Shophouses are unique properties in Singapore with a charming blend of traditional and modern architecture and can possess both residential and commercial attributes. Conservation shophouses have long been a prominent feature of our urban landscape, particularly in conserved districts. They can typically be found in prime locations in the city. They are often used as office spaces by startups and SMEs who prefer to be near or within the Central Business District (CBD) but cannot afford to rent traditional offices.

Like traditional landed properties, shophouses usually have multiple storeys, so the build-up size ranges depending on the number of storeys. The ground level of most shophouses is traditionally used as commercial spaces for business operations. In contrast, the top floors are used for residential, but some are fully residential or fully commercial. This means that the advantage of owning a shophouse as an investor will naturally be the tenant pool – owners can rent out the space for both residential and commercial purposes.

The potential of shophouses is often overlooked, even though they are excellent financial assets and a piece of Singapore’s cultural heritage. One of the main selling points of shophouses is that most are freehold in tenure, allowing owners to ride through property market cycles without being impacted by lease decay.

Over the past few months, we have seen reports documenting shophouse transactions reaping remarkable profits. An example is a Kitchener Road freehold shophouse that netted a S$3.7m profit just five months after it was bought – a signal that demand for such properties is rising.

In this article, we will review the top 5 residential shophouses you can find in the market now. If you’re looking to expand your property portfolio and are considering these prestigious heritage buildings, this article might come in handy. Let’s dive right in.

*This list is not in any particular order.

1. Katong & Joo Chiat Conservation Shophouses

The Katong and Joo Chiat area houses a large cluster of distinctive shophouses steeped in Peranakan heritage. Locals and tourists alike are drawn to the area since it is a unique aspect of this district’s character and an ‘Instagrammable’ location with many great local cuisines. Furthermore, its proximity to East Coast Park makes the area desirable among locals and expats.

We have previously looked at District 15’s shophouses as a whole and analysed how the district’s reputation as a food paradise and cultural hotspot impacted the shophouses’ rentability and performance. We noted that the URA had gazetted the majority of the shophouses in the neighbourhood for conservation to preserve the region’s distinctive architectural heritage.

At the time of writing, there were only two such listings on PropertyGuru.

Both are conservation shophouses with at least two storeys and a built-up size of 2000 sqft, with an asking price of S$3.2m and S$4.2m. What we like about these shophouses is the myriad of amenities in the vicinity and the accessibility to major expressways. Surrounded by F&B shophouses and close to shopping malls in the Paya Lebar cluster, there will not be a lack of dining options. Major expressways nearby like the ECP, KPE and PIE make it a 12-minute drive to CBD and a 14-minute drive to Changi Airport.

With their rarity and freehold conserved status, the district’s abundance of amenities, and its proximity to East Coast, the shophouses in this area deserve a spot in this top 5 list.

2. Geylang Shophouses

Geylang is another area that is known for its shophouses. The shophouses here blend Chinese, Malay, and European architectural styles, with intricate details and ornamentation on the façades. They are painted in bright colours, adding to the district’s vibrant and lively atmosphere.

Geylang is also known for its cultural diversity and mix of residential, commercial, and industrial buildings. It is a melting pot of different cultures and cuisines, with various food stalls and restaurants offering a wide range of dishes from different parts of the world.

The shophouses in Geylang are not just a popular tourist attraction but also an integral part of the community. Many have been converted into small businesses, such as laundromats, hair salons, and cafes.

Despite the rapid modernisation of Singapore, the shophouses have retained their charm and character, making them a popular destination for locals and tourists alike.

We have previously covered D14 shophouses in Geylang and analysed whether they are suitable investments for those planning to expand their property portfolio. At the time of writing, there are a variety of Geylang shophouses listed on the market, ranging from a ground floor residential shophouse at 1,630 sqft asking for S$2.5m to a pair of conservation shophouses with a land size of 3,000 sqft and built-up size of 9,000 sqft asking for S$24m.

With its proximity to the CBD and its reputation as a food haven, rental demand is exceptionally high as these shophouses attract a wide range of tenant profiles, making the shophouses here ideal for investment.

3. Niven Road Shophouses

Niven Road is located just off Selegie Road, with a myriad of amenities in the vicinity and is known for its historical shophouses.

In recent years, the shophouses on Niven Road have been transformed, with many of them becoming trendy cafes, boutique stores, and art galleries. Despite the modern facelift, these shophouses have retained their historic charm and character.

At the time of writing, very few shophouses here are listed on the market, signalling its rarity and how owners would usually hold onto these heritage properties.

One of the conservation shophouses listed is a freehold residential property that our PLB Inside Sales Team is currently marketing. It sits on a land size of 1,249 sqft and a built-up size of 2,077 sqft, asking for S$5.7m at S$4,563 psf. The newly renovated 2-storey conservation shophouse has 2 ensuite bedrooms, an office space, and a courtyard for natural light and ventilation. It is tastefully designed to suit families, especially those who need an office space to work from home. If you’re interested in the unit, do drop our Listing Managers a message via the listing.

4. Blair Plain Conservation Shophouses

Blair Plain shophouses are a unique and attractive feature of Singapore’s architectural landscape. Located in the heart of the city, these heritage buildings have a rich history and cultural significance.

Most of them were built in the 19th century when Singapore was rapidly modernising and industrialising. They were designed in the traditional style of the Peranakan culture, which is a blend of Chinese, Malay, and European influences.

The shophouses are typically two or three stories tall, with a narrow frontage and a deep interior. They were initially used as residential and commercial spaces, with the ground floor as a shop or business and the upper floors as living quarters. Today, many of the shophouses have been renovated and repurposed as restaurants, cafes, and boutique hotels.

One of the most striking features of the shophouses here is their colourful and ornate facades. The buildings are adorned with intricate details and patterns, such as ceramic tiles, carved woodwork, and painted murals. These decorations reflect the cultural influences of the Peranakan people and give the shophouses a distinct and vibrant appearance.

The shophouses here are more than just a pretty face, however. They are also a testament to Singapore’s history and the Peranakan community’s role in shaping its identity. Many of these buildings have been restored and preserved as part of Singapore’s efforts to maintain its cultural heritage.

Visitors to these shophouses can take a stroll down the street and appreciate the beauty and history of these iconic buildings. Many shophouses have been converted into restaurants and cafes, offering a chance to sample some of Singapore’s delicious local cuisine. Others have been turned into boutique hotels, providing a unique and authentic experience for travellers looking to immerse themselves in Singapore’s culture and history.

At the time of writing, we noticed that few shophouses here are being sold on the market. The two listings currently on the market are conservation shophouses that have been tastefully restored and renovated to retain the historic feel of such properties while having a modern and trendy interior. The asking price of these shophouses is around S$7m at roughly S$3,500 psf.

With its proximity to many amenities and the CBD, rental demand will also be strong among locals and expats that wish to rent a place to stay closer to town.

5. River Valley Conservation Shophouses

Perhaps the most luxurious location on this list, River Valley is home to many iconic landmarks and attractions, including the Singapore River, Clarke Quay, and Boat Quay. These areas are famous for their lively nightlife, with numerous restaurants, bars, and clubs. It is also home to the famous Singapore River Cruise, which offers guided tours of the river and its surroundings.

The River Valley area is also home to several shopping districts, including Orchard Road and Great World City. These areas are renowned for their wide range of shopping options, from high-end luxury brands to local boutiques.

Shophouses in River Valley often feature a mix of traditional and modern elements, with many of them being renovated and repurposed for use as trendy cafes, bars, and restaurants. They offer a unique blend of old and new, combining these buildings’ rich history and cultural significance with modern amenities and design.

In addition to their aesthetic appeal, River Valley shophouses also have a rich history and cultural significance. Many of them date back to the 19th century when they were first built to house the businesses and homes of immigrants who had come to Singapore to work in the bustling port. Today, they are a testament to the city’s rich cultural heritage and evolution.

At the time of writing, our PLB Inside Sales Team members are marketing a 999-year leasehold conservation residential shophouse along River Valley Road. It has a land size of 1,887 sqft and a built-up size of 3,774 sqft, asking for S$8m negotiable, at S$4,239 psf. Comparing it to other similar properties currently listed in the area, which are asking for over S$5,400 psf, our unit is well-priced and tastefully designed for investors looking for a legitimate collector’s item. If you’re interested in the unit, do drop our Listing Managers a message via the listing.

Closing Thoughts

Overall, these residential shophouses offer a unique living experience in the heart of Singapore, combining the charm of traditional architecture with the convenience of modern amenities. Whether you’re looking for a historic home or a contemporary space, there’s a shophouse on the market that’s sure to meet your needs.

As Singapore’s rental rates and demand for shophouses are likely to continue climbing, what this means for potential property investors is that it is time to look out for disparities in shophouse prices and opportunities for an entry point into the segment.   

If you are curious about how shophouses can fit into your property portfolio or want a second opinion, do not hesitate to contact us! PropertyLimBrothers, always happy to show you the place.

The post Top 5 Residential Shophouses You Can Find In The Market Now appeared first on Insights by PropertyLimBrothers.

If you are a foodie who is constantly looking for the next spot, you would most likely be aware of the reputation of Katong and Joo Chiat as Singapore’s food paradise. Famous names like the legendary Katong Laksa, Chili Crab, and other multi-ethnic cuisines in the area immediately come to mind.

With many local cuisines that Singaporeans love and enjoy located in this cluster, it is not hard to see why District 15, which Katong and Joo Chiat belong to, is one of the top choices to buy property in. Furthermore, District 15 is known for its proximity to East Coast Park, its large variety of residential options, and its concentration of freehold land.

Katong and Joo Chiat are also home to a large enclave of unique shophouses steeped in Peranakan heritage. It is a distinct part of this area’s identity and an Instagram-worthy spot that draws both locals and tourists. In this article, we will explore how the area’s status as a food paradise and cultural hotspot impacts the rentability and performance of D15 Shophouses. Do they fare better than shophouses in other regions?

History of Katong and Joo Chiat

The history of Katong and Joo Chiat dates back to the early 19th century when the area was covered with attap-roofed kampung (villages) and coconut plantations that stretched from the Geylang River to Siglap Road. 

