Shophouse market could potentially see another wave of demand

Shophouse market could potentially see another wave of demand stemming from investors who were previously restricted by travel measures.

Shophouse market
image: Knight Frank

The shophouse market saw the sale of 114 shophouse units in the first six months of the year amounting to a total of S$938.8 million.

This is comparable to the sales performances in the two halves of 2021 where deals totalled S$919.0 million (131 units) and S$1,019.6 million (123 units) in H1 and H2 2021 respectively. Given that conserved shophouses in Singapore are limited in stock, the demand for this asset class is unlikely to fade any time soon.

About 79.8%, or 91 units, in the shophouse market were freehold shophouses, with a total of S$711.5 million and an average price of S$4,982 psf on land.

Demand for leasehold shophouses also did not slow down as 23 units were sold in H1 2022, although this total value of S$227.3 million was marginally less than the S$242.2 million in H2 2021, with the corresponding average price at S$5,185 psf on land.

Shophouses in the Rochor Planning Area came out on top as 53 units were sold, marking two consecutive halves where shophouses within this area transacted at volumes above pre-covid levels.

In the shophouse market of the east, sales activity in District 15 dwindled in the first six months of the year after healthy growth over the last two years, with only five units sold in H1 2022. Given the cultural heritage of the area with the potential for increasing gentrification, existing shophouse owners could be holding on to their units in expectation of further interest from investors that would likely result in capital gain.

“As pre-pandemic normalcy returns with increased air travel, the shophouse market could potentially see another wave of demand stemming from investors who were previously restricted by travel measures and are interested in owning a shophouse in enclaves with ongoing gentrification. This might also include family offices from around the region,” said Knight Frank Singapore in a media statement.

It added: “Despite being vulnerable to external headwinds, Singapore offers a safe and low-risk environment for investors who may be looking to shelter against economic uncertainties.
Therefore, given the sustained momentum in H1 2022, coupled with the limited supply, the shophouse market could record just under S$2.0 billion of sales for the whole of 2022.”

The key to cashing-in on the shophouse market is in getting the best commercial property loan.

Paul Ho, chief executive at iCompareLoan, said: “Commercial property became increasingly attractive as an investment option following the cooling measures implemented in the residential segment such as the introduction of additional buyer’s stamp duty (ABSD) in 2011 followed by an upward revision in the ABSD.”

For those of you who want a slice of the shophouse market, you must do your calculations and have a rough gauge.

Here are 7 factors for your consideration in getting commercial loan:

  1. Rationale for Refinance of commercial property

If you hold a commercial property, you are likely running a business there or an investor – whether as an individual or under a corporation or investment holding company.

Any decision would probably require you to do a cost-benefit analysis.

The main reasons for refinancing or switching to a loan from another financial institution include raising cash, capitalizing on low interest rates to cut financing costs and a change in loan tenure.

  1. Valuation of Commercial property

It is important to be up to date on the current valuation of your property as it will determine the maximum loan and the possibility of having to top up the equity to qualify for refinancing a commercial property. Given the current strong sentiment, it is possible that it is significantly different from the time you got your original loan.

  1. Affordable?

Use good calculators to see if the mortgage payments on the new loan is affordable given your current salary.

  1. Change in credit situation

Since the last time you took the loan, has your salary/company’s results/financial position improved or deteriorated? Have you been late in payment of debt? Did you sign on to be a guarantor or taken up more debt? Do you have a tenant? What is the remaining lease? All these factors will be considered when you apply for refinancing as your credit profile will be reassessed.

  1. Costs

Refinance commercial property may lead to costs such as those relating to valuation, legal, etc. Look out for promotions where banks/financing companies waive charges.

  1. Clawback and lock-in period

Review your letter of offer and read up on the clawback and lock-in period to ensure that refinancing makes sense for you. If the switch is onerous and costly, it may not be worthwhile.

  1. Shop around

Once you have done your homework on the above, you can shop around for the financial institution that offers the loan package that suits you and look out for promotions.

  1. Documentation

You will likely be asked to provide the following in the application if you refinance commercial property. Have these ready on hand if your property is bought under a company name.

  • Copy of NRIC/Passport
  • Income statement and/or audited financials (corporation)
  • Bank statements
  • Loan account statement from existing financing company showing repayment history
  • Latest CPT withdrawal statement for property to be refinanced (if there is utilization of CPF)
  • Title Deed

good Mortgage broker can assist you to refinance commercial property safely, further more, it’s free of charge as they receive a fee from the bank when a loan is completed.

If you are getting property loan, think of mortgage brokers as Supermarket assistants who can guide you on a number of brands of noodles. Talk to them about your taste, whether you want it a bit salty or sweeter, spicy or not, etc. They will find you the right noodles (bank loan) on the shelf.

Written by Ravi Chandran

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