Savvy real estate investors are always on the lookout for alternative asset investments and investing in shophouses in Singapore is capturing investors’ attention.
According to a report by Knight Frank Singapore, total shophouse transaction value crossed the billion-dollar mark in 2021 and is expected to go even higher in 2022.
There were 244 such transactions last year and as of May this year, there were already more than 110 transactions!
It is little wonder that wealthy foreigners and family offices are betting their money on shophouses as a form of unique asset investment.
What are shophouses
Built by immigrants mainly from China in the early 18th century, shophouses were 2 storey terraced houses with the ground floor as a business and the upper floor as a residence.
One of the more unique features of shophouses is the sheltered pedestrian walkway known as the “five-foot way” at the front.
The “five-foot way” forms a continuous covered walkway, providing much-needed shelter from the scorching sun and the pouring rain. In the past, numerous vendors such as cobblers and barbers and street hawkers would ply their trade along these walkways.
Private conserved shophouses are in the limelight right now. However, there is another similar but overlooked shophouse category that has been quietly gaining traction too. These are the HDB shophouses that you can invest in as well.
HDB shophouses can be found in many HDB estates and are always in demand as businesses look to expand their operations into the heartlands.
HDB shophouses are conveniently located and can be used for a number of trades and services as they have quite a fair bit of space (about 1,200 sqft) and cost less to rent compared with malls and shopping centres. They are also visible and attract a steady stream of customers.
Besides the aesthetic beauty and unique architecture, private shophouses, especially those gazetted as conservation buildings by the Urban Redevelopment Authority (URA), are very limited in supply with only about 6,500 units available.
Many of them are found in the central part of Singapore such as Tanjong Pagar, Duxton, Amoy Street and Chinatown which makes them very attractive for F&B companies looking for new locations to expand their business.
Shophouses are more flexible than residential properties as they offer investors the opportunity to convert the spaces into offices, boutique hotels, restaurants, residential properties etc.
Likewise, for HDB shophouses, we have been seeing new uses for such properties sprouting up in the heartlands, featuring gyms, artisan coffee shops and boutique bookstores.
In a recent Straits Times article, it was reported that a couple in their 70s, turned down an offer of a “few millions” for their shophouse along Tanjong Katong Road. The couple inherited the business from the husband’s father and have served in the neighbourhood since the early 1960s.
According to data from the Urban Redevelopment Authority (URA), shophouse units along Tanjong Katong Road transacted at about $1,500 psf which is a better investment cost-wise when compared to new launch condos in the heartlands that start from $2,000 psf.
Who can buy
There are no restrictions on foreigners buying shophouses strictly for commercial use in Singapore, but they are not allowed to buy shophouses that permit residential use.
However, they can make an appeal to the Singapore Land Authority (SLA) for permission on a case-by-case basis.
As with all commercial properties, you do not need to pay ABSD for fully commercial shophouses, which makes great investment sense.
However, for shophouses with residential usage, ABSD will be prorated based on the area for residential use.
Good investment opportunity?
Demand for shophouses, regardless of private or HDB, is becoming increasingly popular and capital value has been trending upwards over the past twenty years. Shophouses can offer a steady recurring income.
According to research by Propnex, Singapore’s largest property agency with the most number of property agents, private commercial shophouses may fetch a rental yield of between 1.8% and 3%.
MOGUL.sg research showed that the current rental yield for HDB commercial shophouses is in the region of 3% - 4%.
These rental yields are on par with typical residential properties and definitely more attractive compared with a 1% rental yield of landed property or a GCB (good class bungalow).
Besides saving on ABSD and getting a higher rental yield, shophouses are considered a good investment opportunity due to the limited supply and favourable locations. Notwithstanding the high demand for private shophouses, especially those at Tanjong Pagar, Clarke Quay and Chinatown area, MOGUL.sg sees a good rising interest in HDB commercial shophouses across some bustling heartlands like Jurong East, Clementi and Tampines.
Due to the limited number of units available and expected high footfall (post-pandemic), shophouses are expected to maintain their value during an economic downturn and see capital gains in the long run.
Better visibility & rentability
Is it better to invest in a shophouse or a retail shop/office?
Shophouses are along street levels and you get much better visibility and footfall comparable to shopping malls.
If conveniently located in the CBD or heartland centres, the daily lunch and after-work crowd would definitely be a boon to your business. Real estate industry experts expect to see the shophouse market remain resilient and buying interest remain stable.
If you are keen to invest in a shophouse, MOGUL.sg has gained exclusive rights to a number of HDB shophouses which will be our pleasure to share with you.
Contact our sales team via Whatsapp for an immediate appointment and presentation.