Can city fringe shophouses be safe havens in a shaken property market?

Gains in capital and rents boosted interest in properties in Jalan Besar, Kampong Glam, and Little India.

The implementation of new cooling measures on residential properties in Singapore could divert some investor attention to other property types. Some analysts have mentioned how shophouses are one of the most attractive properties to invest in given that they won’t be affected by higher Additional Buyer Stamp Duty (ABSD) rates.

In a media query, CBRE director of capital markets Sammi Lim explained that Singapore shophouses are highly sought after due to their limited supply, unique architecture and heritage value.

She said, “Ultra-high net worth individuals who take mid to long-term views on preserving their capital in particular, are attracted to shophouses as their capital values hold steady. Their scarcity and sound real estate fundamentals have bolstered investors’ confidence that shophouses are worthy of long-term investment.

When asked what types of shophouses are particularly attractive, Lim said they need to have a “winning combination” of a good location, solid frontage, a strong tenant profile, and the best use, be it for F&B, hospitality or retail use. “Shophouses which have been upgraded, or have potential for further asset enhancement works to be carried out, also stand out,” she added.

Moreover, those in the CBD are sought after for their prime locations. Notable purchases in Q1 included 10 shophouses for $82.5m in District 1 and 273 & 275 South Bridge Road for $26.5m.

Also read: Shophouse sales soared 281% to $478.6m in Q1

Lim added, “In recent years, city fringe locations like Jalan Besar, Kampong Glam, Little India, and locations in the east like Joo Chiat Road and East Coast Road have gained attention from investors due to their potential for capital gains and rental growth.” Notably, a shophouse in Jalan Besar was sold for $5.23m, marking one of the largest big-ticket items sold via auction in Q2.

Aside from shophouses, analysts also mentioned how strata offices could also be attractive in the midst of market disturbance. Strata office units tend to appeal to family offices or small and medium-sized businesses who invest to hedge against volatility in the office rental cycles, Lim commented.

“It is projected that office rents will continue to rise; and given the tight supply situation, some businesses invest in office strata units as a strategy to lock in their long-term operational costs,” she added.

Given all of these, Lim argued that investors who favour the shophouse and strata office markets tend to be seasoned investors who are attracted by the potential for capital appreciation and the yield play offered by these asset classes. “Whilst those who traditionally invest in residential properties may consider alternative asset classes, we do not expect a strong surge in demand for shophouses or strata offices simply because of higher ABSD,” she added.

Savvy investors will consider other factors such as office rental market, interest rate environment and macroeconomic conditions. “Ultimately, we foresee demand for shophouses and strata offices to remain consistent in the next 2-3 years against the backdrop of tight office supply and rising rents,” she concluded.