Most of the attention in the Singapore property market has been focused on the residential sector. With the imposition of heftier Additional Buyer’s stamp Duty (ABSD) on foreign and corporate buyers of private residential properties, liquidity is starting to find another path of least resistance to investment. That path is towards conservation shophouses.
Most of the attention in the Singapore property market has been focused on the residential sector. With the imposition of heftier Additional Buyer’s stamp Duty (ABSD) on foreign and corporate buyers of private residential properties, liquidity is starting to find another path of least resistance to investment. That path is towards conservation shophouses.
What are conservation shophouses and where are they located?
Conservation shophouses are a prevalent building typology in Singapore’s architectural and built heritage. There are over 6,500 of them in Singapore, mainly located in the city centre and around its fringes. These were constructed between the 1840’s and the 1960’s and are generally two- to three-storey high, built in contiguous blocks with common party walls. Most of the conservation shophouses fall within designated conservation districts, of which there are four distinct categories:
- The Historic Districts, which include Boat Quay, Chinatown, Kampong Glam and Little India, are among the city’s oldest areas. Most of the buildings in these areas are still intact, and the entire property must be retained and restored.
- The Residential Historic Districts at Blair Plain, Cairnhill and Emerald Hill are residential areas which were developed close to the city centre. A new rear extension, lower than the main roof, can be built for greater flexibility in adapting the building for modern living.
- The Secondary Settlements, such as Geylang and Joo Chiat, are areas which developed later when people started to move out of the crowded city to live at the fringe. These are typically areas where there are already many new developments, so emphasis is placed on retention of the streetscape. In these areas, a new rear extension up to the maximum height allowed for the area can be built.
- The bungalows are detached buildings, which come in a variety of architectural styles and are predominantly for residential use. New extensions can be built at the side and rear of the bungalow. Large sites can be subdivided for additional new developments.
The major concern around conservation shophouses is their low yield. Most offer gross yields of less than 3% and, for the prime units, the asking price translates to yields of below 2%. However, one should remember that the supply of such units is limited and, as mentioned before, there are only 6,500 of them in Singapore. The scarcity factor places a price premium on such investments, much like art and antique pieces have no rental yield, and good class bungalows (about 2,500of them in Singapore) have yields below 1%. We believe that, over time, these concerns will subside, as potential investors become more educated about the benefits of investing in a scarce real estate asset type.
