Singapore Shophouse Market Continues Its Red Hot Streak with SGD30 Million Deals

Singapore Shophouse Market Continues Its Red Hot Streak : Singapore’s shophouses have long been popular and profitable real estate investments, but recent sales have hit new highs, with several changing hands for over S$30 million. These record-shattering deals highlight the demand for Singapore’s iconic shophouses.

A shophouse along Boat Quay recently sold for S$30 million, setting a new benchmark. Similarly, a shophouse on South Bridge Road transacted at S$31 million. Experts say rising land costs and limited supply amid strong demand from investors and owner-occupiers are driving prices.

In the year’s largest deal, a Chinese investor acquired a row of six shophouses in Boat Quay for S$80 million, with another river-facing unit in the area selling for S$30 million in May.

Prices for shophouses have surged to a record S$5,500 per square foot, doubling the rates of Manhattan’s Upper Fifth Avenue, the world’s most expensive shopping street in 2022. Sales of shophouses witnessed a 44 per cent increase, totaling S$415 million in the second quarter from the preceding one, as reported by Knight Frank.

Why Singapore Shophouse Market Continues Its Red Hot Streak

Shophouses appeal to investors due to their mixed-use format. The first floor serves as retail space while the upper floors are residential. This allows for rental income from business tenants as well as potential residential space. Additionally, their location in heritage districts near the CBD appeals to businesses seeking a unique character.

Singapore’s cache of historic shophouses granted conservation status amounts to roughly 6,500. Constructed during the colonial era spanning from the 1840s to the 1960s, these structures initially served as abodes for merchants and their families, with ground-level stores and upper-floor living quarters. As waves of immigrants flocked to Singapore, shophouses were repurposed as crowded, communal residences.

In a narrative akin to the rejuvenation of Brooklyn’s brownstones and London’s Victorian terraces, these rows have transitioned from urban remnants to prized symbols of sophisticated urban living. Adorned with vibrant facades, intricate plasterwork, and sheltered walkways, they have become sought-after locations for trendy restaurants, bars, and boutique hotels, thriving post-pandemic as tourism makes a comeback in the city-state.

Further fueling the demand is Singapore’s measures to regulate housing costs. In April, the city-state introduced additional levies for locals purchasing second homes and for foreign buyers acquiring any residential properties, in a bid to temper a sizzling real estate market. Shophouses, predominantly classified as commercial, bypass these regulations.

Neighbourhoods are changed with these hot deals

Renovating a shophouse is often a costly and time-intensive endeavor due to the age of the buildings and stringent conservation guidelines. Following Singapore’s independence in 1965, many traditional villages and low-rise structures made way for modernization. However, in the 1980s and ’90s, the city-state began prioritizing the preservation of its historical heritage, leading to the conservation of buildings in districts such as Chinatown and Little India.

The once-seedy Joo Chiat neighborhood, previously associated with brothels and dilapidated shophouses, has transformed into one of Singapore’s liveliest and most Instagrammable areas. On weekends, crowds of youngsters and tourists can be found strolling along its candy-colored shophouse streets, capturing selfies.

In April, fashion brand Coach inaugurated its largest concept store globally in a three-story shophouse. Many of the island’s premier dining destinations are also nestled in shophouses, including Bjorn Frantzen’s three-Michelin-starred Zen and the popular local eatery Kok Sen. Retail outlets are looking to move away from malls—they prefer shophouses as they allow for curated, distinctive experiences that deviate from the mainstream.

Rising Shophouse prices creates a dilemma

However, rising shophouse prices present a dilemma for investors – are current valuations justified or overly speculative? While rents have risen, they have not kept pace with capital values. And conservation rules limit redevelopment potential.

Investors also face competition from deep-pocketed family offices and wealthy tycoons seeking trophy assets. More rational pricing may return if rising interest rates and economic uncertainty dampen sentiment. Nonetheless, Singapore’s strict land policies and growing capital inflows suggest the best shophouses will remain sought-after assets.

The government hasn’t turned a blind eye to this squeeze. In July, it introduced further tightening of real estate regulations, mandating that foreigners seek approval to purchase properties designed for both commercial and residential use. However, this move is expected to have limited impact, as it affects only about 5 per cent of shophouses.

Though no longer cheap, Singapore’s iconic shophouses still offer cachet and long-term potential. Savvy investors will weigh potential rental income and redevelopment opportunities against downside risks before committing to deals at current pricing levels. Nonetheless, these historic mixed-use properties continue to shine bright as highly-prized real estate jewels.

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