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.

 

With inflation roaring and home prices soaring in the US, there are real concerns about the formation of a housing bubble. Are the high prices of homes justified? Is it sustainable to keep climbing up like this? Or is this a housing bubble that is going to pop like the one in the mid 2000s? We look at the housing market in the US and compare the situation there with the one here in Singapore.

In this article, we will look at how the Dallas Fed (US Central Bank) monitors their housing market and what we can learn from them. We look at how the rental market and income level grow, in tandem with housing prices. A bubble forms when the rise in housing prices is not supported by the rental and income level. This could be driven by FOMO buying behaviour, which can be catastrophic if done on a huge scale. Government intervention would be needed if the early signs of a housing bubble are in motion.

U.S. Housing Bubble 2.0

Inflation in the U.S. is more of a horror story than it is in Singapore. Not to mention how their real estate market has grown over the past 3 years. While real estate investments might be a good hedge against inflation, it is not immune to the formation of a bubble. When buyers pile into the asset class due to FOMO or a high volume of emotional transactions with little to no holding power, that is the sign of an unhealthy bubble growing.

Many financial institutions, investors, and even the central bank are worried about the formation of such a housing bubble. The previous housing bubble of 2006 and the subprime mortgage crisis that caused the Global Financial Crisis in 2008 was arguably a traumatic experience for the economic system. The market has evolved since then. Financial institutions have put in place many safeguards to make sure that home-buyers are not over-leveraged with no collaterals.

The Dallas Fed is actively monitoring the growth of the housing market. They have an exuberance indicator and price ratios with rent and income growth accounted for. The numbers in the charts are adjusted for inflation. Here is a look at some of their charts.

The real house price index has risen above 115% as of 29 March 2022. In January 2022, the year-on-year growth for the housing market in the U.S. was 11.2%. This double digit growth is considered abnormal. While some investors might be laughing their way to the bank, it is a worrying sign for regulators and financial institutions. The current home prices have risen above the previous high of 2006. And the start of a housing bubble might be in motion.

The shaded area on the chart covers the time when the housing price is above the 95% confidence interval for exuberance. Such as the period from 1998 to 2007, 2020 has marked the beginning of a new period of exuberance.

Rent is an important metric to look at in relation to the growth in housing prices. Why is it important? If there is low rental demand, it means that investors would have trouble having rental income to support mortgage payments. If housing prices stretch far above rental demand, investors might be biting off more than they can chew. The investment might not be sustainable unless they are staying in the property and have sufficient income to support the mortgage themselves without rental income.

In the above chart, housing prices since 2021 have deviated from the fundamentals of price-to-rent ratio. If the gap continues to grow, it signals an increase in risk of a housing bubble. Above and beyond these numbers, this also means that housing has become increasingly unaffordable for Americans. With housing prices rising exorbitantly and rentals climbing sky high, people from marginalised groups would be less able to afford housing options. We can think of the price-to-rent ratio as a first layer warning of a housing bubble. It is a leading indicator that tells us ahead of time, the health of the housing market.

If the price-to-rent ratio is the first layer warning system, then the price-to-income ratio is the second layer warning for a housing bubble. As mentioned above, rent and income should grow in tandem with housing prices because there needs to be a way to afford the high mortgage payments. It has to come from somewhere. In the case of the 2006 housing bubble, there were warning signs more than 3 years prior to the crash that the growth in housing prices were unsustainable. From the orange shaded area, we can see early warning signs since 2002. After 2004, it was clear that housing prices and outgrown income levels.

We see prices in 2022 creeping close to the upper bound of the exuberance indicator. Perhaps we are not in a housing bubble now, but given the steep trajectory of the curve, we might be in the very early stages of forming the bubble. The market is rather different now. One can hope that regulators will take faster action if the housing market shows signs of unsustainable growth. In J.P. Morgan’s research, there is a chance of a real estate correction in certain geographies. The US is experiencing the rapid rise in housing prices mostly in supply-constrained areas. Thus, it is not an across-the-board raging bubble as of now.

Is there a Housing Bubble in Singapore?

The good thing about Singapore is that regulators take swift action to prevent the real estate market from exuberant growth. The recent cooling measure in December 2021 is a good example. Regular cooling measures prevent the market from getting too hot, and reduces the risk of a large correction. Finding the equivalent measures of price-to-rent and price-to-income ratios in Singapore are difficult. We hope that URA or MAS eventually publishes these indicators as part of the quarterly update on the health of the real estate market. Despite this, we believe that the regulators are actively tracking these metrics as a leading indicator for when to implement cooling measures. Just to get a sense of the real estate market health, we look at SRX’s index for property prices and rental prices. We then look at a separate chart for income growth.

