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Foreign buyers, family offices and funds prop up demand for shophouses

Foreign buyers, family offices and funds prop up demand for shophouses

Shophouses in the Chinatown area in Singapore. (Photo: Unsplash/ Rigel)

SINGAPORE: Continued interest from foreign buyers, family offices and institutional funds has sustained demand for shophouses in the first quarter of 2021, following a strong burst of buying activity at the end of last year.  

There were 51 transactions in the first quarter of this year totalling S$328.3 million, according to data recorded on Apr 6.

Although this is down from figures in the fourth quarter of 2020, which saw 57 sales to the tune of S$462.8 million, analysts said it is a good showing reflecting stable demand.

Sales in the final quarter of last year had surpassed pre-pandemic levels, spurred by pent-up demand, lower costs of borrowing and high liquidity in the market, according to a report by Knight Frank.

READ: Singapore private home prices up 2.9% in Q1: URA flash estimates

Coming into a new year, investors are still keen to invest in shophouses, which are seen as defensive assets that retain value even during a downturn, said Mr Clemence Lee, senior director of capital markets for Singapore at CBRE.

Specifically, Mr Lee said interest from buyers from China, Hong Kong and Malaysia, has been “growing strong” after it began picking up in the middle of last year.

He pointed out that several notable recent transactions were made by foreigners, such as a S$21.5 million deal for 22 and 23 Mosque Street, and a S$15.7 million sale for 81 South Bridge Road.

“In addition to the allure of shophouses as a defensive asset type which offers stability in uncertain times, the strong and stable Singapore currency is also one of their major considerations, of which investing in shophouses in Singapore will act as a hedge against currency risks in their home country," said Mr Lee.

“Foreign buyers also seek shophouses, as this asset offers them capital preservation and appreciation,” he added.

READ: Government looking to legislate new rules on lease agreements for retail spaces

Mr Steven Tan, senior director of investment services at Colliers, added that funds, family offices and co-living investors also continue to contribute to demand.

Family offices are private wealth management firms that serve ultra-high-net-worth households.

“With the COVID-19 vaccine campaign and numbers of community cases under control, investors are optimistic of a medium- to long-term market outlook. Investors realise now it is a good time to invest before prices start to escalate," he said.

Mr Tan also noted that shophouses have “an affordable entry point” for foreign investors looking to dabble in Singapore real estate, as these will not require additional buyer’s stamp duties.

Ms Mary Sai, an executive director at Knight Frank Singapore, echoed the observation that buyers are mostly family offices, investors and some foreign buyers - although she has noted an “increased presence and interest” in enquiries and viewings by family offices.

Like Mr Tan, Ms Sai attributed overall interest in shophouse investments to positive business sentiments, as vaccination programmes are being rolled out.

She added that investors are also being encouraged by falling vacancy rates, as more tenants and their employees return to the workplace, following an easing of COVID-19 rules at the workplace.

READ: Employees, companies adjust as more return to the workplace


Shophouses in the central business district remain the most popular – and this will likely continue, the experts said. 

Nevertheless, CBRE’s Mr Lee pointed out that interest in city fringe areas - such as Jalan Besar, Geylang and Joo Chiat - has been growing due to the pandemic.

“Suburban shophouses are typically more defensive as they cater predominately to the surrounding neighbourhood," he said.

“With more companies adopting hybrid working models going forward, there are high possibilities that people will visit the shops in the neighbourhood centres on days when they work from home, driving higher footfall to businesses housed in these shophouses."

WATCH: Dream Spaces: Breathing New Life Into A Shophouse

Compared to those in downtown areas, these city fringe shophouses also require smaller investment sums, while providing slightly higher yields, he said.

This makes them attractive to family offices “who prefer to diversify during this period and not to put all their eggs into one basket”.

Ms Tricia Song, who heads Collier’s research team, added that shophouse demand will likely rise with the growth of more family offices in Singapore, amid rising affluence in Asia.

The analysts added that another big factor that has long defined the market and which will continue to keep it vibrant is the tight supply of such shophouses in Singapore.

Source: CNA/cl(gs)


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