From Geylang Serai to the sea, Joo Chiat Road was a dirt road that ran through the plantations in the 1920s. It was given that name in honour of Chew Joo Chiat, a wealthy landowner and philanthropist who acquired vast tracts of property in Katong and was dubbed the “King of Katong”.

Between the 1920s and 1930s, many families relocated east to Katong and Joo Chiat. As a result, bungalows, shophouses, and places of worship were erected, reflecting the diverse and multicultural region we know today.

Where can you find D15 Shophouses?

Although District 15 spans a large area that includes Tanjong Rhu, Amber Road, Meyer, Katong, Joo Chiat, East Coast, and Marine Parade, the shophouses here are mainly found in the Katong and Joo Chiat areas. 

Katong and Joo Chiat are famous for their vibrant shophouse façades along Koon Seng Road that feature pastel hues, ceramic Peranakan floral motifs, and geometrical tiles. To the north, you can also find a stretch of conserved shophouses with iconic green windows along Lotus @ Joo Chiat.

You will find that most of the shophouses in the area have been gazetted for conservation by the URA. In fact, more than 800 structures in the area have been conserved to protect its unique architectural heritage. In acknowledgement of the efforts made by locals to preserve their cultural history, the National Heritage Board named Joo Chiat as Singapore’s first Heritage Town in February 2011.

How do D15 Shophouses perform?

Over the past five years, prices of Shophouses in D15 have grown by 55%, an average annual growth of 11%. Most of the growth was driven by higher prices from three transactions in Q2 2022, which sold at an average of $4,056 PSF

There are 65 transactions over the five years, with the bulk (66%) coming from the pandemic and post-pandemic era. However, only ten units in District 15 were sold this year from Q1 to Q3 2022, a decline from the region’s previous two years of steady growth. The volume of transactions may be slowing down due to existing shophouse owners hanging onto their units in anticipation of increased investor interest, which would likely result in a profit, given the cultural value of the neighbourhood and the possibility for further gentrification.

Comparing D15 Shophouses to all other shophouses in Singapore, the growth of D15 shophouses slightly edges out by a margin of 17%. This could be because D15 Shophouses have a generally lower average PSF, with the highest average PSF of $4,056 recorded in Q2 2022. Even though D15 Shophouses outperformed the general shophouses segment in Q2 2020, the sector eventually bounced back strongly in Q3 2020 and has been growing steadily since. Its recent performance in Q2 2022 has also reduced the disparity gap between D15 Shophouses and the rest.

On the other hand, the rest of the commercial properties (excluding shophouses) have not seen much growth. Even though the average quantum is lower or around the same as D15 Shophouses, the growth rate of other commercial properties has been just 8% over the past five years. This means that D15 Shophouses have outperformed other commercial properties by a substantial margin of 47%, proving that finding and sticking to strong performers is more important than just going for the lowest quantum.

After all, the demand for this asset type is not expected to decline anytime soon, given the limited supply of conserved shophouses in Singapore.

Examining the success of D15 Shophouses

To understand why D15 Shophouses are performing better than other commercial properties, we first have to examine the unique selling point of the region and shophouses as a niche asset class.

As we mentioned earlier, the Katong and Joo Chiat area has a reputation for being a food paradise and a cultural hotspot. This reputation inevitably draws locals and tourists alike, thus increasing the footfall of the area in general. Shophouses in the area are in a favourable position to benefit from this. Business owners can leverage the area’s reputation by aligning their business to the appeal – in this case, F&B operators stand to gain the most. Drawn by the architectural motifs (attraction) and tasty cuisine (purpose), it is a win-win situation for businesses as foot traffic can be easily converted into sales. Hotel and co-living operators have also been acquiring shophouses to leverage the recovering hospitality sector and the active residential rental market here.

Given this potential, it is not surprising for such shophouses to be in strong demand. According to a recent article by The Business Times, shophouse rentals have extended gains in Q3 2022 as landlords price up. As rental demand and rentability increase, more shophouse owners are choosing to increase rents instead of selling their assets. This could mean a drop in the volume of transactions moving forward.

Although rental prices are typically volatile, coupled with the fact that there are much fewer rental contracts compared to the larger segments of all other shophouses and commercial properties, the rental performance for D15 Shophouses saw an impressive 33% growth from Q4 2017 to Q3 2022. This strong rental performance further solidifies the allure and potential of D15 Shophouses.

Closing Thoughts

The food culture and options, coupled with the strong architectural heritage of the Katong and Joo Chiat regions, are a potent combination of appeal for D15 Shophouses. The signature aesthetic of conservation shophouses in the D15 Koon Seng Road area also makes the area a tourist hotspot. Despite being part of the RCR area, its proximity to iconic landmarks like East Coast Park makes it desirable. 

Future developments such as the Thomson-East Coast Line (TEL) and Paya Lebar business hub are also compelling reasons to look into properties in District 15, be it for own stay or investment.

Although the disparity gap between D15 Shophouses and the rest has been reduced in Q2 2022, whether it will outperform shophouses in other regions remains to be seen as the volume of transactions will likely dip due to landlords holding and increasing rents rather than selling. With the rental market in Singapore on a hot streak, shophouse rentals are likely to continue climbing, signalling a good time to hunt for disparity and find opportunities for a good entry point. 

Despite all these positive indicators, potential commercial property investors must pay close attention to rising interest rates which can jeopardise affordability, cash flow, and profitability. With that said, the lower PSF in District 15 may provide a good entry point for some shophouses here compared to other commercial properties around Singapore. Additionally, the freehold D15 Shophouses could be the ideal strategy to weather the downturns in the real estate market without experiencing lease decay.

If you are interested in learning more about Shophouses and how they can fit into your property portfolio, feel free to contact our experts. We would be delighted to walk you through your property journey. Until then, see you in the next one.

The post Food Paradise on the Coast – Do D15 Shophouses in Katong & Joo Chiat Fare Better? appeared first on Insights by PropertyLimBrothers.

Geylang has been a happening locale with a history and a compelling story. Across the history of Singapore, these back alleys have been the start and end of many secrets. However, its time as a red light district in Singapore is close to the end. The pandemic has caused many brothels in the area to move out into other areas in Singapore. 

Perhaps what Geylang is known most for nowadays is the sinfully good food. With the reputation of Geylang in District 14 getting “cleaner”, could it possibly offer some great opportunities for residential and commercial activities? 

District 14’s close proximity to the CBD makes it an attractive location. In District 14, we can find many freehold studio suites. The Aljunied, Paya Lebar, Geylang area is home to many of such options. In this article, we will be covering Shophouses in District 14. Are they a better option now in the post-pandemic world?

Where are the actions for D14 Shophouses?

District 14 is much larger than just the Geylang area. Although it is the main area where conservation shophouses are found in the district. The Geylang Conservation Area covers most of Geylang Road. Yet, there are still a handful of shophouses along Geylang Road that are not within the conservation area and some lie deeper into the Lorongs. 

Atrium Residences also has an interesting shophouse marked on the map above. Other Shophouse areas that do not fall under a conservation status include parts of  Changi Road, Guillemard Road, Sims Avenue, Geylang Road, some Lorongs in Geylang, Jalan Kembangan, Jalan Masjid, and Jalan Ismail.

While a lot of the transactions are taking place around the Geylang area, there are also some transactions further east, near the Eunos and Kembangan areas. This includes Changi Road, Jalan Kembangan, Jalan Masjid, and Jalan Ismail. These other areas of D14 account for around a quarter of the shophouses transactions in this district.

A bulk of the transactions are still located along Geylang Road, be it conservation or not. One of the appeals of the shophouses in D14 is that an overwhelming majority of shophouses here are freehold in nature. This allows for the gradual appreciation of the commercial property without it having to suffer from lease decay.

This is one of the key selling points of the shophouses here over other commercial properties. The freehold nature is a great pairing with the rental yield strategy. Moreover, the freehold nature allows you to ride through property market cycles without suffering from lease decay. If there are bad economic conditions that depress the prices of shophouses, you would feel less pressured to sell on impulse.

Apart from the obvious economic benefits of owning a shophouse in District 14, shophouses in Geylang have its history rooted in the pre-war and colonial period. The rich heritage of shophouses is a signature aesthetic of Singapore’s developing years and offers a unique low-rise vibe that is distinct from the high-rise residential areas that we see all over Singapore.

This unique combination of perks brings together an interesting opportunity for property investors looking to invest in commercial real estate and a piece of history in itself.

How do D14 Shophouses perform?

D14 is one of the districts that have carried the performance for the Shophouse segment. Over the course of the past 7 and a half years, prices of Shophouses in D14 have grown by 195%. This is an exceptional amount of growth.  On average, this meant a simple annual growth of 26%. Do note that this is purely on the capital appreciation of the real estate and has not included the income from rents.

While the performance of D14 Shophouses has been indeed stellar, it is important to remember that a lot of the growth has been driven by much higher prices based on the transactions in Q2 2022, which sold at a record average of $4,866 psf. However, there was a low volume of 2 transactions in 2022 Q2. So this growth is largely driven by the higher prices specifically in the Geylang Conservation Area.

There are a total of 94 transactions over the 7.5 year period, but we do see a lot more transactions in the post-pandemic era as compared to before. Arguably, this is considered to be on the lower volume side of transactions. On average, there are around 3 transactions a quarter (or 1 transaction a month). This spaced out transactions might be contributing to the volatility we observe in the prices of Shophouses in D14.

Comparing D14 Shophouses to all other shophouses in Singapore, D14 shophouses have grown more than other shophouses by more than 5 fold. The impressive rise in D14 Shophouse prices may be due to the overall lower psf between D14 shophouses and the rest of the shophouse segment. In the recent Q2 performance, this disparity gap between D14 prices and the rest of the shophouse segment has been dramatically reduced.

Overall, all other commercial properties (not including shophouses) have been declining in the long term. Other commercial properties have fallen by 27% in the same span of time. This lacklustre performance in commercial properties might be disheartening to some property investors. The key to succeeding in this segment is to find the right opportunity and stick to strong performers, rather than simply buying the lowest quantum commercial properties.

Shophouses are a niche in this commercial property category that has clearly outperformed the average with a very high margin difference. With the right choice, the opportunity for capital appreciation can be massive, as shown with the D14 Shophouses example. 

