationship of skyrocketing capital appreciation to falling rental yield can be explained by the fact that there are comparatively many more buyers than tenants for these heritage shophouses. The high net worth buyers have the holding power and can keep the shophouses without even renting them out. Meanwhile, tenants are not as many due to the high rentals commanded by these soughtafter units. It takes a very profitable business to survive these rents.
During a survey in the tourist areas of Kampong Glam, Haji Lane and Arab Street where there is a proliferation of these heritage shophouses, Asian Property Review saw a handful of upper floor units being advertised for rental while there were none observed for sale.
Prices have been rising steadily in the last 10 to 15 years. In 2005, a 99-year leasehold in Duxton Hill area will cost about $380 psf. “Today, these streets are sought after and command prices above $2,000 psf based on the estimated built-up area of 3,500 sq ft to 5,000 sq ft” says Monteiro.
“I remember selling 3 assets in Duxton Hill in 2005 – 28 Duxton Hill and 20/21 Duxton Hill – for $6.1 mil for all 3; today you have to pay about 7 to 8 times as much” Monteiro continues.
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“Prices of freehold units are even higher, going from $600 psf in 2005 to an estimated $3,500 psf in today’s market.”
Despite the sky high prices, buyers are literally lining up to buy them. Among them are foreigners.
“In general, the price increase over the last 20 years was due to the economy, scarcity, heritage, the unique Singapore theme and an increasingly affluent society. A notable factor is also the influx of UHNWIs from abroad looking at shophouses as a unique alternative asset to condominiums and common office spaces in normal office buildings,” Monteiro notes.
The fact that the government promotes locations such as Chinatown, Little India and Kampong Glam also helps to bring in the crowds which increases the value of the shophouses there.
The only restriction for foreigners is that the shophouses must be designated commercial properties located in fully commercial zones. Foreigners can have 100% ownership and the tenure can be freehold or leasehold of variable years. The most popular tenure especially among Indonesians and Malaysians is for the 999-year lease which is effectively a freehold title.
“In my opinion, we have about 3,000 to 3,500 units that a foreigner can safely buy without the need for paying Additional Buyer Stamp Duty (ABSD) or the need to get approval from the Land Dealings Unit, a department that controls land ownership on land which is zoned landed residential,” the heritage assets specialist continues.
“The rest are either fully residential or mix residential /commercial, the sale of which are restricted to Singaporeans and companies with Singaporean directors only.”
“As with antiques, beauty and passion lie in the eyes of the beholder. There is no right time to buy as it’s more of an emotional buy; the buyer values the architectural history and aesthetics and wants to own a piece of Singapore history and maybe be part of our diverse culture,” Monteiro adds.
For shophouses that have not been gazetted as conservation or heritage, demand similarly outstrips supply but in this case, the rental yield is an important consideration, says Richard Tan Kah Peng from PropNex (Richard Tan & Associates). “Most buyers are looking at good yield. Their greatest fear is that they can’t rent out.”
“To determine yield, it’s crucial to look at the lease tenure – the balance remaining on the lease if it’s not 999 years or freehold. For example, even if the yield is high but if the balance lease is only 20 years, then it’s not worth buying because you will have to renew the lease at the expiry and this is subject to the government or private owner’s approval,” Tan explains.
On the other hand, even if the yield is a low 2%, it is almost certain that after 50 years, the yield will rise. In other words, if the tenure is longer, you will definitely break even eventually, he concludes.
In terms of yield, the rate differs on every floor. A popular location is Lorong Haji which can fetch SGD8-10 psf for the ground floor and less for the upper floor.
A savvy investor will also look at the tenant profile. If it’s a new tenant, they might not survive the rental while a famous or popular tenant will command a better rental rate.
Without a doubt, the most popular and expensive shophouses are those located in the CBD area in Districts 1 and 2, as well as Districts 9 and 10. The latter comprises a lot of mixed developments, prime shopping areas like Orchard and River Valley road, Holland Road where a lot of middle to upper class residents and expatriates are staying.
