Shophouse investment interest remained brisk in 3Q2024 despite fewer caveated deals: PropNex
The third quarter of 2024 saw 16 caveated shophouse transactions — a 20% q-o-q decline from the 20 deals recorded in 2Q2024. On a yearly basis, sales volume fell by 56% from the 36 deals recorded in 3Q2023, notes PropNex Research in an Oct 28 report.
The 16 deals conducted in 3Q2024 translated to $121.6 million in sales value, marking a 35.5% q-o-q drop in sales value from 2Q2024 and a 56.4% y-o-y fall from the $278.6 million recorded in 3Q2023.
Despite the lower number and value of caveated sales transactions, PropNex views they may not be an accurate reflection of the market. Citing deals reported by the media and real estate salespersons, the agency says that investment interest in shophouses “remained brisk” as buyers were encouraged to enter the market due to easing interest rates and realistic shophouse prices.
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PropNex adds that some shophouse deals last quarter were not reflected in URA data, possibly due to buyers choosing not to file caveats or because some transactions were conducted through the sale of shares in special-purpose vehicles. As a result, the actual 3Q2024 shophouse sales figure is likely higher.
Based on URA caveats, the highest value shophouse transaction for 3Q2024 was the sale of Atland House, a five-storey freehold shophouse on Bukit Timah Road for $17 million.
However, the media reported several higher valued shophouse deals that were not reflected in URA records, notes PropNex. They include the sale of a four-storey, 999-year leasehold conservation shophouse on North Bridge Road that sold in September for $42 million. In October, a trio of adjoining 999-year leasehold shophouses, also on North Bridge Road, was reportedly sold for $72 million.
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 fell by 22% y-o-y, while prices in Districts 7 and 8 dropped by 13% y-o-y. Shophouses in the rest of Singapore fared slightly better, recording a 12% dip in psf prices based on land area.
Prices for 99-year leasehold shophouses mirrored that of freehold and 999-year leasehold shophouses, recording a similar 22% y-o-y drop.
However, PropNex observes that only two 99-year leasehold shophouse transactions were recorded last quarter. As a result, these deals may not accurately represent the sector's capital values.
PropNex also reports that the moderation of shophouse rents was influenced by declining rental prices in popular districts. The median shophouse rent in District 15, which encompasses Katong and Joo Chiat, saw a 6.8% q-o-q drop, while the median rent in District 8, which covers Little India, contracted by 4.7%. District 1, which includes Raffles Place, Marina and Boat Quay, saw the steepest drop in its median rental price, dipping by 8% q-o-q to $7.86 psf pm.
District 2 (Anson and Tanjong Pagar) was the only district this quarter to buck the trend, registering a 2.8% q-o-q growth in median rental price from $8.08 psf pm to $8.31 psf pm.
In terms of market outlook, PropNex notes that interest in commercial shophouses has largely recovered after a lull brought about by the anti-money laundering crackdown last year. The agency adds that retail investors could capitalise on softening interest rates and tentative market sentiment to explore opportunistic purchases in the shophouse sector.
“Given their scarcity and ability to retain value over time, sales momentum in the shophouse investment market could gain traction, supported by both occupiers looking to expand their businesses and investors looking to add a defensive asset to their portfolio,” the report adds.
Read also: Strata office floor at Suntec Tower 1 for sale at $41.8 mil
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The expected recovery of Singapore’s economy, alongside robust growth in the tourism sector driven by a range of sports events, concerts and MICE activities, is also anticipated to enhance the values and rentals of shophouses.
PropNex adds that some shophouse deals last quarter were not reflected in URA data, possibly due to buyers choosing not to file caveats or because some transactions were conducted through the sale of shares in special-purpose vehicles. As a result, the actual 3Q2024 shophouse sales figure is likely higher.
Based on URA caveats, the highest value shophouse transaction for 3Q2024 was the sale of Atland House, a five-storey freehold shophouse on Bukit Timah Road for $17 million.
However, the media reported several higher valued shophouse deals that were not reflected in URA records, notes PropNex. They include the sale of a four-storey, 999-year leasehold conservation shophouse on North Bridge Road that sold in September for $42 million. In October, a trio of adjoining 999-year leasehold shophouses, also on North Bridge Road, was reportedly sold for $72 million.
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 fell by 22% y-o-y, while prices in Districts 7 and 8 dropped by 13% y-o-y. Shophouses in the rest of Singapore fared slightly better, recording a 12% dip in psf prices based on land area.
Prices for 99-year leasehold shophouses mirrored that of freehold and 999-year leasehold shophouses, recording a similar 22% y-o-y drop.
However, PropNex observes that only two 99-year leasehold shophouse transactions were recorded last quarter. As a result, these deals may not accurately represent the sector's capital values.
Higher leasing demand
Leasing demand for shophouses remained healthy in the prime districts, says PropNex. The quarter saw 927 rental contracts signed, valued at about $10.7 million. The report states that this establishes a new record for the highest quarterly leasing value in the shophouse sector. Read also: PropNex reports 1HFY2024 earnings of $19 mil, down 13.8% y-o-y Advertisement Advertisement For the first three quarters of 2024, 2,689 shophouse rental contracts were signed with a combined contract value of $30.6 million — a 7.7% y-o-y increase over the $28.4 million recorded over the same period last year. Despite the increase in rental contract value, shophouse rents moderated by 2.8% q-o-q to $6.64 psf per month (pm) in 3Q2024, breaking three consecutive quarters of growth since 3Q2023. On a yearly basis, rents rose by 11%.
PropNex also reports that the moderation of shophouse rents was influenced by declining rental prices in popular districts. The median shophouse rent in District 15, which encompasses Katong and Joo Chiat, saw a 6.8% q-o-q drop, while the median rent in District 8, which covers Little India, contracted by 4.7%. District 1, which includes Raffles Place, Marina and Boat Quay, saw the steepest drop in its median rental price, dipping by 8% q-o-q to $7.86 psf pm.
District 2 (Anson and Tanjong Pagar) was the only district this quarter to buck the trend, registering a 2.8% q-o-q growth in median rental price from $8.08 psf pm to $8.31 psf pm.
In terms of market outlook, PropNex notes that interest in commercial shophouses has largely recovered after a lull brought about by the anti-money laundering crackdown last year. The agency adds that retail investors could capitalise on softening interest rates and tentative market sentiment to explore opportunistic purchases in the shophouse sector.
“Given their scarcity and ability to retain value over time, sales momentum in the shophouse investment market could gain traction, supported by both occupiers looking to expand their businesses and investors looking to add a defensive asset to their portfolio,” the report adds.
Read also: Strata office floor at Suntec Tower 1 for sale at $41.8 mil
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The expected recovery of Singapore’s economy, alongside robust growth in the tourism sector driven by a range of sports events, concerts and MICE activities, is also anticipated to enhance the values and rentals of shophouses.