That being said, past performance is not an indicator of future performance. This does not mean that you immediately go for the buy decision when we see appreciation hitting 195%. Ultimately, the most important key to success is a good strategy. Following our Disparity hunting approach when it comes to property search (be it residential or commercial), we are able to identify opportunities that have a higher potential for growth.

Why invest in D14 Shophouses?

Apart from all the attractive features we have mentioned about D14 shophouses and their performance, there are even more reasons to be interested in shophouses of this particular district. As we have mentioned earlier, a bulk of the action happens in the Geylang Conservation Area along Geylang Road. The conservation shophouses here have a keen aesthetic and there are regulations revolving around how they should be maintained and there are specific ways to renovate the property.

The URA follows the “3R” of conservation. Their principles include “Maximum Retention, Sensitive Restoration and Careful Repair”. The property should clearly retain its historical image, and the restoration and repair should be done with the spirit of preserving the heritage of Singapore.

These “constraints” are arguably more beneficial than they are limiting. Clear guidelines are given on how to go about restoring. You do not need to crack your head open on renovating the property. In addition, because this is a joint effort of all the conservation shophouse owners, the district will be able to have a unified image of the restoration. Together, this gives D14 Conservation Shophouses a unique and instagrammable front for tourists and locals alike.

Another well-known fact about District 14 is the great food that can be found in the Geylang area. Food guides posted by local foodies and bloggers introduce a world of goodness when it comes to the local food culture that can be experienced in this district. There is a wide range of local delicacies that can be found in this area. This eventually translates into footfall in the district. 

Coupled with the attractiveness of the conservation aesthetic, local food culture is able to shine together with the historical aesthetic of D14 shophouses. This is a perk for businesses looking to D14 Shophouses as rental options. For commercial property investors, who your tenants are may be an important part of your rental strategy. 

Speaking of rent, we took a look at the rental performance of D14 Shophouses against their comparables. Because of the high volatility in rental contract prices, the Quarterly Rental growth rate was -12% from 2015 to Q2 2022. This is due to the fact that there are a lot fewer rental contracts as compared to the larger segments of all other shophouses, and all other commercial properties.

The rental prices will be determined largely by the conditions of the shophouse and the relative location in D14. Nonetheless, with a strong rental strategy it is possible to score above average prices for rental income based on the upside volatility we see in the charts. This is important because rental income helps to offset the loan repayments which may grow over the next few quarters as the US FED continues to raise interest rates.

Closing Thoughts

D14 Shophouses have a clear and special combination of Unique Selling Points. The food culture and eating options in the Geylang area are enviable. Its location is considerably close to the CBD and partially in the RCR area. There is a rich history of the Geylang area which dates back to the 1840s era. The conservation shophouses also provide a signature aesthetic to these particular shophouses in the D14 Geylang Road area.

Although the high disparity gap has recently closed in the Quarter 2 transaction data, there might still be future opportunities to hunt for disparity. The long-term trend sees D14 shophouses to be priced below the average psf for Shophouses all over the country. In the future, when prices dip to the $1,500 range, it might be a great price point to hunt for disparity.

Compared to its comparables, D14 shophouses posted a solid performance with strong gains in 2022 Q2. This points to the high potential of the area when it comes to future growth. Whether or not these higher price points can be sustained will be a key thing to look out for in the shophouses segment.

Despite all these great signals, prospective commercial property investors will need to be keenly aware of the economic slowdown and rising interest rates. These macro factors might threaten affordability, cashflow, and profitability. Regardless, the lower psf in this area may offer reasonable quantums for some shophouses in this area as compared to the other commercial properties across Singapore. The freehold shophouses in D14 also present a great opportunity to ride through the troughs of the property market without suffering from lease decay.

If you wish to know more about the Shophouses Segment as an investment niche and whether it fits your property portfolio and journey, reach out to our experts here. We would be happy to guide you through this process of discovery.

The post D14 Shophouses in Geylang & Beyond — Are they Good Investments? appeared first on Insights by PropertyLimBrothers.

Shophouses in Singapore host a nostalgic and sentimental spirit of the past. It reminds us of how far we have come from a fishing village to a first world city. Beyond humble beginnings, it is a functional relic that represents our heritage and identity. Particularly in the Central Business District (CBD), Shophouses stand in contrast to our modern skyscrapers. In the concrete jungle, Shophouses form the exciting leaf litter where history ferments into our present culture.

Conservation Shophouses make up the majority of shophouses found in the CBD. They are kept in distinct and strategic locations to maintain a lively and stimulating cityscape. Following URA’s city planning, Shophouses punctuated the crowded skylines of our city. They also host some of our beloved food places (especially for office workers in the CBD) and boutique offices. These dynamic pieces of history are definitely actively shaping Singapore even today.

In this article, we look at various Shophouse clusters in District 1 & 2 and take a dive into what makes Shophouses in these districts so special. Specifically, we look at six different conservation areas in district 1 and 2 where the shophouses are, and explore the beauty (& numbers) within.

Singapore’s Migrant Settlement History

Boat Quay, Kreta Ayer, Telok Ayer, Bukit Pasoh, Tanjong Pagar. These four conservation areas make up the Chinatown cluster of shophouses. This is not a formal categorisation of the shophouses in district 1 and 2. Rather, these four conservation areas are tied together with its common history of being an early settlement during the colonial period.

The history of D1/2 shophouses starts in the early 1820s, in the era of Sir Stamford Raffles. Starting with Boat Quay, the area acted as a settlement space for migrant labour. Most commonly from Chinese and Indian descent. The Telok Ayer area along the original Singapore river was also part of the early settlements in the 1820s. Can you imagine? This is actually around 200 years ago.

Over the earlier half of the 19th century into the 1860s, the Chinese settlement expanded to take up the Kreta Ayer areas. In fact, the population of migrants expanded so fast that they had to reclaim land in that area (Telok Ayer Basin) to build shophouses for both residential and commercial use.

These early settlements were typically found along the Singapore river, which acted as a conduit for trade and transportation. In some sense, early settlements in Singapore naturally adopted the mixed-use approach to real estate development. Working and living were integrated out of necessity, since transportation infrastructure and technology were not modernised yet. Interestingly, city planning today comes back to this concept of mixed-use development. We can only speculate whether it was inspired by the shophouses of old, or just a recycled concept in the city planning trends. Nonetheless, conservation shophouses today still (mostly) follow this mixed-use concept, in a modern interpretation.

A generation later, the migrant settlement in Singapore grew even more into the beginning of the 20th century. Bukit Pasoh and Tanjong Pagar were developed by the growing Chinese population on the south bank of the Singapore river. As this settlement on the south side of the Singapore river continued to develop, overcrowding and sanitation issues began to grow. 

As more migrant labour and business families moved over to Singapore, some level of wealth divide was observed. Wealthier families lived further away from the Chinatown cluster of Shophouses. Before the great cleanup of the Singapore river during the 1970s to late 1980s, you can imagine how the river looked and smelt like. Blair Plains was an example of one of the richer neighbourhoods which were located away from the main cluster of Shophouses.

The conditions of shophouses in the Chinatown cluster were worsened by the onset of war in 1942, with the area badly damaged from bombs. However, the post-independence era of Singapore beyond 1965 saw a rejuvenation of the city-state. Eventually, some Shophouses in the central regions were set aside as conservation pieces by the 1980s.

In this brief history of Shophouses in District 1 and 2, we see the history of the rich and poor, of peace and conflict. Living and working. These shophouses embody the history of Singapore before independence, and experienced the humble beginnings of our cutting-edge city. When looking at it from the perspective of numbers, investments, gains, these factors are often overlooked. 

Buying, owning, living, and working in a piece of history going so far back is definitely something beyond unique. Perhaps, we can even consider Shophouses to be functional relics, of a forgotten age of hardship and a symbol of progress.

The Fundamentals of D1/2 Shophouses Moving Forward

Looking into the future, what might be some of the reasons that Shophouses in District 1 and 2 will continue to do well? Firstly, the conservation status of Shophouses in District 1 and 2 is unlikely to be removed. Being a piece of history is technically irreplicable. It has acted as an anchor for Singapore’s riverfront development and continues to be a stronghold for Singaporean identity and heritage.

There aren’t going to be any new additions when it comes to Shophouses in the same area. The supply of new Shophouses in District 1 and 2 is likely to be locked in for the foreseeable future. The question on the future worth of Shophouses in these districts is then on the demand for these vintage spaces. Will prospects for conservation shophouses improve in the future?

Perhaps so. Co-living spaces, boutique firms, hip cafes are the typical tenants of these spaces as of late. With the bohemian vintage style becoming increasingly mainstream with the upcoming generations (Millennials and Gen Z), the demand for these unique historical pieces might grow. Not only from a rental perspective but potentially as an investment or portfolio piece.

Some younger generations might even hold living in such history pieces at an aspirational level. Co-living spaces like Figment & Cove have some residential shophouses in their portfolio (such as the one on Emerald Hill), they are in demand. It is simply difficult to afford as an individual. But as a business, it shows promise. The space alone is distinctive, and might offer some businesses a level of synergy when it comes to branding, image and status building.

The focus on culture has permeated from the national to the individual level. As a nation, conservation efforts are part of a larger move of treasuring Singapore’s heritage, identity and culture. It is accompanied by efforts in educating the Singapore populace through museums, exhibitions, festivals, and schools. Culture to the nation is a key component of building a unified people. Conserving buildings with history (such as Shophouses) will remain a symbolic step towards this end of preserving our common heritage.

For individuals, norms have gravitated towards a greater appreciation of culture. This is not just the “finer things in life” but the things in life that matter and have meaning. Over time, Singaporean society has become more reflective, affluent, and globalised. Even as we embrace influences from beyond our borders, we crave for something to call uniquely our own. Shophouses fundamentally fit the bill as a niche within the real estate industry in Singapore.

Past Performance of D1/2 Shophouses

Any sensible investor would have heard that past performance is not an indicator of future performance. Yet this simple disclaimer is unable to take into account how trends and historical price action influence the decisions of investors in the market. To say the least, how the past affects the future is complex. We look through some of the past performance of D1/2 Shophouses and its comparables, to gain a broader understanding of the long term trends in the commercial real estate space.

