Singapore’s shophouses — hotter than Fifth Avenue?

Singaporean heritage shophouses are enjoying roof-raising demand. Private equity giant Ray Dalio’s family office has bought in. The wife of Alibaba founder Jack Ma has acquired several. The infamous Fujian Gang of money launderers from China and their alleged associates bought a whole portfolio. 

Comparable to brownstones in New York’s Brooklyn or properties in London’s Soho, the Singaporean colonial buildings have been fetching record prices as they get snapped up by family offices, billionaires and local developers.

Located on prime land, exempt from the hefty taxes foreign buyers must pay to buy residential property and with a finite supply of roughly 6,700, commercial shophouse sales surged to an all-time high of S$1.9bn ($1.41bn) in 2021, according to data from Knight Frank, with the trend continuing in 2022.

And while sales by volume dropped in 2023, they remained above pre-pandemic levels. So do prices. Shophouses in the city centre have been selling for S$5,000-S$6,000 per sq ft — in some cases as much as S$8,000, say estate agents. That is comparable to recent deals by Prada or Gucci’s parent company Kering on New York’s Fifth Avenue — among the world’s most expensive retail spaces.

The new owners want top tenants. Coach, Dior, boutique hotels and Michelin star restaurants are opening inside shophouses. “Shophouses were one of the only asset classes whose value continued to rise even during the pandemic,” says Yap Hui Yee, a director at estate agency Savills, pointing to the prestige of owning a part of Singapore history. 

Then, last August, Singapore police unveiled a S$3bn money-laundering investigation — the city-state’s largest ever — involving individuals suspected of links to illicit online gambling from mainland China. Along with gold bars, luxury cars and handbags, the so-called Fujian Gang and their associates had also bought shophouses with the allegedly laundered funds. 

Some gloriously ornamented shophouses are still gathering dust as they wait to be sold to recover bank loans as part of the investigation. 

“I see shophouses now as having a pre-AML (anti money laundering) period versus a post-AML period. It has affected transaction volumes . . . although prices are holding firm,” Yap says.

The money-laundering case, along with rapid gentrification, has reinforced to many people the need to nurture a rich seam of Singaporean heritage. 

The Singapore shophouse was not always in such high demand. It has come a long way from its roots in ancient China. The buildings started life as the homes of merchants and their families in the 1840s. The archetypal shophouse had the shop premises on the ground floor while the family often occupied the rear of the building and the rooms on the floors above. They were built with front verandas contiguous with their neighbours. In a city prone to sudden tropical thunderstorms and harsh sun, this created a continuous covered walkway along which to stroll. They were still being built until as late as the 1960s. 

When Singapore gained independence from Malaysia in 1965, shophouses were on the way out. Entire streets of them were demolished to make way for glittering new office blocks and shopping centres. It was only in the 1980s that the government had a shift in attitude towards old buildings, culminating in the Urban Redevelopment Authority’s Conservation Master Plan of 1989. This involved gazetting city centre neighbourhoods — including Chinatown — as historic and conservation areas. 

“Many people, including within the government, felt a lack of connection to the past and the country becoming sterile. So the government stepped in,” says Clemence Lee, an executive director at property company CBRE.

Even so, it is only in the past decade or so that shophouses have become hot property. Local developers such as 8M Real Estate, Clifton Partners and others started buying commercial shophouses to reinvent them into boutique hotels and jazzy bars and restaurants. Their upper storeys became especially popular as a more unique office space option than the usual skyscrapers.  

“When I started buying shophouses in 2014 they were undervalued,” says Ashish Manchharam, the founder of 8M Real Estate, adding that they were “under-appreciated and seen as cheap space”. 

“Places like Soho in London were using heritage space in creative and imaginative ways, I wasn’t seeing that in Singapore,” says Manchharam, who has since sold his stake in 8M.

Among 8M’s projects is boutique hotel 21 Carpenter, a block of four adjoining shophouses that was once a remittance house for early immigrants. The hotel merges past and present: for example, the rooms incorporate quotes from letters immigrants wrote home to family members.

A decade ago you could buy a shophouse for S$3mn-S$4mn but now you are looking at S$15mn-S$20mn per shophouse

Investor demand for shophouses as a defensive asset class soared during the pandemic — “even for me now the prices are pretty expensive”, Manchharam says. At the same time, draconian new laws imposed by Beijing on Hong Kong lessened the latter’s appeal as an international business hub, making its longtime rival Singapore a natural alternative. 

Already a stable, low-tax and business-friendly destination, Singapore experienced record inflows of capital from family offices and wealthy individuals — especially from China — eager to park money in a safe place. New investment schemes, such as single family office regimes, helped shift the global centre of gravity for the world’s wealthiest towards the city-state. The number of such offices, which manage and invest a single family’s private wealth, exploded from just a handful in 2018 to more than 1,500 by the end of 2022.

Much of this new capital found its way into property. Foreigners’ ability to buy residential landed property in Singapore is limited to certain areas with certain permissions, so the appeal of commercial shophouses grew, especially freehold ones. A boost to dealmaking came from government action. In April 2023 it doubled the additional buyers’ stamp duty (ABSD) for foreigners from 30 per cent to 60 per cent as part of measures to cool the housing market. Most shophouses are zoned commercial so foreigners do not have to pay the higher fees associated with residential purchases. 

