High prices and softer yields moderate the shophouse market to $1.07 bil in 2023: ERA Singapore

/ EdgeProp Singapore |

January 5, 2024 1:08 PM SGT

Last year saw 118 shophouses changing hands with a combined value of $1.07 billion. Pictured are shophouses in the Tanjong Pagar area. (Picture: Samuel Isaac Chua/The Edge Singapore)

While shophouses in Singapore are considered highly valuable assets, the market for these coveted properties has cooled compared to its peak in 2021. A market research paper by ERA Realty indicates evident signs of moderation among buyers and sellers.

Based on data published by the local real estate agency, between Jan 1 and Dec 20 last year, the market recorded 118 shophouse properties changing hands with a combined transaction value of $1.07 billion — a dip from the market’s peak in 2021, when 245 shophouses were sold, totalling a transaction value of $1.84 billion.

Wong Shanting, head of research and market intelligence at ERA Realty, says that rising prices and softer yields largely contributed to the softening of the shophouse market over the past two years. Furthermore, the spotlight on high-profile money-laundering cases in August last year emphasised substantial property acquisitions by foreigners in the republic. This scrutiny has resulted in increased anti-money laundering checks for foreign buyers.

ERA Research noted that less than 30% of shophouse transactions last year were sold for less than $5 million. At the same time, the proportion of shophouses going for between $5 million and $10 million has nearly doubled. For example, 45.8%% of shophouses sold last year exchanged owners for amounts ranging between $5 million and $10 million, whereas 24.6% of the shophouses sold during the same period commanded prices exceeding $10 million.

“The limited supply of shophouses in Singapore has kept demand resilient over the years, supporting price growth. Based on caveats lodged, the average price of freehold shophouses has risen 57.8% since 2019,” says Wong.

Enhancing portfolios

Most shophouse buyers — often consisting of institutional investors and family offices — remain concentrated on acquiring freehold conservation shophouses in the Central Region. These investors aim to enhance their real estate portfolios by adding assets that offer capital appreciation and contribute to wealth preservation.

In the past year, Little India in District 8 led shophouse sales, witnessing 44 properties change hands. In contrast, District 1 — encompassing Raffles Place, Cecil Street and Marina Bay — had only 12 shophouse transactions. Another notable area for shophouses was Middle Road and Beach Road in District 7, with a recorded eight transactions last year.

Wong says the enduring appeal of shophouses in Districts 1, 7 and 8 is attributed to the sustained rent demand. Most shophouses in these areas boast popular eateries, bars and nightspots, which usually command higher rental rates.

In 2023, the priciest shophouse deal occurred in District 8, involving the sale of a portfolio comprising six freehold shophouses for $62.5 million in January. These connected shophouses, from 322 Serangoon Road to 332 Serangoon Road, occupy a total land area of 9,042 sq ft, equating to a rate of $6,912 psf. PropNex Realty facilitated this transaction.

The largest shophouse deal of the year occurred in January last year, with the sale of six adjacent shophouses on Serangoon Road fetching $62.5 million. (Picture: PropNex)

The second-highest transaction in terms of absolute price involved the sale of three freehold shophouses at 203, 205 and 207 Jalan Besar in District 8, amounting to $38.5 million ($6,037 psf) in September of the previous year. This was followed by the sale of 5, 5A and 5B Ann Siang Road in July, fetching $32 million ($22,136 psf).

In July of last year, the Ministry of Law and Singapore Land Authority adjusted the list of land use zones categorised as non-residential property. Notably, the ‘commercial and residential’ zones, encompassing shophouse areas and properties, were removed. The government clarified that land zoned or developments permitted for ‘commercial and residential’ primarily serve residential purposes. These developments are now classified and regulated as residential property. Foreign individuals and companies with foreign directors will need government approval to acquire shophouses, excluding those zoned as ‘commercial’.

Wong says this will moderate some of the overall demand for shophouses and prevent some foreign buyers from diversifying into the shophouse segment from the private residential market. The additional buyer’s stamp duty (ABSD) increased to 60% in April last year, diverting foreign buyers from new launch and resale condos towards shophouses.

She foresees increased demand, even with escalating prices and diminished yields. Wong adds that most owners possess robust holding power to navigate a more moderate market. ERA Research also says the shophouse market is projected to conclude in 2024 with a total transaction volume between $1 billion and $1.2 billion.

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