Shophouse Investment Interest Remained Brisk 3Q2024 Despite Fewer Caveated Deals Propnex
In the third quarter of 2024, the shophouse market saw a decline in sales volume with only 16 caveated transactions, a 20% drop from the 20 deals recorded in the previous quarter. On an annual basis, there was a significant decrease of 56% from the 36 deals recorded in the third quarter of 2023, according to a report by PropNex Research on Oct 28.
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The 16 transactions in the third quarter of 2024 amounted to a sales value of $121.6 million, marking a 35.5% decrease from the previous quarter and a 56.4% drop from the $278.6 million recorded in the third quarter of 2023.
Despite the lower number and value of sales transactions, PropNex believes that this may not accurately reflect the market. The agency notes that there were still many shophouse deals reported by the media and real estate salespersons, indicating a strong interest in shophouse investment. This could be due to the current low interest rates and realistic shophouse prices, encouraging buyers to enter the market.
PropNex also points out that some shophouse deals in the third quarter were not reflected in the Urban Redevelopment Authority’s (URA) data, possibly because buyers chose not to file caveats or the transactions were carried out through the sale of shares in special-purpose vehicles. As a result, the actual sales figure for shophouses in the third quarter of 2024 is likely to be higher.
Based on the URA caveats, the highest valued transaction for shophouses in the third quarter of 2024 was the sale of Atland House, a five-storey freehold shophouse on Bukit Timah Road, for $17 million.
However, there were several higher valued shophouse deals reported in the media that were not reflected in the URA records, notes PropNex. These include the sale of a four-storey, 999-year leasehold conservation shophouse on North Bridge Road for $42 million in September, and a trio of adjoining 999-year leasehold shophouses on the same road that was reportedly sold for $72 million in October.
PropNex’s report also highlights a softening of shophouse prices in prime districts compared to the previous year. The land rate for freehold and 999-year leasehold shophouses in Districts 1 and 2 saw a 22% year-on-year decrease, while prices in Districts 7 and 8 dropped by 13%. Shophouses in the rest of Singapore fared slightly better with a 12% dip in prices per square foot (psf) based on land area.
Prices for 99-year leasehold shophouses also mirrored the trend of a 22% year-on-year decrease, but PropNex noted that there were only two transactions recorded in the third quarter. Therefore, these deals may not accurately represent the capital values of the shophouse sector.
Strong leasing demand
Despite the decline in sales volume and value, the leasing demand for shophouses remained healthy in prime districts, according to PropNex. In the third quarter, there were 927 rental contracts signed, amounting to about $10.7 million. This establishes a new record for the highest quarterly leasing value in the shophouse sector.
For the first three quarters of 2024, there were 2,689 shophouse rental contracts signed with a combined value of $30.6 million, reflecting a 7.7% year-on-year increase from the $28.4 million recorded over the same period in 2023.
However, despite the increase in rental contract value, shophouse rents saw a moderation in the third quarter of 2024, declining by 2.8% from the previous quarter to $6.64 psf per month. This ended three consecutive quarters of growth since the third quarter of 2023. On a yearly basis, rents still saw a growth of 11%.
PropNex also reports that the moderation of shophouse rents was influenced by declining rental prices in popular districts. The median rent for shophouses in District 15, which includes Katong and Joo Chiat, saw a decline of 6.8% from the previous quarter, while the median rent in District 8, which covers Little India, decreased by 4.7%. District 1, which includes Raffles Place, Marina and Boat Quay, saw the steepest decline in median rental price, down by 8% to $7.86 psf per month.
District 2 (Anson and Tanjong Pagar) was the only district to see an increase in median rental price in the third quarter, rising by 2.8% from $8.08 psf per month to $8.31 psf per month.
Promising outlook
In terms of the market outlook, PropNex notes that interest in commercial shophouses has mostly recovered after a lull due to the anti-money laundering crackdown last year. The agency also believes that retail investors can take advantage of the current low interest rates and tentative market sentiment to explore opportunistic purchases in the shophouse sector.
Given the scarcity and ability to retain value over time, PropNex expects the sales momentum for shophouses to gain traction, with both occupiers looking to expand their businesses and investors looking for a defensive asset to add to their portfolio.
The expected recovery of Singapore’s economy, along with robust growth in the tourism sector driven by various sports events, concerts and MICE activities, is also expected to enhance the values and rentals of shophouses.