Shophouses have a special place in the hearts of many Singaporeans, but beyond their architectural charm, they offer investors and the community so much more. Simon Monteiro, senior associate vice-president of List Sotheby’s International Realty, discusses their value proposition.
The hive of activity centred around shophouse transactions in Singapore has drawn the attention of many investors local and abroad. With transaction volume increasing year on year by more than 10 per cent, in 2021 the real estate value of shophouses sold in Singapore had already exceeded $1 billion by the month of August.
Commercial shophouses are not subject to Additional Buyer’s Stamp Duty (ABSD) unlike residential real estate in Singapore where ABSD costs can add up to 25 per cent to the overall price of a property. Massive appreciation in prices over the past five years have further reinforced the attractiveness of these shophouses as investment assets.
Throughout my 25 years in the real estate industry, I have seen the valuation for shophouses continue to grow exponentially, reaching new heights with each passing year. In 2005, a shophouse in Duxton Hill transacted at $385 psf based on built-up area; in 2021, the same shophouse is valued at $3,000 psf.
Conservation shophouses are limited in supply, have great historical value and come with their own unique story. They have a certain appeal to investors who are seeking to buy up defensive assets, particularly in times of uncertainty. The ability of these shophouses to retain their value ensures their resilience as a property asset over time.
Caveat data by Singapore’s Urban Redevelopment Authority (URA) for property sales in the Central Business District (CBD) for the past two years show that the sale of shophouses in Districts 1 and 2 between January and November almost tripled, rising from 20 in 2020, to 59 for 2021. With only 3,000 shophouses in the CBD area, foreign buyers who are restricted from buying landed properties other than these commercial shophouses are possibly driving the demand.
These CBD commercial shophouses are great investment opportunities as they offer capital preservation and appreciation as rental properties. In 2011, a European family office invested in two shophouses at the corner of Bukit Pasoh Road and we paired them up with Goethe-Institut, which continues to be a great tenant and has also added value to the area.
As companies shift to flexible working and hybrid workplaces, the appeal of a commercial shophouse is that it offers owners more flexibility in how to market their use as compared to high-rise office buildings in Singapore’s Downtown Core. With a vibrant start-up scene, there is now a demand for office spaces that cater to a workforce that does not conform to the traditional pattern of 9-to-5 office hours.
Even larger multinational companies are moving out of traditional office buildings where the central air-conditioning shuts down in the evenings or on weekends, with additional costs incurred if an office tenant needs to use it outside a prescribed schedule. Many of them are now choosing to relocate to co-working spaces where they rent out an entire building that can be fitted to their requirements to cater to their modern-day hybrid workforce as Singapore enters a post-pandemic phase.
Buying a shophouse has become quite costly now because of the high demand where there are likely more buyers in the market compared to sellers. Many of the original owners prefer to hold on to these properties because they had purchased them more for their provenance value.
Placemaking creates the DNA for a shophouse investment. Businesses will thrive as a neighbourhood attracts more visitors. Historical placemaking properties takes this one step further by sharing the histories of the individual shophouses, seen as part of Singapore’s built heritage, as well as the stories of the people who lived in or owned the properties, and the neighbourhood communities that they created.
Rental yield is not exceptionally high if one is looking purely at rental income from owning a shophouse. In fact, this is where placemaking has a huge part to play in ensuring that owners continue to have sustainable profits. An investor needs to have both foresight and passion, and create an ecosystem where the properties are an integral part of everyday living, even more now in these times where work and home spaces become almost interchangeable for many who are still working from home.
This is why these shophouses have so much to offer as time capsules. Investors and tenants are drawn to the history of these buildings, the businesses that had flourished and the communities that have thrived. It is also important to ensure each neighbourhood has a distinct identity to improve the property valuation of the area. This is because there is now a shift in the paradigm of work, where living spaces and work environments have blended for many. Pandemic times have instilled a need for inclusiveness and connectedness. As companies try to stay resilient, reinforcing the relationship infrastructure at the workplace can be highly beneficial to help improve overall productivity of the organisation.
I applaud URA’s vision when it unveiled the Conservation Master Plan for our city-state’s historic areas in 1986. URA also marked a milestone in 1989 in its efforts to preserve our architectural and cultural heritage when it designated 10 conservation areas. Club Street, Duxton Road, Keong Saik Road, Neil Road, Telok Ayer Street and Tanjong Pagar are just some of the success stories of historical placemaking.
Investors should also understand that they cannot just buy one shophouse and hope to gain from rental income. This is why many investors are now looking to buy at least two shophouses located beside each other, if not more on the same street. The desire to own a piece of Singapore’s history may inevitably make it seem as though investors covet these properties as trophy assets, but it actually shows that in turbulent times, ownership of these properties represent an anchor to the connections to the people and places who lived and worked in these buildings.
I love sharing the stories of these shophouses that my long-term collaborator, Dr Julian Davison, architectural historian and author of Singapore Shophouse, has done extensive research on. These gems become all the more precious, when I see the spark of interest come alive in an investor’s eyes, making my career so much more fulfilling.
(All images: Simon Monteiro)
This story first appeared in the January 2022 issue of Prestige Singapore.