The property price index for non-landed private property has seen tremendous growth since 1995 (start of index) to present. Jan 2006 is indicated at 73.1, at the base of the massive acceleration upwards. The rental price index for non-landed private property (chart below) starts in Jan 2006. As you can see, the subprime mortgage crisis is also reflected in both markets, represented by the steep correction from the sharp run upwards. Generally, we see support from the rental market in terms of price. The rental market is rising in tandem with non-landed private property prices.

Over the past 2 years, the rental price for non-landed private condominiums and apartments grew 11%. Yet, transaction volume remains steady with some seasonal tapering. The question is if the rental market can continue to stomach higher prices. The rental index has recently surpassed the previous all-time-high of 134.4 (Jan, 2013) with a reading of 136.9 in April 2022. If rental demand slows down in terms of transaction volume, we might see the formation of a peak in rental prices.

Undoubtedly, the inflation story has a large part to do with the real estate market. Be it prices of homes or rentals, inflation is a core driver. In the chart below, inflation (black) is plotted against another rendition of the residential property index (blue). We can visually identify that the two lines are rather closely correlated. With inflation sometimes giving lead indication of the direction of housing prices. From 2012 to 2014 and from 2017 to 2018, inflation numbers were declining or stagnating a few years in advance of housing prices.

We were not able to find a good price-to-income ratio for the Singapore housing market. Instead, we plot the residential property index against the average monthly wages (chart below). We can see the natural cyclical fluctuations in the wage levels. This is typical of hiring cycles reaching its peak around the start of the year.

Here, we want to point out two things. Housing prices exhibited exponential growth from 2020, whereas wages have only grown logarithmically. In other words, wages grow faster at lower levels and decelerates at higher levels. Housing prices have done the opposite, their growth accelerates over time, with a faster speed at higher levels. Given these differences in growth rates, housing prices would outpace wage growth if there is no timely intervention from regulators.

Closing Thoughts

We have taken a look at property prices, rental prices, wages, and inflation charts. While it is not as accurate a comparison when compared to price-to-rent and price-to-income ratios, we use a very crude approach to approximate the relationships. Nonetheless, we hope that the insights generated are still useful for anyone looking to participate in Singapore’s real estate market.

There might be a moderate risk that we are at the early stage of forming a real estate bubble. While inflation might drive prices up, properties will soon become unaffordable at the current rate of growth. Unless wages grow at the same rate, it would be very difficult to sustain the current pace of property price growth.

If you wish to know more about how the Singaporean real estate market is doing, you can reach out to our experts here. We hope this helps on your property journey!

The post Is a Housing Bubble forming? A Study on U.S. & Singapore appeared first on Insights by PropertyLimBrothers.

The big R-word has been catching headlines recently. With inflation skyrocketing, interest rates catching up, and companies starting to cut hiring, everyone is starting to get worried about an impending recession. Despite all these concerns, the property market has been climbing still. Resale HDBs are making new highs and headlines. Rent is climbing further up at the risk of growing affordability concerns. But what about commercial real estate such as Shophouses?

In previous articles, we have discussed the possibility of a housing bubble, recession fears, and how the macroeconomic conditions (especially interest rates) might affect real estate market participants. With a sharp economic slowdown expected to hit Singapore soon, will there be any unexpected hiccups? Will housing, commercial, and investment properties all come crashing down?

In this article, we take a look at how Shophouses might fare when a recession hits. We look at the fundamentals behind Shophouse transactions and highlight key risks that you should consider. Taking a glimpse into past recessions might also give us a clue into how the market for Shophouses reacts.

The Fundamentals of Singapore Shophouses

An important feature of Singapore Shophouses is its limited supply. This is especially true for conservation shophouses, which number around 6,500. In contrast, the supply of private housing is growing every year. A Statista survey shows that there will be 332,980 condominium and apartment units in 2021. Comparing the fundamentals between Shophouses and Condos, the supply-side story is extremely different.

Condos are residential properties. Most people buy Condos for their own stay or for investment purposes (rental income & capital gain). The government is on its path to increase housing supply in Singapore (both public and private), the policies surrounding the supply-side story for Condos suggest a gradual increase in Condo supply over the coming years.