Generally speaking, Shophouses as a commercial property niche have outperformed other commercial properties on growth. Although all these commercial properties have seen a decent rise since 2009, there was a prolonged period of slow decline for other commercial properties from 2013. Shophouses after 2013 have seen a period of volatility and are now seeing rapid growth since the pandemic.

Compared to other Shophouses, D1/2 Shophouses in the CBD have performed astronomically well. Since 2002, D1/2 Shophouses have seen a growth of 712% by 2022 Q2. This is not without considerable volatility from 2013 to 2020. Nonetheless, this level of growth beats residential real estate in D1/2 (although this comparison isn’t exactly an apple-to-apple comparison).

Investors comparing high quantum commercial and residential real estate investments may want to know that D1/2 Shophouses have a historically higher growth rate coupled with much higher volatility. One way to think about this is that ultra high net worth investors with strong holding power really benefited from the strong growth of D1/2 shophouses in the past. Arguably, they perform much better than residential property in the rest of the CCR.

While residential property in D1/2 is not exactly a close comparable to Shophouses in the area, investors may be attracted to commercial property due to the different rules on ABSD. It gives investors more options to increase their exposure to real estate without having to incur ABSD if they choose to invest in shophouses with commercial land zoning. Though there are business risks associated with the rental market for shophouses. The prospects of rental income may be hurt if the economy or businesses in that area are not doing well. On the flip side, if there is a business with high footfall attraction, it naturally benefits other surrounding businesses in the shophouse enclave.

Regardless, D1/2 have shown strong historical performance. It surpasses the growth rate of Shophouses in other districts, other commercial real estate, and residential properties as well. However, the high quantum required to enter this niche probably deters some investors from entering this market. Investments in Shophouses can carry many deal-specific risks. The number of transactions is small, and prices can vary substantially. Location is a key factor as well as.

Because of the nature of D1/2 Shophouses, prospective investors would have to be very strategic and particular about their valuation of the property as well as their entry price. The volatility of the asset shows that there is a large variation, potentially owing to the negotiation process and the market sentiment from high net worth investors.

Zooming into just the past 3 years, the volatility of Shophouses in D1/2 obscures its growth potential. For investors highly averse to volatility, Shophouses in other districts might be easier to stomach. Prices for shophouses in other districts are climbing steadily and much faster than other residential properties. However, it might be harder to find undervalued options as compared to D1/2. The volatility in D1/2 shophouses may present some interesting value plays if prospective buyers are intune with the market and have solid understanding of shophouse valuations.

The potential of high gains can be very enticing for investors. However, investors would need to be well informed and equipped with segment-specific knowledge on the shophouse niche in order to properly navigate the volatility in this shophouse market. Being connected to the right sources of expertise will help to ascertain if shophouses fit your investment objectives and risk profile.

Closing Thoughts

Shophouses in the heart of the CBD are a distinctive part of the city’s landscape. It houses the history and heritage of Singapore. As a functional relic in modern times, Shophouses in town have retained its mixed-use nature to accommodate boutique offices, hip F&B outlets, and even co-living spaces. Eventually, we might find more innovative use of such spaces in Singapore

The fundamentals of Shophouses remain strong moving forward. Singapore has been holding on to its approach of building a strong local identity and culture. The conservation of shophouses and the preservation of this colonial heritage is a part of this larger move towards the appreciation of Singaporean history and culture.

The past performance of D1/2 Shophouses have been exceptionally strong, albeit volatile as of late. Nonetheless, it remains an exclusive niche which presents many challenges and opportunities. With the right expertise to navigate this volatile market, investors stand much to gain from this segment of the commercial real estate market. If you wish to find out more about the Shophouse segment in Singapore and how it fits into your property portfolio, contact us here.

The post History in the Heart of Town — D1/2 Shophouses appeared first on Insights by PropertyLimBrothers.

Picking an investment might be “easy” in some cases. See potential in Electric Vehicle brands like Tesla? Buy. See the potential in the future of E-Commerce platforms like Shopee? Buy. The decision becomes increasingly difficult when you’re dealing with a large sum of money or investments with less public information available. This is understandable. A large part of investing is managing human psychology. Tempering its impulses: fear and euphoria.

How should you select the right Shophouse to invest in? How should we go about choosing our criteria? Where should we start? In our previous article, we talked about the administrative steps you can take to purchase an investment Shophouse. But are you picking the right one that suits your investment needs?

This article focuses on how you can select an investment Shophouse to suit your needs. We bring up some key questions you should consider in order to make an informed and optimised decision.

• Research & Due Diligence

• Quantum or PSF Play

• Capital Growth or Rental Yield

• Deciding between D7/8 or D1/2

• Conservation or Non-Conservation Shophouse

• Be Prepared for a Mid-Term Holding Strategy to Observe Appreciation

1. Research & Due Diligence

Image courtesy Corporate Finance Institute

Doing your own research and due diligence is important to make sure that your investment really matches your needs. No one knows you better than yourself. Putting in the time and effort to make sure that your hard earned money is not thrown off carelessly is important. We understand that this is a lengthy and potentially painful process. So we’ll lend a hand.

Pay attention to the past transactions of the investment Shophouse. How many other transactions happened over the past few quarters? How does this compare to Shophouse clusters in other districts? Generally, we are looking for a higher volume of transactions. This gives the banks an easier time to give a fair valuation of the property, which will be valuable in assisting you with obtaining the loan of the appropriate size. Higher transactions would also mean more information available on the market. This will give you a better understanding of the demand and supply situation in that area. A high volume of transactions usually tell us that it’s a healthy market.

That being said, here are a few caveats. A high volume of transactions does not guarantee stable valuations even in the same district. Each Shophouse is unique. The number of Shophouses are in very limited supply. The valuation might also vastly differ from bank to bank. Due to the supply issue, Shophouse pricing may also not follow the bank valuations.

The next important thing to look out for is checking for other comparables that are up for sale. This might take a bit of time as you have to look through listings or consult your real estate broker on finding similar Shophouses that can be used to make a fair comparison. Having more Shophouses shortlisted means opening up more opportunities and options for yourself. This would translate to less pressuring negotiations and viewings as you have more alternatives to look to if the deal is unfavourable or goes south. Looking at the current market for its offerings might also provide you with good deals and information from time to time.

This point is rather intuitive. Price performance. Of course, you would like to know how your shortlisted Shophouses have been performing in the recent few years. A good way to do this is to go from macro to micro. The big picture comes first, followed by the exact Shophouse that you are looking at. You can start with the performance of the entire Shophouse population, followed by districts, then the specific project. This will give you an idea of how your selection fits within the general trend. Is it over or under performing the market? Then you can start to wonder why this is so.

Similar to the previous point, rental yield is also a number you want to look at. Especially when it is an investment Shophouse, your primary means of generating income is through rent. This is basically the returns from the capital you have invested. The previous point on price performance is more on the capital appreciation. Looking at the rental yield will tell you how efficient the property is at generating income. It will also offer hints as to the popularity of the Shophouse for businesses. Depending on the Shophouse cluster, specific businesses may want to rent from you. Do pay attention to this before you decide to buy a Shophouse in a specific location.

2. Quantum or PSF play

Once you have decided to go for the Shophouse as a mode of Real Estate investment, you should ask yourself if you are focusing on affordability or value. We understand that Shophouses are no small investment. The holding company probably pools together a group of investors keen on buying and gaining exposure to specific Shophouses. So this decision is key to setting the tone. Go for affordability (Quantum play) to gain entry into the market or go for value (PSF play) to get a larger place or an undervalued purchase.

A caveat here is that PSF plays do not equate to value all the time. We know this. PSF can be lower for specific reasons. Such as, districts further from amenities or the city centre, larger sized properties, desperate sellers looking for buyers by offering a discount. Understanding what is driving the PSF would tell us what kind of value we are getting from the PSF play.

Between the two options, it is clear that you need to know yourself well. The number of investors being involved also matters in deciding between the Quantum or PSF play. Generally speaking, quantum plays might make more sense if you are primarily capital-constrained but want to gain entry into the Shophouse segment. If you foresee issues obtaining a large bank loan for commercial Shophouse purchases, you might want to consider going for a quantum play too. This might be the case if your holding company is young or has insufficient cash flows or credit history to warrant a large loan for commercial property.

If there are less capital constraints in your investment decision, you might want to consider going for the PSF play. This typically involves going for higher quantum Shophouses with more floor space. In exchange for lower PSF and larger space, these properties would likely be of a higher quantum or less central location. Do note that the capital requirement is non-trivial. The holding company used to make these purchases should be GST registered and have sufficient cash flows to support the large loan on high quantum Shophouses. Alternatively, having multiple investors with similar investment goals would help you execute this strategy. Remember that if these investors hold shares of the holding company, they will also own a stake in the other subsidiaries through these shares.

With Shophouses being a fast growing segment of commercial real estate, we foresee more investors trying to gain access and compete for the limited supply. The prices of more affordable Shophouses would likely be propped up by these new entrants. As a result, quantum plays would get more expensive over the next few years. Early entrants might end up gaining handsome appreciation following investors piling into this segment. On the other hand, PSF plays might look more attractive over the long term for investors with access to large sums of capital. We expect larger quantum Shophouses to have their price and growth driven by smaller-sized comparables.

To put some data to visualise what we mean, the orange line demonstrates a quantum play for Shophouses (<2,500 sqft) and the blue line represents Shophouses (>2,500 sqft). The PSF stated here refers to the build-up space. Notice that the lines oscillate, each line takes time to be on top of the other. Generally, larger Shophouses present the opportunity for PSF plays. These Shophouses have larger variance in PSF due to its low transaction volume. Sometimes, a deal presents itself in the form of lower relative performance to smaller Shophouses as seen in 2015 and 2021. On the other hand in years like 2017 and 2018, investors of larger Shophouses might wish to realise their gains by letting go of the property at a higher relative PSF than smaller Shophouses.

We understand that timing the market is difficult. Nonetheless, it is important to realise the trends and patterns in price action of the property class you are looking at. Based on the price action patterns in Shophouses, a “buy low, sell high” approach is definitely feasible. The higher price variance in larger Shophouses presents this opportunity to time the market.

