WHAT kind of property is historic, limited in supply, tightly-held, costly to maintain but highly desirable?
No, not castles. Shophouses. This niche segment of property, built between the 1840s and the 1960s, is more than just a part of Singapore's architectural and built heritage. They are also sought-after real estate, coveted for their rarity, character and investment value.
According to the Urban Redevelopment Authority (URA), shophouses are buildings generally two- to three-storeys high, built in contiguous blocks with common party walls. They are typically narrow, small terraced houses with a sheltered 'five-foot' pedestrian way at the front.
"Some shophouses located within the city centre and around its fringes are historic structures valuable to Singapore's heritage," says Mary Sai, capital markets executive director at Knight Frank Singapore.
Average sizes range from 2,000 sq ft to 5,000 sq ft each, and they typically sit on 99- or 999-year leasehold and freehold land, says Clemence Lee, executive director of capital markets, Singapore at CBRE.
Shophouses were generally anchored by commercial use on the ground floor, with the owner residing on the upper floors. They are unique because each one is different in terms of the number of floors, land size and interior configuration, with some featuring staircases located outside the building, says Yap Hui Yee, senior director of Savills' investment sales & capital markets team.
A NEWSLETTER FOR YOU
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
Finite supply
Shophouse demand has been healthy and the fact that supply is confined to the 6,760 or so gazetted for conservation makes them even more desirable.
According to Tricia Song, CBRE's head of research, South-east Asia, median per square foot (psf) prices of shophouse land have steadily risen over the years, accelerating to S$4,176 psf currently, from S$2,768 in 2019, S$3,088 in 2020 and S$3,444 last year.
Shophouses have been appreciating in value because they are typically held by high-net-worth individuals, family offices and real estate funds with strong holding power and who seldom put them on sale.
Often located in prime areas such as the Central Business District (CBD) or lifestyle enclaves, and offering prominent frontages and flexible operating hours, they are popular with tenants. Higher-end tenants such as Michelin-starred restaurants, are also increasingly keen to rent shophouses as they are seen as a more interesting space to be in, than, say, traditional retail malls, says CBRE's Lee.
Caveats lodged for shophouses rose from 123 in 2019 to 144 in 2020 before shooting to 254 last year. As at Sep 20, 141 caveats have been lodged this year.
The total value of shophouses sold in 2021 was S$1.9 billion, about 113 per cent higher than the S$910.2 million recorded in 2020. To date this year, the shophouse market has registered about S$1.2 billion in sales.
Given the sustained momentum, analysts believe total transaction value for 2022 could match last year's.
What's hot
In particular, interest from local family offices and foreign investors has been resilient since 2021, thanks to greater certainty and stability in the local property market versus overseas ones, says Savills' Yap. Foreign buyers based here who remain active in the shophouse market include mainland Chinese, Hong Kong, South Korean and Indonesian investors.
Family offices have been increasingly keen to acquire shophouses for part-occupation and part-investment purposes, such as operating a fine-dining restaurant with a restaurant/chef partner on the ground floor and using the upper floors as their office. "Some are also partnering with co-working or co-living operators by renting out their shophouses on a profit-sharing basis," reveals Yap.
Further, a shophouse is an excellent opportunity for foreigners to own CBD commercial property that comes with a land title and palatable investment quantum of as low as S$12 million to S$15 million for an individual shophouse, she notes.
CBRE's Lee reckons one should budget S$10 million to $30 million for a CBD shophouse. For one in the city fringe or suburbs, set aside $5 million to $10 million.
Investors typically prefer purchasing freehold or 999-year leasehold CBD shophouses, as they are seen as a better store of value compared to 99-year leasehold CBD shophouses or shophouses located in suburban areas.
However, prices for the former category of shophouses have appreciated over the years and yields have started to compress. Gross rental yields are at 1.5 to 2 per cent for freehold/999-year leasehold shophouses, compared to 2.5 to 3.25 per cent for 99-year leasehold ones.
"As such, we're starting to see investors moving towards 99-year leasehold properties in the CBD, where prices have yet to increase as much," says Lee, adding that there has been increased demand for city fringe and suburban shophouses where prices are lower.
Indeed, while the hottest shophouses are those in the CBD's Districts 1 and 2, Savill's Yap notes increasing interest in the Rest of Central Region and District 15 shophouses. "Locations such as Jalan Besar, Lavender and East Coast/Joo Chiat are getting more attention, especially those with value-add potential to increase the floor area by building rear extensions," she says.
A case in point is a row of 9 shophouses at Joo Chiat Place redeveloped by local developer K16 into retail shops with a 5-storey rear extension for 31 apartments known as Atlassia, says Knight Frank's Sai.
Sai has also noticed a rise in popularity of shophouses within District 8, with transactions totalling 77 and 63 units in 2021 and 2022 to date, respectively.
"Based on these transactions, District 8, which includes the Little India Conservation area, tends to attract investors who are on the lookout for shophouses that are priced at more palatable price quantums of below S$10 million."
Buyer beware
But while conservation shophouses are trophy assets, investors must be prepared to deal with the issues that come with the territory. Owners must adhere to various governmental conservation guidelines and requirements, potentially making any refurbishment works a long and tedious process. Some alteration works that could affect the façade - such as the installation of new air-conditioning units - may also require URA's approval.
"The strictest form of conservation is applied in the Historic Districts such as Boat Quay, Chinatown, Kampong Glam and Little India," says CBRE's Song, noting that shophouses there also face potentially more stringent control on the allowable trade mix.
"In addition, considering that conserved shophouses are mostly ageing buildings, the costs and efforts to restore and maintain them are often higher."
Keyword added to your list