SHOPHOUSES are a unique and interesting asset class in Singapore. This asset class, comprising narrow small terraced houses with a sheltered 'five-foot' pathway in front, is an icon of Singapore's architectural history.
Many of these shophouse units were built prior to World World 2 and located in the old city centres.
Their rich historical heritage has resulted in many of them being gazetted for conservation, carefully restored and conserved according to regulatory guidelines.
Due to the rarity and cultural value of shophouses, interest in this asset class has been very consistent. Property companies and private equity funds have shown heightened interest in this niche market in the past year, and we expect interest levels to remain similar in 2018.
Ultra-high net worth individuals who take long-term views on preserving their capital in particular, are attracted to shophouses as they hold strong value. Investors can also use them for personal purposes.
Many of them see the intrinsic value in buying into a piece of heritage, and this asset is highly prized in land-scarce Singapore.
Freehold shophouses currently generate net rental yields in the range of 2 per cent to 3 per cent, while those for leasehold ones start from about 3 per cent onwards, depending on the property, tenure, and so on.
In terms of transaction prices, compared to 2016, the total transacted volume in terms of value and the number of transactions have increased in 2017, although this is still below the numbers locked in during 2013, which was considered one of the most active years historically for this asset class.
When available in the market, adjoining units of shophouses are increasingly popular as they are rarer to come by and the buyers can explore various usages for the premises by tapping the larger space configurations and economies of scale.
We have observed in the market that there are more estate sales among families who have owned the asset for generations and are looking to divest the shophouses and redistribute the funds. These families are focused on their non-property core business and are looking to make better use of their funds by cashing out.
Shophouse sellers also include funds who want to enjoy the capital upside from a purchase made five to 10 years ago.
The data on price movements only track general price movements, but in general, prices have remained stable, with a few stand-out assets traded at higher price points. Price points vary depending on the highest value and the best use in a specific location.
Shophouses which command a premium have a winning combination of a good location, solid frontage, a strong tenant profile, and the best use, be it for food and beverage, hospitality or retail use. Shophouses which have been upgraded through extensive asset enhancements, or have potential for further enhancement works to be carried out, also stand out.
Overall, investing in shophouses in Singapore is lucrative and future-proof due to the scarcity of this asset class that is able to hold its value even during economic downturns.
Source: Business Times, 3 Feb 2018