3. Capital Growth or Rental Yield

Going for the Quantum or PSF play is related to whether your investment objectives are predominantly Capital Growth or Rental Yield. Capital Growth strategies focus on investing in assets for the purposes of Capital Appreciation. Since most of the gains will be realised upon sale, being able to time the market and having a great exit plan is key. Shophouses that fall within this category would tend to be either undervalued or lagging behind its comparables in terms of price performance. This signals a disparity gap and more room for capital growth. Thus, the investment selection of the Shophouse would primarily be focused on finding the “ugly duckling” among a cluster of already well-performing Shophouses. The key point is seeing the value before other investors do. Others see the ugly duckling but you already see the beautiful swan, even before it grows up to be one.

Rental Yield strategies focus on Shophouses with the highest level of rental yield ($/PSF). This is a longer term strategy aimed to generate a stream of income rather than looking purely to profit from a sale in the Mid-Long term. The great thing about this strategy is that there is less pressure to sell. Since the stream of revenue can help support both the mortgage, and the income statements of the holding company. We foresee the Shophouse performance to maintain a strong relative performance going into 2023 and 2024. Its strong cultural and heritage factors play in with its unique traits to make a truly special class of property in Singapore.

On the aggregate level, Shophouses align more with Capital Growth strategies than Rental Yield strategies. This is not to say that you can’t do it for rental yields. If you do intend to go with the rental yield strategy, make sure that you are picking the right outliers that have much better yields than the average Shophouse. Overall, Shophouses outperformed Residential and other Commercial properties in terms of capital growth over the past 5 years on aggregate. Though the Rental Yield of Shophouses are the lowest of the three categories, it is trending upwards. Whereas other commercial properties are in a downwards trend for rental yield. This might be driven by the Covid Pandemic or Work-From-Home Trends.

4. Deciding between D1,2 or D7,8

The next consideration would be location. We compare two groups of districts (D1,2 vs. D7,8). Generally, this consideration is between the middle of CCR (D1,2) and the border between CCR and RCR (D7,8).

Comparing the price performance between the two different groups, Shophouses in D1,2 jointly outperforms D7,8. In some sense, we can deduce that the larger capital growth trends for Shophouses might be driven more by Shophouses in D1,2 than other districts. While this might be the case, the high prices in the CCR might act as an entry barrier for most investors. If that is the case, investing jointly in D1,2 using a holding company or going for a quantum play in D7,8 is the way to go.

The interesting observation that goes with the better price performance for D1,2 is the transaction volume. Usually in a case where price performance is better, we notice a much higher transaction volume. For Shophouses in D1,2 we have a counter-intuitive discovery. The transaction volume for D1,2 is comparable if not lower than D7,8 with the exception of the 2015-2016 period. From this, we can perhaps infer that there are “stronger hands” in the D1,2 Shophouse segment. Less willing sellers for an already small pool of Shophouses mean that prices are bound to inflate with a growing pool of prospective investors. If you are going for D1,2 Shophouses, you might want to consider if you have diamond hands.

Next, when comparing between D1,2 and D7,8, we look at rental yields. Even though we know from the earlier section that Shophouse investments are more in line with Capital Growth strategies, rental yield should not be neglected as they go towards repaying the mortgage. Rental performance is better for D1,2 as expected. There is more upside volatility during good years such as 2014 and 2019 for D1,2. In comparison, D7,8 rentals are rather stable.

The rental yields for D7,8 are almost double that of D1,2. This is the main trade-off for D1,2 Shophouse investors. Although Capital Growth is better, Rental Yields are poorer. The opposite is true for D7,8. In this case, D7,8 makes the case as a more affordable entry for investors with higher rental yields and lower quantum. There is also much less volatility and variance in price. Volatility itself is not a bad thing. With volatility comes opportunity, but also risk. In this section, investors are reminded of their risk tolerance for property investments. We would recommend those with a higher risk tolerance to seek opportunities that D1,2 presents. For investors with a moderate risk tolerance, D7,8 presents a more palatable option.

5. Selecting Conservation or Non-Conservation Shophouse

Choosing either a Conservation or Non-Conservation Shophouse is more than a matter of taste. It affects regulations pertaining to how you can renovate the space. It also has intrinsic value as a piece of history. In our previous Shophouse article, being a conservation Shophouse can be a cultural asset that gives businesses its much needed boost. If it works in tandem with the brands of businesses looking to use the space, it could be a great boost to image.

Conservation Shophouses might have constraints on renovations and how the building must be maintained. We take this as a good thing, not a bad thing. These constraints help keep tenants in line when it comes to modifications of interiors and exteriors. It also adds to the rustic charm of being a Conserved building. Either way, when selecting between the two, take note of what kinds of businesses you would like to rent to. If you are operating in the Shophouse with your own business, ask yourself if being a Conservation Shophouse would add value to your brand.

Lastly, Conservation Shophouses are unique and historically significant. There aren’t going to be more Shophouses of the same age and quality unless you go back in time to build more. This adds a chip to the negotiation table when you eventually look to exit. While it might be a value-add in terms of rarity, do take note that the pool of investors that see this value might also be slightly smaller.

6. Be Prepared for a Mid-Term Holding Strategy to Observe Appreciation

We mentioned earlier about having diamond hands when it comes to specific Shophouse investments. Having the holding power to wait and observe the capital appreciation will take time. While ABSD does not apply for Commercial Shophouses, SSD still does for Shophouses that have a residential component or is an industrial property. You will have to pay SSD if you sell the property within 3 years of purchasing it.

In order to make sure you sell your investment into strength, having a minimum holding period of 5 to 7 years would be good. This would give you enough time to ride out any economic downturn or monetary tightening (as we are seeing now). When you decide to make an investment in a commercial Shophouse, make sure that you are not overleveraged, and have the holding power to not panic sell when the price performance is poor.

Closing Thoughts

We have covered a lot in this article. Here’s a checklist of the main points of our discussion.

• Research & Due Diligence

• Quantum or PSF Play

• Capital Growth or Rental Yield

• Deciding between D1/2 or D7/8

• Conservation or Non-Conservation Shophouse

• Be Prepared for a Mid-Term Holding Strategy to Observe Appreciation

The key takeaway is that commercial Shophouses are generally more in line with the Capital Growth strategy than purely for Rental Yield. Between the Districts, D1/2 have better capital appreciation but much poorer rental yields. The barriers of entry are high but present greater upside with a mid-long term holding period. On the other hand, D7/8 offers better rental yields with still decent levels of capital appreciation over time. It presents a more affordable entry point into the commercial Shophouse Segment.

If you want to know more about the Shophouses that personally suit you more, reach out to us here to have a detailed discussion.

The post How Should You Select an Investment Shophouse? appeared first on Insights by PropertyLimBrothers.

Shophouses can be found in many streets and corners all over Singapore. They hold a dear piece of our colonial heritage and lives on today as revitalised commercial and residential spaces. Often, we lump Shophouses together as a group. It is its own class of property. Or we might categorise them by their architectural style.

Shophouses have a special place in Singapore’s real estate market. They are a special asset class that attracts a niche group of investors. A good mixture of modern and traditional businesses operate out of conserved shophouses. We see cafes, offices, hotels, restaurants all inhabit that special piece of Singapore’s history. Due to its scarcity, Shophouses make for an asset class that is not only unique but also exclusive. Shophouses are primarily found in Districts 1, 2, 7, 8, 14 and 15. How is District 8 special (and fun)?

In this article, we will cover 8 fun facts about District 8 Shophouses. This area mainly covers Little India, Farrer Park, and Serangoon Road.

1. D8 has the “most” Shophouses

When we think of Shophouses, perhaps we think of revitalised areas within the CBD that have nice cafes and restaurants in outfitted Shophouses. Many would think that the CBD area and the core would have more Shophouses. Perhaps, the prominent ones are in those locations but District 8 has consistently held the highest transaction volume for shophouses.

While we know that Singapore has around 6500 Shophouses in total, we do not have an exact breakdown by district. What we have though, is the number of transactions in each district. If we crudely take this number as a kind of indicator of the general number of Shophouses in the area, D8 takes the cake. District 8 has got a whopping 77 transactions for 2021. A lucky number nonetheless, shy just of 11 to make that “huat” 88.

Even though the Little India area might not come to mind when we think of “Shophouse”, it is definitely where the action is at. The volume of transactions easily dwarfs that of the other districts.

2. D8 has potentially undervalued Shophouses

We compare the relative performance of D8 Shophouses (Orange line) with D1 & D2 (Lightblue) and D14 & D15 (Darkblue). In terms of its price performance in comparison to the other Shophouse clusters, District 8’s appreciation is a little on the slow side (39% since 2019) as compared to D1 & D2 (46%) and D14 & D15 (70%). While these are still very decent growth rates, what we wish to highlight is the potential that D8 is undervalued.

District 8 is approximately 2-3 km away from D1/2. On the other hand D14/15 is approximately 5-7 km away from D1/2. Yet both D8 and D14/15 are transacting around a similar price range. Given the upward trend for Shophouses, prices for D8 Shophouses may be pushed up because of its closer proximity to the city centre. Cue, bid-rent theory.

That being said, the prices of D8 Shophouses are also the least volatile. Huge spikes and drawdowns are present in D1/2 and D14/15 but not in the D8 group. This might be due to the higher transaction volume which removes the “noise” from transactions that are anomalous.

3. Shophouses of all Kinds

Little India does not just provide a variety of Shophouse options because of the transaction volume alone. The URA has also set aside part of Little India for conservation purposes since 1989. This is to preserve the rich history (pre and post colonial eras) of Shophouses in the area. The conservation efforts have been stepped up over the past few decades, with more buildings being added to the conservation list.

In terms of variety, Little India has Shophouses dating back to the 19th century and more recent hip Gatsby styled Art Deco Shophouses. In a previous article, we talk more about the different architectural styles of Shophouses and the features that are specific to them.

Coupled with the volume of transactions, the variety of styles gives investors more options to pick a piece of history that resonates with them more. While it’s a financial investment, it is also a special piece of Singapore’s heritage. Having more options doesn’t hurt.

