Singapore Shophouses Are In High Demand For Investors–Here's Why
When you think of Singapore, the things that come to mind immediately are its multi-cultural cuisine, swanky malls and high-rise residences. Amidst these, and in complete contrast, are its bold, bright and ornate shophouses. As the name suggests, these often two- to three-level buildings have shops on the lower levels and residences above—they used to house the merchants and owners of these shops in the 19th century. Shophouses are an integral part of Singapore’s heritage, and for years now locals and foreign investors have been vying for a piece of that pie.
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Although Singapore has always attracted foreign investments in the property market, when it comes to shophouses, about 80 per cent of purchasers are Singaporeans, who look at them for both investment purposes and capital appreciation, says Mary Sai, executive director, Capital Markets (Land & Building, Collective & Strata Sales) at Knight Frank Singapore.
Yap Hui Yee, director of Investment Sales & Capital Markets at Savills (Singapore) Pte Ltd, agrees. Her team has brokered approximately $130 million shophouse transactions to Singaporeans of high net worth and foreigners based here in the past four months—with only 20 per cent of buyers from the latter category.
According to Knight Frank’s Wealth Report 2021, the number of Ultra High Net Worth Individuals—with a net worth of US$30 million inclusive of their primary residence—in 2020 went up by 10.2 per cent from 2019 despite the pandemic-led recession. “Besides other luxury properties in Singapore, shophouses also provide a draw for such investors looking into niche commercial space with cultural character,” says Sai.
The number is steadily rising, notes Clive Chng, associate director of Red Brick Mortgage Advisory. In 2020 amidst the pandemic, 135 shophouses were sold, which was a 10 per cent increase from the 123 shophouses that were sold in 2019.
Shophouses also provide a draw for such investors looking into niche commercial space with cultural character
— Mary Sai, executive director, Capital Markets (Land & Building, Collective & Strata Sales) at Knight Frank Singapore
“Shophouses have already captured the imagination of foreign investors with its rarity and hence heritage value, which provides a capital preservation element to the investment,” says Fang Low, CEO and co-founder of Figment, which focuses on reviving these charming icons of the old world as co-living spaces.
Besides, there are only 6,500 shophouses in total around Singapore, and they are gazetted as conservation buildings. For many Singaporeans like Low, the investments are more of an emotional nature—“there are elements of cultural value and historical significance that a financial term sheet could never capture”, he says.
Shophouses have already captured the imagination of foreign investors with its rarity and hence heritage value, which provides a capital preservation element to the investment
— Fang Low, CEO and co-founder of Figment
That said, their scarcity also means that they hold their value well, amidst a recessionary environment, says Chng. “Buyers may be drawn to shophouses for their heritage value, location or distinct architecture, but many investors also view moving into a shophouse as a defensive play. The increase in Additional Buyer Stamp Duty since July 2018 has also made commercial properties and shophouses more lucrative investment options.”
“Purchasers see shophouses as an opportunity to hedge against the volatility in the equity market and other asset classes. So amid the limited supply, and high liquidity and low-interest rate environments, they will continue to be the preferred asset class for mid-to-long term investments,” says Yee.
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Another noticeable trend in the “new normal” has been the shift in demand from the prime districts of D1 and D2 towards city fringe areas as more companies adopt to work from home arrangements.
“Vacancies in shophouses have been filled up since the resumption of business activities and roll-out of vaccinations in Singapore,” says Sai. “As such, many shophouse owners have been optimistic in their asking prices for sales and rentals since the beginning of the year. This trend is likely to continue causing an upsurge in transaction values and volume.”
“Relatively speaking, more investment flowing into the shophouse space is always a good thing because it reduces the dense urban sprawl of Gross Floor Area (GFA)-maximised, cookie-cutter condominiums we see cluttering our Singapore skyline today,” says Low. “This trend is a strong tailwind for Urban Redevelopment Authority’s conservation efforts. We see investment funds today put to work in restoring these shophouses, even further out in the city fringe, to their former splendour. Like Georgetown in Penang, maybe we might even see Singapore shophouses being added to the list of UNESCO world heritage sites in the near future.”