“Tourist areas such as District 7 comprising Kampung Glam, Arab Street, Little India and Chinatown are also popular as the footfall is high,” says Vanz Han Liang Siew of Propnex (Vanz Han & Associates).
“Transaction volume has fallen but the price has gone up. This is because there is more demand than supply. Transactions peaked in 2012 – 2013 with about 200 – 300 transactions a year but since the last 2 years, it has hovered around 200 transactions per year. Most owners don’t want to sell even if a very attractive offer comes along. This is because they want to keep the shophouses as an asset for future generations,” Han observes.
“Between 2014 – 2016, the transaction volume fell to about 100 transactions a year but in 2017, there were 148 transactions with visibly more Malaysian participation. In the first quarter of 2018, the increased volume continues and we foresee the total number of transactions for the whole of 2018 might surpass that of 2017,” predicts Tan.
Also, the Singapore economy is picking up so a lot of sellers are holding up for a higher price. At the same time, there are a lot of en bloc sales going on with new launches expected to scale higher prices. “We expect to see new launches hitting new levels of high,” Han anticipates.
There is no doubt shophouses are facing boom time prices – for example, a 999-year old ground floor unit in Bugis Cube is selling for SGD10,000 psf while in Alexandria, a ground floor unit was sold at SGD9,000 psf even though it is only a 99-year leasehold of a new development.
“For Kampong Glam (conservation shophouses), you have to see whether it is a one-storey, double or 3-storey shophouse. If purely only one storey ground floor, the per square foot price will be higher while for 2 or 3-storey, the lower per sq foot price of the upper floors will reduce the overall price of the entire shophouse,” adds Han.
In some cases however, the ground floor and the upper floor units might have separate titles and owners, hence the buyer might only be able to buy one floor – obviously the ground floor is more in demand and can command a higher price due to its higher footfall.
There are also shophouses where the ground floor is designated commercial but the upper floor is designated residential. If the entire shophouse is held under one title deed, then foreigners aren’t allowed to buy these at all.
In recent years, buyers from China, Indonesia, Hong Kong, Malaysia and Europe, and even a handful from Vietnam, Thailand and Myanmar have snapped them up – with some even buying a few in a row. Asians far outnumber the Europeans, especially those from China and Indonesia although last year saw quite a number of UHNWIs from Malaysia on a buying spree, Tan reveals.
For foreigners with that kind of deep pockets, it’s the most natural alternative asset after residential properties. Singapore is considered a safe haven by HNWIs and these shophouses have great potential for long-term capital appreciation which fit their strategy of wealth building and leaving a legacy for their next generation. There is also the advantage of political stability and a strong currency.
Another plus point is the flexibility of usage as compared to the pure office space or retail space in office buildings or mall respectively. If the shophouse has 3 or 4 storeys, you can have a gym or consultancies on the upper floors while the lower floor can be used for spas or F & B businesses such as restaurants, bakeries or bars. F&b businesses are the most sought after tenants due to their perceived viability and the fact that F&B is one business that still requires a physical presence while retail is gradually moving to the online space through e-commerce.
On top of that, most of the conservation shophouses are located in prime city centre areas such as Chinatown, Little India, etc. The capital appreciation that can be expected is staggering. How high it can go is anybody’s guess – as long as the government does not restrict sales to foreigners and as long as no further shophouses are given conservation status, the 8,900 shophouses will continue to rise in value notwithstanding the ups and downs of the Singaporean property market.
Clearly, the market gyrations have little effect on the conservation shophouse value due to its limited number and historical value – every shophouse has a different history and that adds further value to the individual shophouse. This can be attested by Dr Julian Davison who has studied shophouses in Singapore and has written a book about it called simply ‘Singapore Shophouse’. It’s a compelling read particularly for those thinking about investing in one.

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