Liberty House and surrounding shophouses along Club Street.
Market watchers said prices could go up by around 10 per cent based on location.
Liberty House and surrounding shophouses along Club Street.
SINGAPORE: The prices of commercial shophouses are expected to increase on the back of higher demand and limited supply.
While higher interest rates have dampened sales activity in the first half of the year, analysts said an anticipated moderation in rates in the coming months will likely see demand rebound.
Market watchers said prices could go up by around 10 per cent based on location.
This is because more global investors are looking to safe haven assets amid economic uncertainties and projections of rental upside.
The latest property cooling measures are also a contributing factor, prompting some affected investors such as foreign buyers to turn to commercial properties instead of residential ones.
Six shophouses were sold for more than S$20 million in the first half of the year.
Among them was Liberty House at 51 Club Street, a 28,876 sq ft five-storey commercial building. It sold for S$92.2 million in April, making it the highest transacted shophouse this year.
Located in the same area, a smaller 1,259 sq ft shophouse at 14 Ann Siang Road was put up for sale last week at S$22 million.
The property’s managing agent Richard Tan said there has been strong interest from local and foreign investors.
“Over the last one week, I had at least five inquiries. I had two viewings – one local and one from a foreigner,” said Mr Tan, who is the founder of realtor PropNex Shophouses Elites.
Overseas investors make up about a third of shophouse sales in Singapore.
Market watchers said they are mainly from China, Indonesia and Malaysia.
Analysts said this pool of investors is expected to increase following the latest property curbs, which is driving foreign interest from residential properties to the commercial shophouse market.
Additional buyer’s stamp duty (ABSD) for foreigners doubled to 60 per cent in April, making it substantially more expensive to purchase a residential property.
Shophouses zoned for commercial purposes, however, are not subject to either ABSD or the seller’s stamp duty (SSD).
“Under the increased ABSD, those who are affected such as foreign investors and companies will be looking at asset classes like shophouses,” said ERA Realty Network’s key executive officer Eugene Lim.
“They are attractive because they are not too big a capital outlay and yet allows the investor to invest in the Singapore property market.”
Huttons Real Estate Group’s senior research director Lee Sze Teck said: “There are lesser restrictions on ownership for commercial shophouses … (even if) you buy a second one. Moving forward, we think there will be increasing interest in the shophouse market.”
For a shophouse with mixed commercial and residential use, however, the residential component is still subject to ABSD for foreign investors. This also applies to local buyers who already own a residential property in Singapore.
Furthermore, Singaporeans, permanent residents and foreigners are all subject to the buyer’s stamp duty (BSD) of up to 6 per cent for the residential component and up to 5 per cent of the commercial component of the shophouse.
Market watchers said a limited supply of such properties has also led owners to raise prices due to higher offers from buyers.
With just about 6,500 conserved shophouses in Singapore, the quantity is not enough to meet the appetites of investors.
“The main attraction of shophouses is scarcity,” said Mr Lim. “Shophouses are seen as a limited supply asset. They are seen as a good form of capital appreciation as well as wealth preservation.”
About 60 per cent of these shophouses are located in central areas like Rochor, Outram and Downtown core, which command higher prices.
National University of Singapore (NUS) Business School professor Sing Tien Foo said that while there is increasing demand for shophouses, no new shophouses are being built.
“It’s a very niche market. Unless people are putting them on the market for sale, otherwise there is no new supply available for new investors. The supply is very, very short,” he noted.
Experts added that owners are not in a hurry to sell their shophouses, as many see them as a limited “trophy asset” and are expecting prices to rise in the coming months.
“Many who buy shophouses also tend to hold them for a longer term. So investment opportunities are limited and competitive as well,” said Prof Sing, who is also the NUS department of real estate’s provost's chair.
“Hence, we see shophouses transacted at higher and higher prices.”