Conservation or heritage shophouses are considered rare as there only roughly over 6,500 of such shophouses in Singapore. Built between the early-1800s and mid-1900s, not only are these heritage buildings rare, they continue to be an important part of Singapore's cityscape and serve as a link to the nation's past.
Shophouses are a great form of real estate investment because it gives investors a choice between residential and commercial use. Based on the Shophouses' colour-coded zoning system, investors can select Shophouses solely for commercial purposes (dark blue) or mixed-use (pink).
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 percent, 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 percent 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.
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.
A three-and-a-half-story shophouse at 93 Tanjong Pagar Road was sold for S$13.25 million last week, PropNex Realty has announced. The 99-year tenure property sits on a land area of 1,297 sq ft and has an estimated floor area of 4,180 sq ft.
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.
The first sign of vibrancy in the shophouse market was noted when 57 deals were closed in Q4 2020, up from the average of 30 deals in the previous three quarters. The sales momentum continued in 2021 bringing the total deals in the first eight months of the year to 166. At this rate, 2021 is on track to outperform the pre-pandemic high of 170 deals in 2018. Depending on the size of deals, there is a possibility that the total transacted value for 2021 – which stands at $1.132b at end-August – to match or exceed the value of $1.458b in 2018 (Figure 1).
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.
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Daniel Chng
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