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  • Writer's pictureJoshua Loo

Why Young Business Owners Should Consider Purchasing HDB Shophouses

Why Young Business Owners Should Consider Purchasing HDB Shophouses FB

One of the main issues that most entrepreneurs face is paying a steep premium in regards to space. How are you able to take the next step forward in regards to your business when you do not have a physical location?

Having a physical location also provides transparency to your clients/customers and it provides a sense of security and trust towards your business.

I was inspired to write this article by some of my friends within my social circle. Many of them are experimenting with home businesses, but are confused about the steps forward to grow their business from a real estate perspective. After all, it is having your first high quantum loan as a mid-late twenties’ adult is extremely daunting.

This article will be an interesting blend of me explaining the current commercial retail markets in Singapore, the challenges that young business owners currently face with real estate, HDB shophouses, and my thoughts on how we can further support our young business owners.

Renting a Business Space

This is the most logical step forward. Maybe you are done with working from home and are intending to move to a commercial unit. This provides you added benefits to your well-being (i.e., better work-life balance by demarcating workspaces.

Similar to having a personal relationship, a landlord/tenant relationship is an art itself. However, what if you are finding yourself on the shorter end of the bargain?

A hot rental market will drive up rentals, which will impact your overhead expenses. Cashflow will be heavily reduced.

If you are intending to rent a unit from asset management companies like major malls, be prepared to fork out at a minimal $30/PSF in terms of rent.

If you can fork out that kind of rental, you will still need to be able to successfully pitch your business proposal for such a coveted location!

Purchasing a Private Commercial Unit

Having more control over your business premises will mean that you will have to look towards owning your own a commercial space.

In my opinion, looking to purchase a private commercial unit heavily requires good foot traffic and strong anchor tenants, which in turn can generate walk-ins for your business.

Such good locations are extremely costly and are disadvantageous to a young business owner. What good is a small 200-300 sqft space, when it is going to set you back.

Commercial Transactions

I pulled this information from, filtering for commercial retail units. Take note of the area of the unit vs price, I will refer back to this later.

Challenges Young Business Owners Face with Real Estate

Enterprising young individuals are often overlooked in our present society and I feel that they are strongly disadvantaged when it comes to the experimentation of potentially economy shaking ideas.

For example, mortgage loans have a haircut of 30% based on the variable aspect of an earner’s income. Take note, a full-time business owner’s income is 100% variable!

I do agree that doing so provides a good safety net for both the mortgagor and mortgagee, but it is a severe handicap and demoralizer when it seems that they have to work 130% as hard to obtain the same outcomes as an employed individual.

This causes a sink or swim situation where businesses will die a quick death, or be wildly successful.

In regards to commercial properties, most local banks will have a Loan-To-Valuation (LTV) of up to 80%. This still requires the business owner to have a significant cash outlay.

HDB Shophouses With Living Quarters

If you are in the above scenario, I think it can be beneficial to you to explore HDB shophouses with living quarters.

The following are my reasons why.

Flexibility in Terms of Price

Prices of commercial properties can vary a lot, but it doesn’t necessarily mean a bad thing. The most affordable ones that I can see right now are as low as $1.65 million.

HDB Shophouse Example 1

Consider the above information and do some quick calculations. At $1.65 million spread across the remaining lease of 58 years, you are merely paying $2,370/month for both a commercial and residential property.

For the mortgage, and assuming 80% LTV and loan tenure of 30 years, the combined mortgage for both properties will approximately be $4,556.

Now, you might think that paying $825,000 (i.e. approximately half of $1.65 million) for a 732 sqft HDB commercial property is expensive, but do compare with the above commercial transactions above. Observe some of the extrinsic characteristics also like direct access to the carpark and easy loading/unloading.

In commercial malls, the loading bay and carpark are usually not located on the same level as the unit in question.

HDB Shophouse Example 2

Another example of an HDB shophouse with living quarters. By directly proportioning the size of the commercial segment with the total floor area, the cost of the commercial space will be approximately $1.026 million for 678 sqft.

It is a little more expensive, but take note of strong tenants like McDonald’s, NTUC Fairprice, and Giant.

Asking price is often linked closely to rental potential, which can potentially mean better business performance.

183 Toa Payoh Central

This listing is by yours truly! By any chance that you are a said seasoned investor looking for such a shophouse, I have many HDB shophouses for sale with strong rentals. Click on the picture if you like to find out more details about it.

Ok, so back to the topic now.

No Minimum Occupation Period

HDB shophouses with living quarters are considered commercial properties, and I think this makes it very enticing for young business owners. By purchasing one, you get good flexibility if you intend to dispose of it.