On the other hand, Shophouses have a more interesting supply-side story. Unless we start conserving the newer HDB shophouses, the 6,500 conservation shophouses are highly unlikely to increase in number. Furthermore, the usage of shophouses is varied. Shophouses can be used for both residential and commercial purposes within the constraints given by the authorities. Depending on the designation of the shophouse, it is also possible that the shophouse can only be used for commercial purposes. This gives Shophouses a bigger slant to being used as an investment property (unless the owners plan to use the space for their own businesses).

Looking at inflationary forces, which is the primary driver of the impending recession, Condos are more likely to be impacted. Rising cost of materials and labour will affect the price and duration of new launches. With supply-chain lags, the development of new Condos would likely be delayed. In contrast, shophouses which are already constructed and conserved may only be affected by higher renovation costs and delays on that end. Nonetheless, renovations for conservation shophouses are an arguably simpler matter with the authorities setting specific regulations on how they are to be refurbished.

The current impending recession (if it happens at all), might not have a substantial influence on the supply mechanics of shophouses in Singapore. As a niche market with an already small supply of shophouses, incoming supply into the shophouse population would not be as greatly affected as mainstream real estate. The chart below shows the proportion of new sales (in orange) to resale (in blue) shophouses. Supply-side cost inflation will not be a huge influence on shophouse prices.

As economic uncertainty grows, investors and households tend to grow their cash reserves and behave more conservatively with big ticket purchases and investments. This prudence is expected and people should rightfully do so to preserve their own financial interests. In recessions, the unemployment rate typically rises, income levels taper or fall off. The earning and spending power is lowered. Coupled with high cost-push inflation this time round, this particular recession will see a steeper decline in the spending power of households. It is likely that demand for big ticket investments such as real estate would fall off a cliff. The high interest rate environment is looking to get worse and sustain even higher rates into the future.

Demand destruction for the real estate market, however, does not mean a slump in prices. As people start getting more cautious and take a pause on buying, it simply means a slowdown in deal flow. The number of transactions will be the first to decline. Price would only decline if the homeowners face a cash-crunch or have little to no holding power. As a result, we might continue to observe higher prices but shrinking transaction volume. This is what describes the Singaporean real estate market over the past few months.

This might affect the demand for commercial real estate as well, including shophouses. Although the supply of shophouses might not be as affected, will the shrink in transaction volumes also badly affect the shophouse market? This is definitely a possibility. The future price of shophouses will largely hinge on how demand for shophouses is impacted by the recession. The biggest demand concern would be the increasing interest rates. With the higher interest rates, some buyers may be put off by the obscene interest payments and mortgage. As of mid-July, the volume of transactions has already gone past 120, and is close to achieving the average number of transactions (over the past 8 years) in just half a year. Moving forward, it is likely that the number of transactions will slow down due to decreased demand.

To sum up, the fundamentals of Shophouses remain strong due to the limited supply of Shophouses and the fact that there is no new Shophouse supply being added. The existing population of Shophouses are already completed, thus the supply-chain and construction delays would hardly affect it. In addition, demand remained strong in the first half of 2022 despite a weaker macroeconomic environment and rising interest rates. Moving forward, we might see a slowdown in the number of transactions for Shophouses but probably not a drop in price.

Key Risks behind Shophouse Transactions

There are some key risks behind Shophouse transactions in a recessionary environment that you should be aware of. As an investor, you would need to be aware of your tolerance for leverage, liquidity, and cash flow risks. If either of these key risks manifest themselves while you are in need of capital, it could present a personal financial crisis. This list is not exhaustive, you should always do your own due diligence to make sure that the risks of investing in commercial real estate such as shophouses are within your risk tolerance and financial capability.

Shophouses are high-quantum commercial real estate investments. The median price of a transacted Shophouse from January 2014 to July 2022 is $4,750,000 (median psf is $3,284, median area is 1,445 sqft). Depending on the Loan-To-Valuation (LTV) agreement with banks, there could be significant leverage needed to purchase a shophouse. This presents a risk of overleveraging. In other words, you might be borrowing more than you can afford. If you (or your business) are already financially stretched, overleveraging for a shophouse investment might be a bad idea. Should there be a steep fall in the value of the shophouse due to a recession, the bank would ask for additional collateral to hold up the loan as the shophouse value is diminished.

Liquidity risks are another big concern. By liquidity, we mean the liquidity of the shophouse investment. Over the past 8 years, there has been only an average of 149 shophouse transactions a year (2014-2021). Because of the quantum and the commercial nature of this investment, it might take a longer period of time to find a willing buyer. It might be more difficult to exit considering a potential recession. For the subsequent buyer, they would likely face higher interest rates for their loans, a lower LTV, possibly higher prices, but in a more unfavourable market. This would mean that a shophouse investment now presents some elevated liquidity risks with the onset of a recession later (probably in 2023 if it does happen).

