Investment in commercial property is getting increasingly popular in Singapore with interest in offices and factories. However, there is a segment of the commercial real estate that is often overlooked: shophouses.
Shophouses in Singapore are a special class of building with the ground floor as a commercial shop and residence on the upper floors. Shophouses, especially those gazetted as conservation buildings by the Urban Redevelopment Authority (URA) are very limited in supply with only about 6,500 of such properties available. The limited supply is one of the reasons why shophouses are highly sought after by savvy investors.
A piece of Singapore heritage
According to the URA, private shophouses were built between the 1840s until the 1960s. These shophouses formed the majority of the pre-World War II urban fabric of the old city centre, therefore, many investors are keen to own a piece of Singapore’s heritage.
Investing in a shophouse is unlike purchasing a residential property or a typical commercial property. Before venturing into this segment of the commercial market, you should take note of certain legal issues.
Shophouses in Singapore have various tenures and some even come with 999-year lease, some are freehold. As most of them were built before Singapore’s independence, it is important to check the lease remaining as that may affect your financing options and loan amount. As with all commercial properties, shophouses are not subject to Additional Buyer's Stamp Duty (ABSD). Although, you should take note that some shophouses come with residential use and therefore, ABSD may be payable on the residential component of the shophouse.
There are no restrictions on foreigners buying shophouses in Singapore, but they are not allowed to buy shophouses that permit residential use. Foreigners can nevertheless appeal to the Singapore Land Authority (SLA) for permission on a case by case basis.
Approved usage of shophouses
Before venturing into shophouse investments, it is best to determine the approved usage for the property. For shophouses with 2 or 3 floors, the approved use for each level may also differ. You may submit an application for the change of usage to the URA for consideration if you wish. Non-compliance of the approved usage is an offense you may face criminal prosecution.
Demand for shophouses are expected to remain robust and prices have been increasing steadily over the past twenty years. In 2020, the average price was about $6,750 psf compared with about $375 psf in 2000. Shophouses in the Central Business District (CBD) area of Chinatown, Telok Ayer, and Amoy Street are extremely popular due to the prime locations and these shophouses are often used as offices as opposed to conventional offices.
As popular as the shophouses in the CBD areas are, there is growing demand for shophouses in the city-fringe locations such as Jalan Besar, Kampong Glam, Little India and in the eastern part of Singapore, along East Coast Road and Joo Chiat Road. These shophouses can offer owners between 3,000 to 5,000 sqft of living space spread across two or three floors and are not far from the CBD, Marina Bay and Orchard Road.
Shophouses are a rare and unique investment opportunity for those who are keen to own a piece of Singapore’s history and heritage but there are certain rules and guidelines on what you can and cannot do when renovating the property.