Measuring the Investment Performance of Conservation Shophouses in Singapore

Abstract

Shophouses—a historical source of delight and nostalgia—are a prevalent building type in Singapore’s architectural and built heritage. Beyond being “limited edition” assets conserved for their heritage value and scarcity of supply, their allure as a choice investment asset is not unfounded. Yet, amid their growing demand from international funds to local investors, little is known or explored in this niche segment of Singapore’s real estate market. This study thus aims to pierce through the clouds of untested opinion that enshroud this unique asset, to empirically evaluate their investment potential through a regression analysis and construction of a hedonic price index.

Key results show that the varying degrees of conservation status across historic districts and secondary settlements have no real impacts on price. Interestingly, the results found that shophouses within core conservation areas- despite being subject to stricter conservation guidelines- actually commanded a 25.6% premium over non-core areas. The results lend preliminary support to the claim that economic profit can still be reaped within Singapore’s conservation framework, and to the rationale that shophouse investments are indeed worthwhile.

Subsequently, the constructed price index showed that in the 10 years from 2006 to 2016, capital values of shophouses rose by 400%. On a risk-adjusted pure capital return basis, shophouses were also seen to consistently outperform other asset classes. Across the historic districts, shophouses in Little India were found to be the best performer in terms of price, while Chinatown district shophouses commanded the highest overall risk-adjusted return.