Liquidity concerns also apply to the investors themselves. Cash flow risks are an important consideration. A high amount of leverage or a high quantum loan would mean very high cash outflows in terms of the mortgage for the commercial property. Cash flow management will be key to prevent the investor from going insolvent. Similar to the previous point, recessionary environments are periods of negative growth. If businesses do not do well, it might be more difficult to find tenants for your shophouse. This presents an income cash flow problem. If the shophouse has a prolonged period of time without a tenant, this might present a strain on cash savings and reserves for the investor or company that purchased the property.

Again, these three key risks are not exhaustive but highlight how a recession might elevate risks concerning leverage, liquidity, and cash flow. Investors and companies looking to invest in shophouses need to go in with both eyes open, and all five senses active. A high-quantum investment such as this should not be taken lightly. Investors should also be aware of the buyer’s stamp duty and GST as additional costs for purchasing Shophouses. We have written a guide here for the highlights of transacting Shophouses.

Historical Price Behaviour during Recessions

This section will look at how the price and transaction volume of shophouses have behaved in the past few recessions. We will look at the Covid-19 recession in 2020, the Global Financial Crisis in 2008, the Dot.com crash in 2001, and the Asian Financial Crisis in 1998. While each of these recessions has different contexts (and causes), they show the generic price and volume behaviour when economic outlook is poor. Every recession is different, and the one that we are expecting is also rather unique. We will discuss this issue further in the section.

Looking at the price movements over the past 27 years, we see very different price responses depending on the recession. The most recent recession due to Covid-19 saw a 6% dip in 2020 as compared to 2019. The Dot.com crash saw a 13% dip from 2000 to 2001. The most significant drop in prices was during the Asian Financial Crisis. From 1997 to 1998, shophouse prices dropped a whopping 36%. Interestingly, however, during the Global Financial Crisis price grew 1% from 2007 to 2008.

This presents a puzzle. Why did prices not fall during the Global Financial Crisis? It was a recession caused by the subprime mortgage crisis in the United States. Typically, real estate and finance related recessions tend to lead to very poor performance for real estate prices. We do not know the exact reason why prices remained stable for shophouses in 2008. Instead, we speculate that it is due to investors having strong holding power, learning from previous recessions to not overextend or overstretch their financial situation in light of an upcoming recession.

The Asian Financial Crisis in 1998 presents a different story. The real estate, finance, and currency markets of the region were experiencing a traumatic fight-or-die situation. Seeing the poor regional outlook on so many different markets (especially the currency markets) must have spooked investors holding their assets in Asia. Even if shophouse owners were local then, the dire economic situation might have convinced many investors to liquidate their assets and stay in cash or foreign currencies.

The bright side of history seems to suggest that price movements of shophouses due to recessions are less volatile now than in the past. The drawdowns are less intense, and shophouses were better able to hold their value through a recession. This is not to mention the spectacular recovery that the shophouse market was able to achieve after the recession.

After the Asian Financial Crisis in 1998, the price of shophouses increased by 32% in just one year (1999). The price performance of shophouses years after a recession has been strong. From 2008 to 2014, prices increased by 180% within 6 years of recovery from the Global Financial Crisis. This particular recovery saw one of the largest price movements in the shophouse market. More recently, shophouse prices increased by 33% from 2020 to 18 July 2022.

The shophouse price rebounded rather sharply after the past few recessions. For investors with large cash reserves or companies looking to grow their assets, shophouses are a prime property segment to pay attention to. With a high potential for good deals during the peak of the recession stress.

Volume movement typically correlates with price movement in the real estate market. However, sometimes this general trend does not apply. In the recent Covid-19 recession, transaction volume grew by 23% despite prices falling 6% (2019-2020). If anything, it might have meant that investors are getting savvier at “buying the dips”. In previous recessions, the Asian Financial Crisis in 1998 saw a reduction in transaction volume by 44%. The Dot.com crash saw a 1% reduction in transaction volume and the Global Financial Crisis saw a drop in volume by 56%.

The numbers make sense if we think about the increased difficulty in obtaining loans during the Asian and Global financial crises. However, as we have explained earlier, a considerable reduction in transaction volume might not exactly mean a huge drop in price. Rather, it hints at difficulty exiting or finding a willing buyer at your preferred price.

