Shophouse Investment Interest Remained Brisk 3Q2024 Despite Fewer Caveated Deals Propnex
16 shophouse transactions, valued at $121.6 million, were recorded in the third quarter of 2024, indicating a decrease of 20% from the 20 deals seen in the previous quarter. On a yearly basis, the sales volume saw a sharp decline of 56% from the 36 deals recorded in the third quarter of 2023, according to a report by PropNex Research on October 28.
The sales value of the 16 shophouse deals in the third quarter of 2024 dropped by 35.5% compared to the previous quarter, and by 56.4% compared to the same period last year, standing at $121.6 million. Despite the lower number and value of caveated sales transactions, PropNex believes that they may not be an accurate reflection of the market. The agency points out that there were other deals reported by the media and real estate salespersons, indicating that investment interest in shophouses remained strong. This is possibly due to the attractive interest rates and realistic shophouse prices, encouraging buyers to enter the market.
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According to PropNex, some shophouse deals in the third quarter were not reflected in URA data, possibly because buyers did not file caveats or because the transactions were made through the sale of shares in special-purpose vehicles. Therefore, the actual shophouse sales figure for the third quarter of 2024 is likely to be higher.
Based on URA caveats, the highest value shophouse transaction 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 other shophouse deals reported by the media that were not reflected in URA records. These include a four-storey, 999-year leasehold conservation shophouse on North Bridge Road that sold for $42 million in September, and a trio of adjoining 999-year leasehold shophouses, also on North Bridge Road, 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 decline of 22% year-on-year, while prices in Districts 7 and 8 dropped by 13%. In the rest of Singapore, shophouses saw a 12% decrease in prices per square foot (psf) based on land area. Prices for 99-year leasehold shophouses mirrored those of freehold and 999-year leasehold shophouses, recording a similar 22% decline year-on-year.
However, PropNex notes that there were only two 99-year leasehold shophouse transactions recorded in the third quarter, which may not accurately represent the sector’s capital values.
On the leasing front, PropNex observes a healthy demand for shophouses in prime districts. In the third quarter of 2024, there were 927 rental contracts signed, with a total value of approximately $10.7 million, setting 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% increase from the same period last year, where $28.4 million in rental contracts were signed.
Despite the increase in rental contract value, shophouse rents saw a moderation of 2.8% compared to the previous quarter, at $6.64 psf per month (pm) in the third quarter of 2024. This marks a break in the three consecutive quarters of growth since the third quarter of 2023. However, on a yearly basis, rents saw a growth of 11%.
PropNex also notes that the moderation of shophouse rents was influenced by declining rental prices in popular districts. The median shophouse rent in District 15, which includes Katong and Joo Chiat, saw a 6.8% decline, while District 8, which covers Little India, saw a 4.7% drop. District 1, which encompasses Raffles Place, Marina and Boat Quay, saw the steepest decrease in its median rental price, dropping by 8% to $7.86 psf pm. The only district that saw an increase in its median rental price was District 2 (Anson and Tanjong Pagar), which registered a 2.8% growth from $8.08 psf pm to $8.31 psf pm.
Looking ahead, PropNex predicts that interest in commercial shophouses will continue to recover after a lull due to the anti-money laundering crackdown last year. Retail investors could take advantage of the current softening interest rates and market sentiment to explore opportunistic purchases in the shophouse sector. With their scarcity and ability to retain value over time, the agency believes that sales momentum in the shophouse investment market could gain traction, driven by both occupiers looking to expand their businesses and investors looking to add a defensive asset to their portfolio.
Furthermore, with the expected recovery of the Singapore economy and a robust growth in the tourism sector, led by various sports events, concerts and MICE activities, PropNex anticipates that shophouse values and rentals will continue to thrive.