4. Active Governance in protecting & supporting Conservation Shophouses

As we mentioned earlier, the URA first set up Little India as a conservation space in 1988. The image below details how the historical district was labelled and set aside to preserve the rich heritage. Building on the point of conservation, the government has shown an increased interest in preserving key aspects of our culture and heritage in recent years.

With the focus on making Singapore a hub for the Arts, getting in touch with our roots has become a priority for policy makers. One way of doing so is preserving the physical space in which people used to work and live in during the pre and post colonial era. Shophouses fit the bill perfectly. It is the space that embodies commercial and domestic activities both in one.

With this priority in mind, we are assured that there is active governance when it comes to protecting and supporting conservation Shophouses in the future. Technically, it is a limited edition property that has stood the test of time. Ageing well and standing as a guardian as they watched the Singapore miracle: going from third world to first. Indeed, it is both a reminder of our humble beginnings and a romantic way to reminisce about the past.

5. Little India area’s Interesting Origin Story

Speaking of history, Singapore’s Bicentennial in 2019 has been a successful event in educating the public of our pre-independence story. It marked the 200-year anniversary of Sir Stamford Raffles’ arrival in Singapore. The Singapore government has also set up a website to delve deeper into our local history.

Drawing from their research on Little India’s history, the name “Little India” only came about around 1980. It was a post-independence label that was tagged to the Serangoon-Rochor-Farrer Park area. One can imagine that part of the reason for doing so might be cultural representation in urban planning. We have a Chinatown and a Kampong Glam, why not a Little India? This puts up fairer representation of different major ethnicities while naming notable cultural districts in Singapore.

Thus, it was not Sir Stamford Raffles that labelled this area as “Little India”. Nor was it his intention to racially segment the Indian population to this area. This is quite peculiar, given that he was the mind behind Chinese and Malay ethnic enclaves. Perhaps, this has something to do with the British Empire’s colonisation of India with its subjects from the British Raj being more trustworthy stewards than migrant workers from China or local Malays.

6. European Streets in Little India

Little India has a surprising number of streets named after European settlers. Since its ethnic label was rather recent (1980), some of the European street names we see today in Little India used to be private streets for the homes of European settlers. Today, these are vibrant streets that act as aisles between Shophouses. If you take an aerial photograph, it might remind you of a trip to the grocery store.

Many of the other streets in Little India were named after cattle traders — which was a prime commercial activity during the time of Sir Stamford Raffles. This area basically acted as a trading hub during the colonial era. Even today, we still see the lively hustle and bustle in its streets.

7. Little India’s Street Art

Did you know that Little India has its own Heritage Trail? Sprawled all around the vicinity of Little India MRT, Visit Singapore has put together an art trail featuring the historically inspired street art of the area. They give Shophouses a new aesthetic dimension. Revitalising the exteriors with colourful works that highlight the soul of Little India.

What an interesting way to buy a piece of art. Of course, you’re not only making the investment for the history or aesthetics. But these features only make the Shophouse more unique, refreshing and likeable. It definitely helps make them stand out from the other commercial and residential buildings in the area.

8. The Nexus of Deepavali in Singapore

If you have not experienced the vibrant festival of lights in Singapore, you should. District 8 is the heart of the Deepavali celebrations. Every year, Little India is decorated with beautiful lights. The whole historical district lights up in vibrant colours. Neon lights make a great night view.

District 8 remains the prime hub of commerce for these festivities. The intense foot traffic is great news for businesses (retail or F&B). There are plenty of great options around this area for shoppers and foodies of all ages and ethnicities. There is definitely something for everyone here in District 8.

Parting Words

We have brought across 8 fun facts of District 8 Shophouses:

1. D8 has the “most” Shophouses

2. D8 has potentially undervalued Shophouses

3. Shophouses of all Kinds

4. Active Governance in protecting & supporting Conservation Shophouses

5. Little India area’s Interesting Origin Story

6. European Streets in Little India

7. Little India’s Street Art

8. The Nexus of Deepavali in Singapore

To sum up, District 8 presents a wide range of options in terms of variety. With the highest transaction volume and potential for strong growth, D8 is a fine candidate for Shophouse investments. On the regulatory side, support for conservation Shophouses has been strong and would probably continue to be so moving forward. District 8 has an interesting backstory, and the culture to back it. It’s a hip area that continues to evolve as Singapore develops.

If you wish to find out more about the opportunities in District 8, contact us here for more!

The post 8 Fun Facts for District 8 Shophouses appeared first on Insights by PropertyLimBrothers.

 

Hip. Enchanted. Charming. These are the words that come to mind when one thinks of Singapore’s Shophouses. A time capsule containing the memories of Singapore’s colonial past and heritage. Spread out all over Singapore, shophouses serve as both residential and commercial properties. Whether in the CBD or in the outskirts of town, we can somehow catch a glimpse of these sweethearts as we traverse from city to heartland.

In our previous articles, we have covered why Shophouses are a great option for property investment. We have also covered the architectural features of Shophouses and how they are varied and unique. Without a doubt, the performance of Shophouses as a commercial property investment has outclassed other traditional means.

In this article, we give a step-by-step guide to explain the purchasing process for a Shophouse in Singapore. This will help shed some light on the administrative details of the property purchase. It will be an interesting read if you want to learn more about how commercial shophouse investments can be purchased.

1. Set up an Investment Holding Company to Buy the Shophouse

When buying a Shophouse in Singapore, consider setting up an investment holding company to hold it. Using this method to hold the Shophouse has many benefits. An investment holding company has flexibility in its ownership structure (decided by shares) and may hold on to multiple investment instruments (other businesses or properties). This means that you may get multiple investors on board as shareholders of the company. A key reason for this vehicle is because of limited liability. Your personal assets will not be liable as the company is a separate legal entity.

This mode of entry into Singaporean real estate and investment is foreigner-friendly. It is considered a separate tax entity (in case you have concerns as a HNW individual). Corporate tax in Singapore stands at a competitive 17%. You can use the holding company in Singapore as a way to consolidate and optimise your tax obligations. This is possible even if you have subsidiary businesses or assets overseas. One perk is that ABSD doesn’t apply for commercial Shophouses, do note that Shophouses with residential components will have an ABSD on the value of the Residential component.

Here is a simple checklist for the requirements of opening and running a holding company in Singapore. For more information you should consult an accountant or ACRA for advice.

• Your company name needs to be approved by ACRA

• Personal identification documents and residential address of the Directors, Shareholders and Company Secretary is required

• You will need to obtain the signed consent of the nominated Directors and Secretary.

• One of your directors should be local resident

• A physical office address in Singapore is required for the company

• You will need a Constitution for your company

• If you are a foreigner without a SingPass account, you will need a registered filing agent to submit the application for you

• You will need to keep of proper accounts and records up to the standard of accounting in Singapore

• Annual returns with ACRA would need to be filed

• Pay your yearly corporate tax on time

• Hold Annual General Meetings (AGM)

Do note that this is not an exhaustive list. You will need to do your due diligence in opening and maintaining your company up to the standard of Singapore’s regulators.

2. Register for GST?

The next consideration is whether you should set up a GST or Non-GST registered company? In Singapore, companies with turnover of greater than $1 million dollars are required to register for GST. Smaller companies are not required to but can voluntarily do so. Why is this important? While commercial or industrial properties are not subject to ABSD, it might be subjected to GST depending on if the seller is a GST registered company.

If you are buying commercial property from a GST registered company, you will need to pay GST on your purchase price. However, if you are buying using a GST registered company as well, you may claim back that amount. Instead, if it were a non-GST company buying it, you would have to pay this amount. What’s the catch then? As it turns out, the main trade-off is whether or not GST will apply to the rent you collect from that property. Here is a table to clear up any potential confusion you might have.

Please note that if you are a Non-GST registered company, it is illegal to collect GST as you are not an approved agent of the government to do so. Doing so could land you in jail.

This is a big decision. Especially if you are planning to use this company to hold other subsidiaries as well. It will also be important to know that this will apply to subsequent commercial or industrial property moves you intend to make. It would be wise to take a long-term stance in making this decision. One way to look at this is to see it as a form of cash flow management. By reducing the GST payable upon purchase, and instead “amortising” it over rent. Of course, this might be a form of mental accounting to convince yourself. But the rising GST rates over the course of the next two years is not a joke.

Singapore will raise GST by 1% twice from the start of 2023 and 2024 respectively. If the 2% hike over the next two years is enough to recoil consumers, you should definitely consider how it will impact your commercial shophouse investments. If you were to purchase a S$10 million commercial shophouse in 2024, the GST payable would be S$900K. That’s almost a million. Each percentage increase in GST for a S$10 million property would translate to S$100K in GST paid.

3. Work with a Trusted Banker

The next step in the puzzle is securing a loan for your holding company to buy the Shophouse. This is ideal as it helps you make use of leverage in the investment. It could also help with affording higher quantum investments which you might be interested in. The process for securing a loan for an individual investor is different from that for a corporate entity.

First, Total Debt Servicing Ratio (TDSR) does not apply to companies. You will have to manage your debt and cash flow to make sure that your company does not end up becoming insolvent. Having a trusted banker helps because they would understand your situation better and hopefully present more favourable loan terms. They might also be able to help with the variables that work in ranges.

Here is a list you need to consider before applying for a commercial loan:

• At least 1 to 2 years of credit history if you are a young company

• Interest rates for commercial loans are usually in the range of 2-3%. It might be going up these 2-3 years by 0.5 to 1.5% due to U.S. Fed rate hikes

• Get advice on which interest rates to use, SORA, SIBOR etc.

• Legal and valuation fees need to be factored in

• Refinancing options and their legal fees

• LTV requirements are usually between 60% (investment purposes) &  80% (own use).

• Banks would need to see a local ownership of 30% in the company before offering you the loan

The difficulty lies in local ownership and credit history, especially for young companies. The good news is that due to the nature of the holding company, you just need to look for a Singaporean investor willing to buy 30% of the shares of your holding company. This helps especially if you plan on going for higher quantum investments. Having more investors with the same goal and game-plan on board really helps to pool together funds for such a commercial investment.

