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Quaint, colourful and historic, conservation shophouses offer more than just a glimpse of Singapore’s rich cultural heritage.
By Nikki De Guzman
Conservation shophouses form the bulk of gazetted conservation buildings in Singapore. According to government data, of the 7,000 buildings that have been given conservation status, some 6,500 are shophouses.
Experts told CommercialGuru that these shophouses provide tenants with more affordable premises compared to strata units and upscale malls. They also feel that this property type guarantees landlords a quality product with stable and strong capital appreciation.
Aside from just being heritage buildings that reflect Singapore’s rich history, conservation shophouses have other things to offer.
Here, we look at conservation shophouses, what sets them apart from other shophouses, what makes them a good asset class, and what we can expect from these quaint but still relevant property type in future.
Conservation
Constructed between the 1840s and the 1960s, these shophouses formed the majority of the pre-independece urban fabric of several parts of Singapore, particularly the old city centre. This is one of the reasons why the Urban Redevelopment Authority (URA) has set up guidelines to protect these unique buildings.
The extent of shophouse conservation, as with all conservation buildings, varies by locality. Conservation shophouses are mostly found in the historical districts of Boat Quay, Chinatown, Kampong Glam, and Little India, as well as the secondary settlement areas of Jalan Besar, Beach Road, River Valley, Geylang and Joo Chiat.
The historic districts, which were first gazetted in 1989, are the oldest urban areas in Singapore. According to the URA’s Conservation Portal, these districts follow the strictest form of building conservation practiced here. These conservation guidelines include the restoration and retention of the outside structure, as well the rear service blocks and rear courts, to maintain the overall low-rise scale of the urban texture.
On the other hand, shophouses located in the secondary settlement areas follow more flexible conservation guidelines, enabling a mix of “late, art deco, and modern” shophouses to be found there. Shophouses in the secondary settlement areas can be conserved, and the entire building can have a new rear extension up to the maximum height allowed under the government’s Development Guide Plan for the area. Table 1 shows the guidelines of maximum rear extension heights that are allowed for shophouses in each of the secondary settlement areas.
An added (dis)advantage?
A common notion about conservation buildings is that they tend to be pricier in terms of both rents and sales.
One shophouse landlord said: “There is a (certain) premium in pricing associated with the intrinsic value of conservation shophouses, which are tied to their heritage and historical charm.”
“Commercial shophouses located in the conservation zones remove the uncertainty of acquisition; particularly so for shophouses that face the main road,” said Grace Ng, Deputy Managing Director at Colliers International. “For instance, shophouses at Syed Alwi Road experienced an increase in value when conservation plans were announced.
“Nonetheless, being in the conservation areas also mean that the owners are restricted in their renovations or addition-and-alteration works. They have to comply with the conservation guidelines – including rules on façade, among others, which may increase the cost of conservation,” she added.
Other experts revealed what factors affect rental and sale prices for this asset class.
“The supply of shophouses (both conservation and non-conservation) is so limited that they typically command a premium in the market. That’s why whether the shophouse is located in a conservation area or not is not significant when transactions are concerned,” said Christine Li, Director of Research at Cushman & Wakefield.
Li added that because rents are determined by the shophouse’s location, whether it is a conservation property or not “will not make much difference in terms of rental prices”.
Despite these premiums, analysts noted that shophouses still offer a more financially viable option for tenants who cannot afford the rents commanded by office buildings and retail malls, particularly those in prime locations.
“Shophouses are still sought after by office space occupiers especially if they are located in the CBD or at the CBD fringe,” said Li. “We are still seeing demand from those creative and communication, asset management (businesses), and most recently co-working operators looking at those spaces.”
Target market
Both conservation and non-conservation shophouses are popular for accommodating F&B outlets, boutique and budget hotels, and offices that do not need a space with Grade A building specifications.
“Although the shophouses are not suitable for every business type, it may just be the niche solution for SMEs, new start-ups, artistic production companies, and small office outfits in a competitive business environment. Such businesses might need to be located in the Central Area to be in close proximity to their customers,” said Ng.
According to Ng, the traditional hotspots for shophouses are at Duxton/Craig Road in the Tanjong Pagar area, the Chinatown area, the Kampung Glam area, as well as the Jalan Besar and Little India areas—where a large number of conservation shophouses can be found. She also highlighted the growing interest in the Joo Chiat area.
“These areas are popular due to their location, within or close to the CBD area, near to MRT (Tanjong Pagar/Telok Ayer) or within a place that is frequented by tourists (Chinatown/Little India), or are food areas (Joo Chiat),” added Ng.
Given the growing popularity of this unique and rather limited type of property, interest in shophouses have invariably spurred and lent support to rents and prices. This is in spite of the weakening sentiment in the overall property market in recent times, and the implementation of the Total Debt Servicing Ratio (TDSR) in June 2013.
Stability in numbers
Despite recent moderated demand, the median price of shophouses island-wide have remained generally stable. According to Knight Frank, shophouses outperformed commercial property market sales last year, as some investors continue to secure capital gains.
Citing data from the URA’s real estate information system (REALIS), Cushman & Wakefield said: “Even though transaction volume fell by 5.4 percent year-on-year from 112 caveats in 2014 to just 106 caveats (including 76 conservation shophouses) last year, the value of (these) transactions rose 9.6 percent to $664 million in 2015.”
A shophouse property management firm said the price escalation could be a reflection of the increasing interest by companies who have purchased these shophouses to have better control over occupancy costs.
Colliers backed this up by saying that conservation shophouses have gradually gained traction with investors who have realised that there is also healthy demand from the leasing market.
Maintained resilience
Given that conservation shophouses remain a coveted asset class, market watchers say the outlook for these properties remain positive in the near term.
“Despite the economic slowdown and impending increase in interest rates, investors (will still) purchase (these properties) for the yield and long-term capital appreciation due to their limited supply,” said Ng.
“Sale volume should maintain this year. Prices should hold firm, as vendors will not sell them unless their selling price is met, as they are savvy investors with “deep pockets” and strong holding power,” she added.
Cushman & Wakefield’s Li said: “The growing mismatch of pricing expectations between buyers and sellers are also holding back transactions. Furthermore, banks are now more cautious in lending, and financing could increasingly be more difficult for potential buyers as interest rates increase.”
As for rentals, analysts say that investors will continue to be able to rent them out, as the demand for shophouses is healthy due to their limited supply.
“Capital values of shophouses are likely to remain resilient due to the scarcity of the asset class. As such, total transaction values are expected to maintain and match 2015’s level,” Li added.
Since the start of 2016, 15 shophouses have been sold, of which six are conservation shophouses, REALIS data shows.
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