Following the positive outlook in the office and retail property sectors, interest in shophouses have picked up once more. These rare properties have always been the apple of many investors’ eyes, but they are however not many to go around.
Exciting investment opportunities outside of the residential market
Some analysts are predicting exciting times ahead for the commercial market as international and local businesses look to expand or establish their presence in times of growth. Shophouses do tend to have good rental potential, especially with eateries and small businesses or startups picking them up quickly. A shophouse in a good location could often see continued rental possibilities.
The shophouse segment is usually driven by demand from high net-worth individuals or boutique family funds. The transaction value and volume for this segment rose last year. Most shophouses were built between the 1840s and 1960s, with long and narrow terraced structures. Their floor sizes range from 1,000 to 1,500 sq ft.
Most shophouses are clustered in a few areas:
- Central (Tanjong Pagar, Chinatown, Upper Circular Road, Boat Quay)
- Kampong Glam
- Little India
- Joo Chiat
- Tiong Bahru
The stock of shophouses largely held by investors not in a hurry to sell
In 2017, the demand for shophouses picked up significantly. 148 transactions were made, up 38.4% from 2016. While the numbers are still lower than the 280 deals made between 2010 and 2012, the momentum looks set to continue this year. Prices are also more palatable now as the median price has since fallen to $3,301 psf last year.
The media prices peaked in 2013 at $3,824 psf in 2014 and have fallen 13.7%, likely due to the pull-back in demand following the implementation of the Total Debt Servicing Ratio.
Investors who are holding on to shophouse units are however unlikely to sell unless the price is absolutely right. These owners usually have deep pockets and recognize the value of a shophouse unit. However, should the opportunity arise to sell off adjoining units for a premium, some investors who are looking to redistribute funds or cash out after a long investment cycle might be tempted to budge.
It is not easy to get your hands on a shophouse unit, but they are worthy core assets as they have historic value, are centrally located and provide stable cash-flow.