For the concern on credit history of young companies, some business owners might park their existing businesses under the holding company to help with income flows. Do note that your holding company is not allowed to directly operate its own business; it may only hold shares of businesses that run those direct operations. If your company is completely new and you still wish to obtain a commercial loan, you may need an in-depth discussion with your banker on whether taking the loan is possible given that you have sufficient collateral to present to the bank. You might need to show funds to obtain the loan. The key concern banks have is the origin of the funds as Singapore takes a strong stance against money laundering and terrorist financing.

4. Set up Rental Management

The next important step is to make sure you have a proper rental management system in place. This is a key part of your investment strategy, since you will be using the rent to offset the mortgage on the commercial shophouse. If you are not able to find a tenant or your rental income is suspended (like during the start of the pandemic), you still need to pay the mortgage. Thus, make sure you have sufficient cash flow to backup your commercial shophouse investment in the event you are not able to generate rent.

When finding tenants for your commercial shophouse, you would need to know what kind of tenants you prefer. Would these tenants be interested in your property? Are you planning to lease it to a law firm? A cafe? A start-up or SME? A boutique restaurant? The list can go on. Think about the cluster in which your shophouse investment is located. What other businesses are already in the area? This can help give you a rough idea of the tenancy situation.

Another option is to take up the previous tenant of the shophouse, if it was sold to you with a tenant already occupying the property. Just make sure that the terms and conditions are to your satisfaction for all intents and purposes. The situation of the pandemic has given landlords a little more paranoia in crafting contracts. You might want to be very clear and explicit on the terms for payment of rent arrears if your tenant misses a payment date. You might also want to consider force majeure clauses or frustration clauses in the event that another unpredictable event happens and disrupts rental income. If this portion of rent management seems confusing to you, it is because rental management is in the domain of commercial real estate brokers. Few companies arrange this on their own.

Closing Thoughts

To conclude, we have covered four big administrative matters in a commercial shophouse investment. This technically applies to commercial real estate in general too.

1. Set up a holding company

2. Consider registering for GST

3. Work with a trusted banker

4. Set up rental management

As at the time of the writing of this article, the announced increase in GST in 2023 and 2024 is a key aspect for shophouse investors to pay attention to. While it may not be a good idea to base your decision solely on the GST rise, it is an important cost consideration when you do decide to invest. In addition, the interest rates are set to rise based on the U.S. Fed announcements. Mortgage rates will soon reach 5% in the United States. With this news in sight, commercial real estate loans hitting 3-5% in 2024 is not unimaginable.

If you are still unsure about how to start the process of investing in shophouses, contact our experts here to find out more if it’s the right path for you.

The post Your Step-By-Step Guide to Buying a Shophouse in Singapore appeared first on Insights by PropertyLimBrothers.

 

Tired of the usual hotel experience? Bored of lacklustre and mediocre BnB stays? Heritage Collection Singapore (Hericoll) might have what you are looking for.

Hericoll offers hotels and serviced apartments with a cultural twist. Located across the city, Hericoll turns Shophouses into a comfortable way to experience Singapore’s culture and heritage. Integrated with modern technology, expect a hassle-free and contactless check-in into these architectural delights. The prime locations that they offer place you within convenient and accessible reach of public transport options, great food, and the city centre.

Shophouses are a great investment. And we see Hericoll demonstrate that concept beautifully in their hotel chain. Whether you’re simply looking for a staycation spot, a temporary stay for a business trip, or an investor looking to get a feel of the Shophouse experience, Hericoll offers the comfort, convenience, and history to back it.

Speaking of history, Hericoll’s Shophouses are spread along the Yip Yew Chong Mural Trail. The murals are depictions of the artist’s memories of the past, time travelling if you will, into the by-gone era of Singapore’s colonial past. They remind us of the migrant history and humble beginnings of our island city. An aesthetic and palatable way to experience both art and history at the same time, this trail is great for locals and visitors alike.

For staycationers, the neighbourhood offers a nostalgic and romantic vibe. Putting you at ease as you travel through time and space, to a place that neither looks like Singapore or the 21st century but with all the comforts of the present. What’s more, you can put your couple’s teamwork to the test by trying to whip up some traditional dishes together. The accommodation provides a cooking space and the necessary crockery to boot.

Younger couples who do not have a place together yet can try out what it feels like to live in a premium loft apartment together. With a central location to boot, you might get hooked on staying near your favourite cafes and restaurants in town. The experience is uniquely its own. It puts aside the formulaic hotel experience and offers a boutique encounter in the cultural enclaves of Singapore.

Prospective Shophouse investors can give this experience a shot. It might give you an idea or two on how you might want to shape a heritage experience mixed with your own business and residential ideas. Working with a heritage space is different from managing the typical commercial real estate. Hericoll shows us how you can capitalise on the rich cultural heritage as an asset for business.

While we may have been focusing on history a lot, the comfort is not to be understated. Clean, comfortable, chill, and modern, the interiors are designed to make your stay as pleasant as possible. You will not have to worry about 80 year old creaking floorboards or the sweltering Singapore heat. It is an oasis for the overworked and burnt out.

With a minimalist style, the simplicity and clean look is something that people can easily appreciate. Bright light palette, wood, and marble, all married and mixed into a relief for the eyes of the everyday person.

In addition to the Shophouses in the Civic & Cultural, Quay, and Business Districts, Hericoll also features stays in Chinatown. Located at 227 South Bridge Road, it is less than 5 minutes walk from Chinatown and Telok Ayer MRT. The Shophouses around the area provide great options for food and drinks. This area has a wide variety of Korean, Chinese, American, and European cuisine all a stone throw away from your accommodation. It is a prime location for foodies and culture buffs alike.

On top of the usual suite of services, enjoy complimentary laundry facilities, mobile self check-in, and a fully equipped kitchenette. The premium loft deserves a second mention here thanks to its larger space, high ceilings, and large windows which gives the apartment a bright and warm vibe.

Writing about this experience has gotten my staycation senses tingling. Be right back, let me peruse and book myself a get away real quick.

Use the promo code “HCxPLB” for your next staycation with Heritage Collection when you book directly on hericoll.com. The code is valid for stays from 01 April – 30 June 2022 across all Heritage Collection hotels. Promo code is not valid on eve of PH and PH, and standard Heritage Collection T&Cs apply.

The post Heritage Collection: A Blast to the Past appeared first on Insights by PropertyLimBrothers.

Singapore is known for its well-developed capital markets. With the reputation as the Switzerland of Southeast Asia, there are plenty of investment opportunities for locals and foreigners alike. Stocks, bonds, REITs, and real estate are all standard features of an investment portfolio in Singapore. But do you know that Shophouses can be a great form of real estate investment as well?

In the minds of Singaporeans, real estate usually comes in the form of HDB flats, Executive Condominiums, Private Condominiums, Terraces, Semi-Detached, Good Class Bungalows and the like. On the commercial end, people think of industrial buildings or modern offices. Shophouses might catch the fancy of bystanders and foot traffic, but it seldom comes into investors’ minds when one thinks of real estate. This article will cover 10 main reasons why Shophouses are attractive investment opportunities.

1. The Choice between Residential and Commercial Use

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).

Dark blue zoned Shophouses are designated only for commercial use. We may compare these Shophouses to commercial real estate investments such as industrial or office building units. One might even compare REITs to this option. In this aspect, Shophouses are unique. They have character, style, and heritage. We will cover more on these points in the rest of the article.

Pink zones are designated for mixed-use. The commercial areas must not be located above residential areas. You may only use the first floor for commercial purposes. However, if you wish to use pink zoned Shophouses solely for residential use, you will have to get permission from the URA or HDB. Who you get the permission from will depend on whether it is a HDB Shophouse. An important caveat here is that the pink zoned Shophouses have the same limitations to that of a landed property, where foreigners are restricted from purchasing these reserved properties. Foreigners who wish to purchase a Shophouse that consists of a residential component will require an approval from the Land Dealings Approval Unit (LDAU) in order to own these types of Shophouses.

Why is this flexibility in Shophouse usage important? For investors, this is critical. You can choose which group of tenants or future buyers you want to appeal to. From boutique businesses, cafes and restaurants to law firms and family businesses. The commercial demand for Shophouses is there. The same can be said for residential purposes. Shophouse living has graduated from bohemian to a more acceptable choice of home. We cover this in the later section of the New Singaporean Dream House.

This flexibility is most salient to the immediate investor. Real estate is unique in that it provides you with space, a workplace and a home. In the case of Shophouses, investors have the perk to own and use their integrated property. This will be especially true for investors who want to run their own business and keep it close to their personal space, just like the good old days (only now with air conditioning).

We have an article here highlighting the perks of real estate investing in detail. Check it out. https://www.propertylimbrothers.com/insights-posts/7-unique-traits-real-estate-investment

2. Flexibility for Foreigners & Local Property Owners

The flexibility does not just end with the designated usage of Shophouses. It provides financial flexibility for Foreign and Local Investors alike. This section will talk about Additional Buyer’s Stamp Duty (ABSD), Total Debt Servicing Ratio (TDSR), and selling options.

Here is the great news. If you are investing in a full commercial shophouse, ABSD does not apply. ABSD only applies if you are purchasing a Shophouse that is zoned Residential or Residential with Commercial on the 1st Storey. In the case of mixed-use Shophouses, ABSD will be pro-rated based on the area used for residential purposes. This is a huge boon for foreign investors and Locals who are already property owners. With the recent property cooling measures (and any future changes to ABSD, as a matter of fact), this point becomes even more salient. Paying less stamp duty means that you get to keep a larger slice of the pie and enjoy the higher potential for profit upon price appreciation. The difference in ABSD is non-trivial, amounting to S$1.7 million for a property quantum of S$10 million.

Of course, we are comparing commercial Shophouses to residential properties. If Shophouses are mixed-used, the difference in ABSD payable would be slightly mitigated by the commercial component. Again, one important caveat is that pink zoned Shophouses are restrictive for Foreign investors. Only dark blue zoned Shophouses are available as a non-restrictive option for Foreign investors.

TDSR is another big issue that most investors will face. According to the most recent property cooling measures (Dec 2021), the TDSR is reduced from 60% to 55%. This limits the maximum amount of loan one can take from the bank to finance the property purchase. Unfortunately, this applies to Shophouses whether or not it is used for residential or commercial purposes. This requirement is also slapped on locals and foreigners alike. Even business vehicles set up to hold property are affected by the TDSR.

