Shophouse is One of the Lucrative Investments in Singapore Right Now.
Due to High Demand and Crazy Sale.
Every Now and then, there is Always a Shophouse SOLD, Not Only SOLD but at Crazy Price or New Record Price.
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Shophouses have turned the most alluring property investment in Singapore as investors have been busy picking up these properties which is sending their valuations to new heights.
The demand for shophouses which started in 2017 and went up in 2018 to 2019 refuses to die down as every property listed in the market is seeing intense competition among investors.
The ones with conservation status have been on the top of the priority list for the investors.
They have become the most preferred alternative real estate investment assets. Promising capital appreciation along with stability as the economy faces headwinds due to the trade standoff between United States and China have made them the safest bet for most investors.
The conservation shophouses most of which were built prior to the Second World War are located along the old places in Singapore form its rich historical heritage.
Gazetted for conservation they have been painstakingly restored and have assumed great demand among investors looking for steady returns from their investments.
With only 7,000 such units available across the island their limited supply is also propelling their higher demand and record prices.
The crowning jewel in the market is adjoining units of shophouses which are very rare to find and offer investors a wide range of development options to explore.
The larger space configurations benefit the investors as does economies of scale.
High rental yield and steady capital appreciation have been attracting investors from all quarters towards shophouses.
It is estimated that the rental yields for shophouse range between 2 and 3% in the general category and those with leasehold status start in the range of 3%.
Market watchers believe this will only go up as we have seen appreciation in the rental yields over the last few quarters.
One of the driving reasons behind the demand for shophouses has been the evolution of businesses in these areas.
Traditional retail is giving way to trendy business options such as boutique hotels, co-working spaces, Michelin-starred restaurants and artisanal cocktail bars.
This has increased the appeal for shophouse along with rental yield. Several high-net-worth individuals, real estate funds and family offices are increasingly looking at investing in these properties.
Another reason driving the growth of shophouse demand is the boom in the leading market.
This has pushed the demand for properties with street frontage in prime locations. The fact that these properties can be leased at lower rates compared to the bigger malls has made them lucrative for leasing.
The spill over from the office market have also been hunting for such leasing options which is shophouse leasing.
In 2018 shophouse leasing touched record high for the second consecutive year and it is expected to remain hot in the coming quarters.
Conservation shophouses have become a safe bet for ultra-high net worth individuals.
This community is looking at these as long-term investment options where they can invest their capital for the long term.
Many of these investors are using these attractive properties for their personal purposes.
Families that have held onto these estates for many generations are increasingly looking for opportunities to monetize these assets in a buoyant market.
This allows them to divest these properties and invest the money into core areas of their business. This has also lead to increasing number of transactions in this space over the last couple of years.
The demand for shophouses has been on a steady rise in Singapore in the last few quarters but it is District 1 and 2 that have turned into popular hotspots for the investors.
It is the conservation shophouses in Central Business District (CBD) and Chinatown that have seen record sales in the last few months.
Several factors are driving the rush for these shophouses with the main factor being their limited supply with only 1500 units or so being available along this prime location.
These shophouses have good potential for capital appreciation in medium and long term. According to data released by Urban Redevelopment Authority’s REALIS (Real Estate Information System) more than a quarter of all the shophouse transactions in 2018 were in these three districts.
The demand for conservation shophouses can be gauged from the fact that prices for freehold properties which range between S$1,800-2,300 psf Singaporean dollars in 2013-14 has risen to 3,000-4,000 psf by 2018.
As far as 99-year leasehold properties are concerned they have also seen a quantum jump from the S$1,500-1,700 psf range to S$2,300-2,800 psf during this period.
At present the demand for shophouses in this area is outstripping supply and hence there is expected to be a rise in prices unless the economy is hit by some unforeseen events.
District 7 is another area that has witnessed increased interest among investors.
With the prices of shophouses having hit the roof in District 1 and 2 many investors are eyeing places such as Middle Road, Kampong Glam Region and Beach Road.
In fact, this is currently the most luring alternative to the Central Business District.
We have seen several developments come up in the area that include South Beach, Concourse Skyline and City Gate which have added to the vibrancy of this district.
With several other developments in their various stages of completion there would be increased activity in commercial property transactions and shophouses in this area.
There has been a series of record transactions in the conservation shophouse space over the last year or so.
In a record sale the 31 Saik Keong Road was picked up by founder of Duck & Hippo Group, Mr. James Heng.
This S$14 million transaction set a new record for the rate paid clocking S$4,300 psf.
The rate here is based on the built-up area of the three-storey shophouse.
This freehold property though only has F&B approval for level one where Butcher Boy Restaurant is the current lease. The upper levels of the property currently house offices.
This is the latest addition to the glorious collection of conservation shophouses that Mr Heng already has.
This surpassed the earlier record set by 21 Boon Tat Street which incidentally he had acquired in September 2015 paying S$4,259 psf.
Cheek by Jowl a Michelin-starred restaurant holds the lease of the street level in this property while the attic and second level in the property is occupied by a bar Freehouse.
Market watchers have said this to be a new record breaker for conservation shophouses that fall within Districts 1 and 2.
The 21 Boon Tat Street property owned by Mr. Heng is considered to be a primer location.
District 1 locations that include Boon Tat Street, Amoy Street, Boat Quay and Club Street have been on investment radar for HNIs and foreign investors for quite some time.
They have also eyed District 2 areas that include parts of Chinatown, Kreta Ayer, Tras Street and Tanjong Pagar.
Mr Heng has been making all the news in the Singapore shophouse transactions over the last few years.
The latest acquisition is his sixth purchase of a conservation shophouse which started in 2017.
The other shophouses bought are located in Amoy Street, Teck Lim Road, Ann Siang Road and Liang Seah Street apart from 21 Boon Tat Street and 31 Saik Keong Road.
The risk proposition in commercial properties is higher as compared to residential investments as they require the owners to have a hand-on approach in management of these assets.
The investment quantum is higher too and financing is harder to get but yet they have become the preferred avenue for investment in current market.
It is the family offices especially those in family-owned businesses who have developed a new craze for investment in commercial properties especially shophouses.
According to experts the shophouses especially those enjoying conservation status along the Central Business District are enjoying prices of $7,000 – $9,000 for the land area and approximately $3,500 – $4,500 psf for the floor area.
There are several factors that have made this one of the lucrative investment avenues.
Being commercial properties, shophouses don’t require Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty (SSD) which are mandatory in case of residential assets.
The fact that foreign nationals are eligible to invest in Singapore commercial properties has also increased the size of the market with investors from Southeast Asia, Far East and other places of the world lining up to pick up shophouses and other commercial properties that hit the market.
The residential sector has seen a slump of sorts after cooling measures were announced in July 2018 which dampened the spirits and increased the risk and duties for the investors.
Singapore’s though slowing down is still in good health at the moment as compared to some of the other economies in Asia has also seen capital from other parts being invested into commercial properties in the market.
The outlook in the near term remains positive for commercial property investment in Singapore.
It is expected that many record-breaking deals would be sealed in the near future with shophouses being one of the perfect places to park capital and see it appreciate handsomely both over medium and long term.