However, you will need to be aware that it might take some time for you to dispose of the HDB shophouse as these are not common real estate investment vehicles. This is because HDB shophouses with living quarters have a residential component to them.

For most real estate investors, having more than one residential property is highly likely, and paying for the Additional Buyer Stamp Duty (ABSD) on this component is an unnecessary sunk cost.

However, some HDB properties might draw highly lucrative commercial rentals, that potential investors might be willing to pay good money for the shophouse.

Less Transportation Required

With the living quarters located just above your business operations, you don’t have to travel between work and home locations. This also significantly reduces your transportation costs. Operating within the heartlands is generally more affordable in terms of food savings too, as a bonus.

The Challenges of Owning an HDB Shophouse

Long-Term Planning Required

Deliberative Planning is very important, and not doing so is taking a large step into dangerous waters.

Your business should technically be self-sustainable before you opt to purchase an HDB shophouse. This is because should you not be able to draw good profit to defray mortgage payments, you will be trapped with heavy liabilities.

You might be in a position to choose between continuing your distressed business or renting out the location to make mortgage payments. This puts you in a very dangerous position as you will be in an overall net loss. This is because you are simply paying off your mortgage with rental monies, on a depreciating asset.

It is a depreciating asset because leasehold properties will experience a loss in capital value due to their decreasing tenure.

Similar Challenges from HDB flats on Lower Floors

There are no void decks for these shophouses and with strong commercial activity, expect significant noise pollution.

Little Financing Options

Speaking from a real estate salesperson’s perspective, financing will be severely limited based on the 80% LTV and 30-year tenure. Also, no CPF funds can be used to service commercial property loans.

However, if you are interested in exploring different financing options, the banks do offer a wide range of business loans which might help alleviate financing pressures. Do check with them for a more detailed response.

Thoughts About the Future for Supporting Young Entrepreneur

There are many food festivals in Singapore promoting the F&B culture but these are all temporary events where temporary occupational licenses are given out. These do not generate enough traction for them to take off.

Why not we explore the option of setting up clusters for retail startups. This can spur the growth of strong traditional businesses to strengthen our economy instead of relying on foreign direct investments. Sure, overseas franchises are lucrative but they are generally not for entrepreneurs with little access to funds. Also, they do little to contributing to the Singaporean identity.

I do recognize that there are efforts by the Singapore Government to cultivate a strong entrepreneurial identity, such as the Startup SG.

But, there seems to be such a strong focus on science and technology startups and everything else seems to be placed behind more of an afterthought.

I strongly believe that being an entrepreneur should not be narrowly defined as one that operates only within the tech arena. This is not explicitly said but has strong connotations from what is being perceived.

Better funding for our traditional businesses will help these business owners to be more financially stable and shoulder more risk for other creative endeavors. This will reduce the strain on the Singapore economy for support in that arena, which eventually contributes to growing innovative thought leaders in the commercial sector.

Co-Working Spaces

I feel that co-working spaces are such an amazing idea that has come about in recent years. It simply baffles me why this was not thought of earlier. This article from SG Magazine details some of the hottest co-working spaces and interestingly, they do provide heavy support for the fashion and woodworking industry too!

However, my personal opinion is that co-working spaces do not convey the kind of stability that a traditional business will have to a client.


HDB Shophouses

For any budding business owner, HDB shophouses can be an excellent investment, or a ticking time bomb if you decide to invest in one. What is most important is to have a strong business core to draw a good profit in other to negate the bad points like high cash outlay.

Financing can be a tricky matter too, so do get that sorted out correctly.

My “Passionate” Prose on The Future for Young Entrepreneurs

When I first started writing this article, my intended audience was the young business owners who are deciding on where to start their business operations in. But it soon expanded into a bunch of different ideas which I got excited to talk about it.

I really should remove these non-related ideas but honestly, I’m rather lazy to do so. Besides, I think they do add quite a bit to the initial topic that was discussed. Besides, I think they are a good analogy to what I was talking about previously on more support for traditional businesses.

Just like my topic on HDB shophouses and young business owners, I know these are the topics that excite people. Similarly, traditional businesses do also work! It just takes time and a matter of ironing out the kinks.

However, talking about supporting young entrepreneurs and co-working spaces might not be exciting enough of a topic to have its article on Estate Magnates, which is heavily geared towards Real Estate matters. Similarly, again, tech startups tend to have extremely high risk and low success rates.

Like what Elon Musk mentioned in regards to learning, we have to view knowledge as a semantic tree. Understand the fundamentals ie the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to.

We have to build our traditional businesses, and only implement tech/newer innovations to drastically improve its chances of success.

Thanks for reading and let us have a great 2021 ahead. Happy New Year!

The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.

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