It is important to understand how TDSR works to best navigate its limitations. Any individual applying for a loan to purchase a property or a loan secured by a property is subject to TDSR rules. It does not apply to loans for companies, as they are subject to a different set of credit assessment criteria. However, if the borrower is a sole proprietor or an individual setting up a company solely to purchase property, Financial Institutions are required to apply the TDSR rules to the individual.

If you already own Singaporean real estate and have not repaid the home loan in full, TDSR guidelines might prevent you from a big home loan for your second property purchase. Back to business ownership, these vehicles can assist in the TDSR calculations if they have large income streams to support the mortgage. Therefore, business owners can leverage what they have built to afford taking up loans for Shophouse purchases. Of course, a proper accountant and financial advice need to be sought if you are seriously considering this route.

Shophouses are Foreigner-friendly. Again, as we have mentioned, dark blue zoned Shophouses are exempt from ABSD when used for commercial purposes. This is juicy news for foreign investors, but it also benefits anyone planning to purchase Shophouses. There is a larger pool of prospective investors when you intend to cash in on capital gains. Because of the appeal to foreign investors, demand is not limited to our people on this small island. Exit opportunities in the form of buyers are plenty.

We cover more on the latest set of cooling measures in December 2021 here:

https://www.propertylimbrothers.com/insights-posts/cooling-measures-comprehensive-guide

3. Relative Scarcity

Our third reason why Shophouses are a good investment is the cornerstone of economic theory. Scarcity. There are only around 6500 conserved Shophouses in Singapore. Unless some time travelling is involved, this number will not increase. Conserved Shophouses are a piece of history as much as it is a piece of real estate. This puts the conserved category of Shophouses into relative scarcity when we compare them to other commercial or residential properties. With occasional new launches, the numbers will keep increasing for conventional real estate. While the growth of the real estate market now is substantial enough to support the growing number of commercial and residential properties, even more so would the static limited number of Shophouses enjoy growth. There will not be any additional conserved Shophouses being built, but there will be plenty of growth opportunities for this class of real estate.

Pit against other commercial and residential properties, Shophouses make a unique choice. Even non-conserved Shophouses can hold a candle to conventional real estate choices. Non-conserved Shophouses are still relatively scarce and offer a more down-to-earth, heartland vibe present even today. I hesitate to use the term “Kampong Spirit”. Instead, these Shophouses are “comfort food”. They represent the relatable, the everyday, the mundane but ever-present fixtures to old markets and HDB estates.

4. Benefits of Shophouse Clusters

Speaking of “Kampong Spirit”, the identity of Shophouse clusters matters. Is that area known for nightlife, good food, instagrammable murals? Shophouses across Singapore usually exist in clusters. Each cluster typically has an identity tied to the location and previous businesses in that region. Take for example, Clarke Quay. Shophouses in this area are known for their nightlife, bars and restaurants. Here, foot traffic is more scarce in the day than at night. This is just one example. Other Shophouse clusters could have more activity in the day than at night.

This identity tells us the types of businesses the cluster is known for. People and foot traffic would predominantly frequent the area for those reasons. Should you be a savvy and prospective investor, you would know that those kinds of businesses are likely your future tenants. On the other hand, if you plan on using the Shophouse investment for your own business, do pick an area that synergises with it. Understanding this would give you more awareness and potentially the kind of tenants and customers that you want.

Identity aside, another benefit of Shophouse clusters is the agglomeration effect. Businesses that complement each other cluster together. The close proximity of these complementary businesses leads to economies of scale. Even if the businesses are competing, there might still be an overall positive impact because agglomerating or clustering together attracts more customers and suppliers than one business can achieve on its own. Therefore, if you intend to invest in Shophouses for your own business, pick your clusters wisely and ensure they are in a related industry or complement each other.

The last important benefit of Shophouse clusters is the superstar effect. A superstar business within a Shophouse cluster can bring many customers and businesses into the area. There would be a positive spillover onto nearby businesses as they get to enjoy more foot traffic and media attention. While this may not be beneficial for businesses who compete with the superstar, other complements or even unrelated businesses may benefit from the spillover fame.

5. Accessibility & Attention

An obvious benefit that some investors might miss is the difference in foot traffic between Shophouses and conventional commercial rental sites. Let us compare a rental site within a shopping mall and a Shophouse. While both sites have a storefront, Shophouses have more eyes, foot, and street traffic. Storefronts enclosed within a shopping mall or office building have restricted views. For Shophouses, their storefronts also act as a billboard for people driving by or crossing the street. Moreover, Shophouses are usually found in clusters that are not built-up areas. Shophouse storefronts are more prominent, accessible, and attract more attention than conventional peers.

What’s more, Shophouses have access to direct foot traffic that is not limited to an enclosed space. Even if the walking area or street is not an air-conditioned space, people still travel. This, coupled with the benefits of clusters, makes Shophouses attractive to bystanders’ eyes. Furthermore, most Shophouse clusters are centrally located, making them highly accessible to Singaporeans all over the island.

6. Architectural Heritage

When you invest in Shophouses, you also invest in Singapore’s architectural heritage. This factor should not be discounted. Would you invest in a commercial estate which has a dull and oppressive concrete face? Perhaps, if you are running a manufacturing line or intend to spend a huge sum of money on renovations. If you look at it from an economic point of view, the beauty of Shophouses is built-in. You need not go through the tedious process of finding designers and contractors to overhaul the place. This could easily save you a big sum, focusing on using the rest of your capital for better purposes.

In “The Architecture of Happiness”, the importance of beauty is discussed and demonstrated. Each architectural style has a “vibe”, in common speak, it affects the atmosphere as much as Christmas or Chinese New Year-themed songs. This vibe affects the experience and social psychology of us humans. From Simple Modern to Art Deco, each architectural form leaves its viewers with an impression that shapes their experiences and interactions within that space.

The age of Instagram ushers with it a renewed obsession with aesthetics. You might think that aesthetics is just a side point, but businesses can be built on the foundations of being “Instagrammable”. Architecture is the instagrammability of your storefront. It either catches the eyes of people, or it doesn’t. It has the potential to stop people in their tracks, double-take, and perhaps make a U-turn for a short visit.

We cover more on the architecture of Shophouses in another article here:

https://www.propertylimbrothers.com/insights-posts/architectural-ingenuity-6-styles-of-shophouses-in-singapore

7. Relative Performance to Condominiums & Commercial Properties

We now compare the relative performance between private condominiums (orange), commercial properties (blue) and Shophouses (black). Using the past decade’s data, from 2012 to 2021, we use 2012 as the starting point for yearly percentage difference. Looking at all sales and rental comparisons, Shophouses outperformed private condominiums and commercial properties in the past decade and by a significant margin.

Shophouses have stood out and shown their resilience throughout the COVID-19 crisis, with sales and rentals soaring over the past 3 years. This is simple descriptive data on the sales and rental performance of Shophouses and is not indicative of future performance. Nonetheless, the past decade has shown that Shophouses are in a league of their own, maintaining a solid margin ahead of private condominiums and commercial properties.

8. The New Singaporean Dream House

Beyond being hip, Shophouses are fast becoming the new Singaporean Dream House, especially among younger millennials. Being tired of cookie-cutter homes and becoming more affluent gives rise to the demand for more unique homes. A trend is currently emerging in the co-living and rental space where living in Shophouses is becoming more popular.

Shophouses also tend to be near central areas, cafes, restaurants, bars. Compared to cookie-cutter options, the gentrified Shophouse areas provide amenities and social life of a different form. Life will be different. The views, exiting the front door, daily routines, morning runs will all be different. It is this unique lifestyle that gives Shophouses its allure. Investors might want a taste of this before leaving it in the hands of tenants.

9. Living Landed in the Central

While we are on the topic of living and lifestyle, a natural comparison that comes to mind is landed property. After all, if you plan on using your Shophouse investment for residential purposes, landed properties are a close relative. A key difference when we make this comparison is that landed properties are typically in a residential area. Landed property locations are much less central than Shophouses, with fewer amenities and food options nearby.

Furthermore, landed properties do not possess the same mixed-use flexibility as Shophouses. Building on our previous points, landed properties with its restrictive nature to foreigners pose a higher barrier to entry. When looking for buyers for your property in the future, Shophouses would give you less of a hard time because of the wider range of buying audiences.

10. Singapore’s Push for a Cultural Renaissance

Singapore has long desired to be the art capital of Southeast Asia. Since 2000, the Renaissance City Plan was implemented to increase the appreciation of arts and culture in Singapore. Now, 22 years on, we have indeed seen greater appreciation for the arts in Singapore, with events and festivals garnering a strong support base. While much less tangible, this might translate to a better appreciation for heritage houses.

Conservation Shophouses in Singapore hold an important aspect of our colonial history. And this history cannot be removed from the property itself. Moving forward, these Shophouses aren’t getting younger. But with Singaporeans treasuring this history, we can expect Shophouses to continue to be special and enjoy good capital appreciation over time.

Concluding Thoughts

If you have made it this far by reading, kudos to you. Even if you haven’t, no matter, we will now give you a summary of what we have covered in this long article. Here are our 10 reasons why Shophouses are a good investment:

1. The Choice between Residential and Commercial Use

2. Flexibility for Foreigners & Local Property Owners

3. Relative Scarcity

4. Benefits of Shophouse Clusters

5. Accessibility & Attention

6. Architectural Heritage

7. Relative Performance to Condominiums & Commercial Properties

8. The New Singaporean Dream House

9. Living Landed in the Central

10. Singapore’s Push for a Cultural Renaissance

We surmise that Shophouses remain a unique class of real estate in Singapore that offers investors a high degree of flexibility. It is a great investment for capital preservation with one of the best performing real estate assets in terms of capital appreciation. Our points on scarcity, accessibility, clusters and heritage support this conclusion. We also expect modestly better performance compared to comparable conventional properties. Last but not least, the living experience and lifestyle is something that an investor should have a taste of before handing over the keys.

Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.

PropertyLimBrothers will endeavour to update the website as needed. However, information may change without notice and we do not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time. Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs. PropertyLimBrothers does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, PropertyLimBrothers, its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person.

The post Why are Shophouses a Good Investment? appeared first on Insights by PropertyLimBrothers.