Similar to the price performance recovery after a recession, transaction volume recovers even more spectacularly. The year after the Asian Financial Crisis saw a 198% increase in transaction volume. The year after the covid recession saw a 76% increase in transaction volume. The transaction volume also increased by 68% within two years after the Global Financial Crisis. The sharp increase in transaction volume following a recession could mean that investor confidence in commercial properties with strong fundamentals is high. That translates into stronger demand, even if the prices get steeper.

An important quirk of the transaction volume data for shophouses is that resale transactions ever since 2014 have been relatively stable (with the exception of 2021). The transaction volume hovers around the 120 mark over the past 8 years, with some years showing higher price and volume movement synchronously. The substantially fewer transactions from 2014-2021 as compared to 1999-2013 is interesting, considering that this asset class does not have seller’s stamp duty and additional buyer’s stamp duty.

The shophouse segment is definitely one to pay attention to. Price drops during the recession have grown considerably weaker over time. While demand destruction and volume shrinkage might be a key liquidity concern for those investors who currently own a shophouse, these periods typically do not last more than a year. The time period after the recession is more fascinating, showing much higher increases in transaction volume and price appreciation.

Rather than focusing on fear, focus on opportunities. Over the next few years, it would be crucial to watch how the price movement corresponds with transaction volume. There is plenty of room for volume to spike up following the recovery from the upcoming recession. Pent up demand, cautious from the recessionary worries would hit the market running, pushing up price and volume. That being said, we are looking at 2-4 years into the future. What we have put forth in this article is still considered part speculation, part history.

Closing Thoughts

Shophouses, like other asset classes, do experience a dip in years of recession. However, the good news here is that the dips are getting smaller with each following recession. Interestingly, not every recession resulted in poor performance. In the year of the Global Financial Crisis, prices even increased by 1%.

Shophouses have been rather resilient in their recovery period following the recession, with strong moves upwards in both price and volume. Overall, prospective investors should focus on the growth opportunities following a recession (which seldom stretches beyond a year). Likewise, current owners of shophouses should also look for the better exit opportunities after the recovery rather than fear the collapse of the market.

Strong fundamentals support the continuation of growth in the Shophouse market. Investors would need to focus inwards on their own financial situation to make sure that key risks on leverage, liquidity and cash flows are properly managed in order to benefit from such a big investment decision.

If you like what we have discussed in this article, reach out to us to find out how a recession will impact your property investment journey. There are big implications in making the wrong decision when the market moves against you. So, contact us here to make sure you have your fingers on the pulse of the property markets.

The post Will Shophouses do well in a Recession? 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.

Shophouses are important to Singapore, because they showcase the creative ingenuity of our pioneers, as well as the several cultural influences of early Singapore. The evolution of shophouses paint a picture of Singapore’s history, revealing our transformation from a trading port into the city we know today.

Previously, we explored a brief history of Shophouses in Singapore, and looked at the 10 key elements of shophouses. In this article, we explore the 6 different styles of Shophouses you can find in Singapore, and take you through Singapore’s evolution from a vibrant trading port to the city state we know today. If you are a fan of shophouses or want to learn more about historical influences on Singapore architecture, this is an article that will pique your interest.

Shophouse Styles

While shophouses may seem largely uninformed due to their fundamental architectural features, these unique buildings do have their stylistic variations that largely reflect the architectural trends of each era.

Broadly categorised, you will find six architectural styles amongst shophouses in Singapore, differentiated based on the stylistic trends and characteristics that have influenced the design of these shophouses. These styles are widely known as Early, First Transitional, Late, Second Transitional, Art Deco, and Modern, with each adaption hinting at the changing needs of the nation, as well as the sociopolitical state of the country. Importantly, it also reveals the relative affluence of Singapore at that particular point in time.

#1 Early Shophouse Style (1840s-1900s)

The origins of the Singapore shophouse trace back to China, particularly the Guangdong and Fujian provinces where a majority of early immigrants to Singapore came from.

When the early builders bought land from the East India Company to build their homes in Singapore, the first shophouses were constructed on the southern end of the Singapore River. Constructed in the mid-1840s, these houses are known today as the Early Shophouse Style.

This style of homes are typically low in level, short and broader in build, with just one or two windows on the upper floor façade. The simpler frontage of the house is embellished with rectangular, timber-framed windows and doors with air vents between or above them for circulation. Shutters that allow air into the home are also evident in this style of shophouses. In terms of decorative features, ornamentation usually reflected the ethnic cultures of the immigrants who designed the home.

