Is A Conservation Property A Valuable Investment?

Investing in property means adding an asset to your portfolio that should see rental demand or its value appreciate over time. Conserved properties could be your ticket to that.

In Singapore, where dozens of properties are built or redeveloped every year, conservation buildings are a rare breed that are guaranteed to stay as they are for as long as the city-state exists. Over 7,000 such buildings have been conserved since the 1970s.

Are conservation properties the right investment for you? Here is what to think about before deciding whether to park your funds into one.

What are conserved properties?

Buildings that have architectural, historical, and cultural significance are gazetted for conservation by the Urban Redevelopment Authority (URA), a statutory board under the Ministry of National Development.

A building granted conservation status cannot be demolished and redeveloped. Owners have to seek permission from the URA if they want to renovate the place or set up certain types of businesses in the building.

Conserved properties include shophouses, terrace houses, and bungalows that could be zoned for residential or commercial use, or a mix of both.

Over 6,500 conserved properties in Singapore are shophouses built between the early 1800s and mid 1900s. They originally housed businesses on the ground floors and apartments above. These days, they are usually occupied by offices, hotels, and retail or food & beverage (F&B) establishments, although some are used as residences. You can check the URA Master Plan to see how each shophouse is zoned.

What value do they hold as investments?

Shophouse transactions have risen since 2019. They typically offer net yields between 3% to 3.5% for those with less than 99 years remaining on their lease, and 2% to 3% for those with 999-year or freehold leases.

Rents have also stayed healthy. According to Colliers, rents for centrally located shophouses range from $6 to $12 per square foot (psf) for ground floor units, and $3 to $7 psf for upper floors.

Shophouses are sought after because of their locations. They are usually in prime areas like the central business district and Orchard, or in popular residential areas like River Valley and Joo Chiat.

Their limited supply, storied histories, and charm also contribute to their worth.

Commercial shophouses can also be used for a range of uses, compared to office buildings. Shophouses zoned for commercial or commercial & residential uses on the first storey can accommodate shops, F&B establishments, gyms and fitness centres, schools, and offices. This opens them up to a wide range of tenants. Units zoned as such can be owned by foreigners as well.

Furthermore, buyers can avoid the additional buyer’s stamp duty and seller’s stamp duty, as these do not apply to the commercial units. For mixed-use units, the duties apply only to the gross floor area used for residential purposes.

Shophouses zoned solely for residential use cannot be owned by foreigners. But today, more people are turning residential shophouses into co-living spaces that serve the expatriate community well.

Prices of shophouses in Singapore

Other types of conserved properties also generally appreciate in value due to their unique qualities.

For example, the privatised conserved flats at Tiong Bahru are popular among expatriates and professionals. Other properties known to hold their value include conserved bungalows, and boutique hotels within conserved properties.

What do potential owners need to take note of?

Owning a piece of Singapore’s history comes with responsibilities. Older buildings require care and attention to ensure they stay in good shape, and work done to the property must be in line with the neighbourhood’s character.

Repairs and restorations have to be carried out according to the URA’s conservation guidelines and specific facade restoration guidelines. This may increase the cost of any renovations.

However, the government also provides restoration incentives, such as development charge waivers or the need to create parking lots.

Owners of buildings located within the historic districts (e.g. Boat Quay, Kampong Glam) and residential historic districts (e.g. Blair Plain, Emerald Hill) have to get permission before they start business operations. Some types of businesses are not permitted as they are deemed disruptive. You can check what the shophouse you are interested in can be used for here.

Conclusion

Limited supply, good locations and historical characteristics make conservation properties a worthwhile asset to invest in. They tend to appreciate in value and attract tenants.

Commercial or mixed-use properties could save you money on stamp duty, and demand for conserved properties located around gentrifying areas will likely keep rising.

But remember there are limits to what conserved properties can be used for and how they can be refurbished.

Buying a conserved building is akin to taking care of a historical treasure. If you take care of it, you will reap the rewards for years to come.

This article was originally published on Planner Bee, your handy financial planning app! Learn more about managing your money, investments and insurance on Planner Bee’s blog.