“A decade ago you could buy a shophouse for S$5mn-S$8mn in the city centre but now you are looking at S$15mn-S$20mn per shophouse,” says Mary Sai, an executive director at Knight Frank specialising in shophouses, citing their exemption from both ABSD and sellers’ stamp duty. 

That changed in August last year when Singaporean authorities arrested and charged 10 individuals, all holding Chinese passports, with money laundering. In December, 10 shophouses owned by two Chinese nationals with alleged ties to one of the accused were put on the market by DBS bank to recover repayments of its loans.

“There has been a slowdown from August onwards due to the money-laundering situation and more stringent checks,” Sai says. Sales of commercial shophouses fell to S$95mn in the final three months of 2023, a 70 per cent drop on the same period the year before and the lowest quarter in 13 years, according to agency PropNex. High interest rates, which increase the cost of mortgages, have also contributed to the slowdown.

However, many longtime tenants in heritage and tourist areas have still had to pay much higher rents or move because of new landlords who want to see a return on the millions of dollars they paid. 

Singaporean Aileen Tan has seven or eight businesses located around culturally rich Kampong Glam in heritage shophouses, including the popular Blu Jaz café. The area borders Little India and is known for its textiles shops and local cuisine eateries as much as its bars and cafés. She has been trying to engage government authorities to help shield tenants and protect communities.

“Money from wealthy foreigners is going into shophouses and there has been a lot of flipping for profits and it is affecting tenants,” she says. Tan is on her third landlord for a property that she rented two years ago. She is worried about the increase the latest owner will want for her upcoming renewal. 

Tan has been doing business in the area for 20 years, working with other tenants in encouraging live music or getting local artist friends to paint murals on the sides of shophouses along the famous Haji Lane. But the mix has changed, and new tenants such as photo booths and souvenir chains do not care about the heritage aspect of shophouses, she argues.

The slowdown in the market for shophouses presents an opportunity, say local industry players, to think about the role shophouses should play within communities. More institutional owners and landlords are expanding efforts to showcase the buildings’ heritage value. In 2020, for example, the wealthy Spanish Portabella family acquired a residential shophouse on Neil Road with the intention of donating it to support research and training in conserving shophouses. 

Fang Low, founder and chief executive of Figment, works with owners of commercial and residential shophouses, encouraging them to “bring back the soul” to shophouses by working with artists and other creatives, often converting them back to residences. One of his projects has been repurposing shophouses that became karaoke bars and massage parlours in one of Singapore’s former red light districts. “Shophouses were homes to begin with and people forget you can live in these.”

Low grew up in a shophouse and returned from overseas alarmed at the “copied and pasted” urban landscape of condominiums and government housing blocks. “We work with mainly foreign families but I am seeing more local Singaporeans now as appreciation grows for shophouses’ heritage,” Low says. 

One such Singaporean is Andy Lim, of JL Family Office, who says he got into the shophouse market “by chance” during the pandemic. He bought one shophouse, now home to his family office on Club Street, in 2020, and a another across the road in 2021 — even as prices continued to rise. 

“I realised there was a lot more history in this space than in the real estate I had been doing. In school I never learnt anything about this heritage,” Lim says. 

Such owners are willing to pay the higher prices that shophouses now command. Lim’s second shophouse cost S$26mn, compared with S$21.8mn when it last sold in 2018. But rather than renting the second property out to the highest-paying tenant, Lim has kept the space free for the public to use as a “social impact hub”. Community groups are among those that use the building for minimal cost, with Lim giving up roughly S$500,000 in annual market rent.

Vivienne Soon, director of Breezeway Development, which owns multiple conservation shophouses, says on balance having brands — it hosted a pop-up by Coach in one of its shophouses — brings in more of the public to shophouses. But the company also charges an under-market rental for some heritage or cultural tenants.

“It feels churlish to say this because we, like many others, have enjoyed a meteoric rise in capital values, but I worry about gentrification at breakneck pace,” says Soon. “Pure gentrification is not a great story for heritage.”

Another local group that has been buying is Meir Collective, a Singaporean real estate investment and management company. Sebestian Soh, who returned from a stint in London with a newfound appreciation for the beauty of Singapore shophouses, convinced his father, a property developer, to invest family money in the market in 2018. 

As well as buying, selling and conserving heritage real estate — Meir now has a portfolio of 21 shophouses — Soh and his team help owners manage their properties including giving conservation advice. Soh’s first shophouse purchase is now home to his family office.

Soh says that while the market has taken a pause after the money-laundering investigation, and as some properties are sold to pay back loans, he expects demand will recover. But he hopes companies like Meir can help the flood of new shophouse owners appreciate their value to Singapore.

“It can be tough to navigate the government’s planning controls. But it is important to work together as shophouses become increasingly institutionalised,” he says. “Before there was Singapore there were shophouses. Everything else is new. But if everything is new and sterile, we have nothing.”

Mercedes Ruehl is the Financial Times’ Singapore and South-East Asia correspondent

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