Will shophouse transactions pick up in 2H2024?

By Nur Hikmah Md Ali

/ EdgeProp Singapore |

August 15, 2024 6:00 PM SGT

A 999-year leasehold conserved shophouse on Circular Road changed hands for $12.28 million in June, based on a caveat lodged (Photo: Samuel Isaac Chua/EdgeProp Singapore)

SINGAPORE (EDGEPROP) - In June, a 999-year leasehold shophouse on Circular Road in the Boat Quay Conservation Area changed hands for $12.28 million, based on a caveat lodged. The deal was brokered by Yap Hui Yee, executive director of investment sales & capital markets, Savills Singapore.

Freehold and 999-year leasehold shophouses dominated the shophouse market in 1H2024, according to Knight Frank’s report on Aug 6. Of the 40 shophouse units sold in 1H2024, 35 were freehold, with a total sales value of $252.2 million. The remaining five units sold were 99-year leasehold and valued at $101.8 million.

In 1H2024, District 8 (Little India, Jalan Besar) shophouses continued to be a favourite, registering the highest number of transactions on a half-yearly basis since 2H2019, says Knight Frank. It was also the only district to record more than 10 sales in 1H2024, selling 18 units with a combined value of $106.1 million.

Of the 16 shophouses that changed hands in 2Q2024, eight were in District 8, and buyers each paid between $4.3 million and $5.3 million, Huttons Asia’s shophouse report on July 19 notes.

Knight Frank expects demand for shophouses in District 8 to be sustained “with the gentrification of Little India into a trendy tourist destination that offers unique experiences”.

Cautious buying sentiment in 1H2024

For the whole of 1H2024, shophouse sales volume was down 17.3% to $354 million, from $428.2 million in 2H2023, says Knight Frank. With 40 units sold in 1H2024, compared to 53 units in 2H2023, transaction volume was down 24.5%.

“The shophouse market slowdown reflects cautious buyer sentiment amid higher-for-longer interest rates and ongoing geopolitical tensions,” says Knight Frank.

The slowdown is also due to a mismatch in price expectations between buyers and sellers, as the offenders in the money-laundering case were willing to pay above-normal prices for shophouses, says ERA in its report last month. This mismatch in price expectations led to a standstill in transactions.

Notable transactions

Notable transactions in 1H2024 include Paragon REIT’s sale of The Rail Mall in Upper Bukit Timah Road for $78.5 million in June. The mall sits on a land area of 105,563 sq ft (including the carpark lots) with a 99-year lease from 1947, which means it has about 22 years left on its lease. It was sold to an entity linked to construction company Woh Hup Holdings.

The second biggest deal in 2Q2024 was the sale of a three-storey, 999-year leasehold conservation shophouse along Telok Ayer Street, which is reportedly linked to the money-laundering probe, according to Huttons. Based on a caveat lodged, the property was sold for $16.5 million in May, which is $4.7 million higher than its previous transacted price in September 2017.

According to PropNex’s July 25 shophouse report, investment interest in commercial shophouses remained “relatively healthy”, particularly for shophouses linked to the money-laundering probe.

Several of these shophouses were reportedly put up for sale by DBS Bank earlier this year, and they were in locations such as Amoy Street, Geylang Road and Chinatown. A handful were heard to be auctioned, but no caveats have been lodged for these sales.

PropNex also noted that there are close to 12 shophouse deals for which caveats were not lodged. The buyers are likely to be ultra-high-net-worth individuals who prefer to keep a low profile.

Positive rental growth

In 2Q2024, shophouse rents in the popular districts hit new highs amid tight occupancies and their strong location attributes, says PropNex. City-fringe shophouses led the rent growth, with those in District 8 (Little India) and District 14 (Geylang, Eunos) posting 12.8% q-o-q and 12.4% q-o-q growth, respectively.

Shophouses in the city centre also saw positive rent growth during the quarter, with median rents in District 1 (Raffles Place, Cecil) up by 12.2% q-o-q, reaching a record high of $8.35 psf per month.

Opportunities for developers

Huttons Asia expects to see more shophouse sales in the coming months, especially of the units linked to the money-laundering case. While transaction volume is expected to pick up in the second half of the year, the overall shophouse market is expected to be subdued in 2024. Compared to the previous year, Huttons is projecting the transaction volume and quantum of shophouses to be 30% to 40% lower than 2023.

Knight Frank expects boutique developers to continue to hunt for shophouses with the intention of refurbishing them over the medium term. The ticket size is generally in the $5 million to $6 million range. By elevating these aged conservation properties in historical neighbourhoods and bringing in new tenants, the assets will likely appreciate over time, and the entire area will likewise be rejuvenated, adds the consultancy.

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Shophouses

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