SINGAPORE: Singapore’s remaining 6,500 colonial-era shophouses are becoming prime targets for ultra-wealthy investors looking to diversify their portfolios and secure a slice of the country’s architectural heritage. Despite a recent slowdown in transactions, these properties are now more coveted than ever, with buyers seeking both the prestige and long-term investment potential they offer.
Constructed between the 1840s and 1960s, shophouses served as combined residential and retail spaces, becoming an iconic feature of Singapore’s colonial history. However, with only a finite number of shophouses left standing, prices are being driven up by intense competition among affluent investors.
Kevin Chia, Assistant Associate Manager at OrangeTee & Tie told Singapore Business Review (SBR), “Supply is limited, and demand is very high. People are willing to pay good money for that.”
Recent data from Knight Frank shows that shophouse sales dropped in the first half of 2024, with 40 units sold for a total of $354 million, down from 79 units worth $728.9 million in the same period a year earlier.
However, real estate experts note that the allure of these properties remains strong due to their heritage status and strategic locations in the heart of Singapore.
Jeremy Lim, Executive Group District Director at Huttons Asia, emphasized the growing popularity of shophouses among businesses such as law firms, audit firms, and IT companies. “We see a lot of firms coming to shophouses to use them as offices because of the flexibility in terms of operating hours,” he told SBR, “They are part of the city-state’s heritage and are conserved by the Urban Redevelopment Authority, making them premium real estate.”
Shophouses are subject to stringent conservation guidelines, with authorities conducting inspections every five years to ensure proper maintenance. Any alterations to the buildings must be approved by the state, maintaining the architectural integrity of these heritage sites.
The conservation status of these properties, coupled with their prestigious locations, has attracted high-profile buyers, including Zhang Ying, the wife of Chinese billionaire Jack Ma. In February, she purchased three adjoining shophouses on Duxton Road for an estimated $45 to $50 million. Other prominent names such as Ricardo Portabella and investor Ray Dalio have also been linked to recent shophouse purchases.
Although shophouses are a status symbol among the ultra-wealthy, experts caution that they may not yield immediate high returns.
John Bin, Director of Capital Markets and Investment Services at Colliers, explained that investing in shophouses often involves significant upfront costs and can be low-yielding in the initial years. “In terms of cash flow, it may not be that attractive, but it’s more for capital preservation and increased value down the line,” he told SBR.
Due to high interest rates, many buyers are opting to pay in cash, underscoring the financial strength required to enter this niche market. The properties’ conservation status also means fewer options for renovations or conversions, further limiting short-term revenue potential.
Yet, the long-term investment potential is undeniable, with buyers confident that shophouses will appreciate in value due to their limited supply and the absence of additional buyer’s stamp duty for foreigners. According to Chia, “There is a small number who buy shophouses as a trophy, and they are not worried about how much return they get. Most people, however, are more concerned about the dollar and cents.”
Interest in shophouses has faced recent headwinds, particularly in Q4 2023, when sales dropped to their lowest level in 13 years following a $3 billion money laundering investigation linked to a dozen properties. Authorities arrested and charged at least 10 suspects, with some shophouses used as collateral for illegal loans. This incident, coupled with stricter bank lending practices, created a temporary market chill.
“Banks became stricter with their background checks, which made it harder to buy shophouses,” said Chia, “As a buyer, you just get very fed up and decide not to buy.”
Despite this, Chia remains optimistic about the future of shophouses as an investment class, noting that their true value only became apparent once the government began emphasizing their preservation.
Traditionally, shophouse investors have focused on prime districts like Chinatown, Boat Quay, and Havelock Road. But recent trends show growing interest in non-core areas such as Bugis and Districts 8, 12, and 14, covering Little India, Balestier, and Geylang, respectively. These districts, once considered less desirable, are now seen as emerging hotspots following government measures to clean up red-light districts and impose alcohol restrictions.
“Investors are becoming more savvy,” Chia said. “They know there are better districts out there.” With tenure periods in some locations extending up to 67 years, shophouses in these areas are viewed as a solid investment for those looking to buy at a lower entry price.
Ultimately, while the market for Singapore’s historic shophouses may fluctuate, their unique blend of heritage appeal and long-term investment potential continues to draw the interest of the world’s wealthiest individuals.