Shophouses in Jalan Besar (Photo: EdgeProp Singapore)
SINGAPORE (EDGEPROP) - Commercial shophouse sales continued to moderate in 1Q2023 amid cautious sentiment due to high interest rates, according to a 1Q2023 report by PropNex Research. Referring to caveat data, 28 shophouses were sold during the quarter. This was lower than the 35 deals recorded in 4Q2022. Freehold shophouses formed the bulk of 1Q2023’s sales volume.
On a y-o-y basis, the volume of transactions in 1Q2023 went down by 46% from the 52 deals recorded in 1Q2022. In tandem with the lower number of sales, the transaction value of shophouse deals stood at $278 million in 1Q2023, an 11.7% drop from the previous quarter. It represented the lowest quarterly tally of sales value since 3Q2020, when $181 million worth of transactions were done. Of the 28 shophouse deals last quarter, more than 80% were priced above $5 million. Y-o-y, the value of transactions done in 1Q2023 was down by 40.6%.
District 8, which includes the Little India and Jalan Besar areas, saw the most shophouse transactions last quarter. Seven units were sold in the district for a total transaction value of $113 million. This figure represented 41% of the total shophouse sales value in 1Q2023.
On the other hand, transactional activity in prime Districts 1 and 2 was more muted, with three and two shophouses sold in the two districts respectively. PropNex attributes the fewer deals to a lower supply of shophouses available for sale in these areas.
Where unit price on land area was concerned, growth was uneven across districts in 1Q2023 compared to 4Q2022. This was partly due to the lower volume of caveated transactions, says PropNex. Furthermore, market observations suggest that a number of deals, particularly those in prime Districts 1 and 2, were not caveated. A good portion of these non-caveated purchases was made by foreigners and entities, PropNex adds.
The average transacted unit price on land area of freehold and 999-year leasehold shophouses fell by 20% q-o-q in Districts 1 and 2 and by 14% q-o-q in Districts 14 and 15 in 1Q2023. In contrast, psf prices for Districts 7 and 8 shophouses based on land area grew by about 8% q-o-q in 1Q2023, while the rest of Singapore saw an 84.3% q-o-q average unit price growth.
On the other hand, PropNex reports that 99-year leasehold shophouses in Districts 1 and 2 saw the average unit price on land area in 1Q2023 fall by 16% q-o-q, while unit prices in Districts 7 and 8 grew strongly by nearly 26%. There were no caveated deals for 99-year leasehold shophouses in Districts 14 and 15 and the rest of Singapore during 1Q2023.
As for the shophouse rental sector, activity stayed brisk amid the recovery of tourism, says PropNex. During the quarter, 886 rental contracts were signed – a marginal decrease from the 904 contracts posted in 4Q2022. Total rent value in 1Q2023 stood at $9.54 million. This is a record high for the quarterly value of contracts signed in the shophouse leasing market.
Shophouse rentals also continued to climb steadily in 1Q2023, with median rentals of $5.98 psf per month, up from $5.89 psf per month in 4Q2022.
Going forward, PropNex expects interest in commercial shophouses, especially among investors such as family offices, funds and high-net-worth individuals, to remain keen even amid global economic uncertainties and a hike in buyer’s stamp duty announced as part of Budget 2023. However, escalating interest rates will likely temper sales activity, as investors review the impact of high borrowing costs and firm prices on net yields. (Find Singapore commercial properties with our commercial directory)
Nonetheless, PropNex anticipates prices to remain resilient this year, given limited stocks and healthy demand. In addition, shophouse sales volumes in fringe districts remain elevated, given the higher level of supply and more affordable entry prices in these areas.
For the rental market, shophouse rents are expected to rise further in 2023. This is supported by stable occupier demand backed by the recovery of the tourism and retail industries, as well as the limited availability of shophouse spaces for rent.
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