An example of such elementary shophouses are the block of four adjoining shophouses in Little India, along Jalan Besar road, which were being sold for $32 million in total back in 2018.

#2 First Transitional Shophouse Style (1900s – 1920s)

Most saliently, the first transitional shophouse saw an increase in height which allowed for a more vibrant and light-hearted front. While windows and doors remained timber-shutted, small plates of glass in these shutters were progressively frequent.  Ventilations holes also came in unique shapes such as squares and diamonds, adding to the aesthetic appeal of the shophouse. Windows moved away from purely rectangular frames, and also came in the forms of arches or semi-circular frames. Signs also became more prevalent, allowing for creative expression from the homeowners.

Shophouses located at the Pernankan Place, more commonly known as Emerald Hill shophouses, also depict the flair of shophouses built in the early 1900s – minimal in ornaments with but slightly more intricate windows carvings.

#3 Late Shophouse Style (1900s – 1940s)

Whilst its predecessors remained simple in style and minimal in ornaments, the late shophouse style is the most striking of them all, featuring extensive and elaborate stylistic features. In terms of decorative features, late shophouse styles host decorative and loud moulds, hand carved wood-work, as well as vibrant ornaments and glazed ceramic tiles. Design inspiration for these shophouses reflect expert craftsmanship and influence from myriad ethnic influences, helming from both the East and the West.

In addition, a key feature of this style is the reduction in wall space, to allow for more ventilation into the upper storeys. With three windows instead of the traditional two, much of the wall space was replaced with columns or pilasters. This allowed for more creative freedom and expression on the part of the builders.

Examples of such shophouses can perhaps be found at the shophouses built along Koo Seng Road in Joo Chiat, coming with embellished facades and added ornaments.

The Baba House, built in 1895 and later restored in 2007, showcase many of these elaborate stylistic features, and it one of the best conserved shophouses in Singapore. The careful and heritage centric restoration of the shophouse encapsulates not only the exterior of the shophouse, but indeed the essence of many shophouses in Singapore.

#4 Second Transitional Shophouse Style (Late 1930s)

Artistic styles often react to the previous elements and the second transitional style may have come about as a reaction to the exuberance of the late style shophouses. During this period, designs and ornamentation of the shophouses simplified greatly. Motifs of this era include transom windows, cross-braced windows, as well as simple geometric balustrade designs on the upper levels.

#5 Art Deco Shophouse Style (1930s – 1960s)

The Art Deco style persisted in streamlined classic motifs, and encouraged stylistic harmony between shophouses. The designs of these shophouses are done in a way that maintains visual coherence across the entire row of shophouses, with no one building standing out.

Elevation and proportion of each window, door, and balcony, were planned such that they complement one another. Street corner units were emphasised, since they marked the start and the end of each row of houses.

Hallmarks of this style are the simple geometric design on the facade. It is also typified by the streamlining of classical motifs such as capitals, arches and keystones without the use of decorative tiles.

Something unique to look out for is the plaque placed on the facade that tells you when the shophouse was constructed.

#6 Modern Shophouse Style (1950s – 1960s)

The economic boom and prosperity of Singapore and her citizens following World War II is aptly captured in the styles of the Modern Shophouse. A growing middle-class demanded better standards of living, including the facilities and trends that came with modern living.

This style of architecture features highly functional facades that use modern materials and put less emphasis on decorative ornaments. Its nature is a foreshadowing of the shift towards the brutalist buildings that 1970s Singapore was known for.

These shophouses use thin concrete fins and air vents on the facade that serve as ventilation while adding a modern visual appeal. Windows are proportioned to maintain the geometric design of the facade.

Conclusion

To the untrained eye, the many shophouses along Tanjong Katong may look the same as those in Tanjong Pagar – old two-storey buildings that are a bygone of Singapore’s past. However, if one looks closely, the styles of each shophouse tells a story of each decade of Singapore’s history – from an immigrant trading port, colonial town, and finally a rapidly developing city-state.

Shophouses may be relic of the past to some people, but for Singapore, these buildings serve more than just history lessons. Inside the decades old facade of many shophouses lively personalities – growing businesses, Michelin restaurants, and creative lifestyle studios.

So the next time you pass by a row of shophouses, keep a lookout for the details that make each one unique! If you are interested in viewing a shophouse, or have a shophouse you want us to market, please reach out at anytime to our team at PropertyLimBrothers.

The post Architectural Ingenuity: 6 Styles of Shophouses in Singapore appeared first on Insights by PropertyLimBrothers.