Shophouse market ends on quiet note in 2023: Knight Frank

The lower volume comes as high rate of interest and big cost premiums urged customers to resist on decision-making, claims Mary Sai, executive director, funding markets, at Knight Frank Singapore. “Some institutional purchasers, especially those reliant on debt funding and recurring rental revenue for positive returns, practiced care and withdrew to the sidelines, embracing a wait-and-see posture.”

For the entire of 2023, 132 shophouses shifted hands, standing for a 30.9% drop y-o-y. Overall sales value for the year came in at $1.2 billion, some 25% less than the $1.6 billion acquired in 2022.

Sai highlights that need for preservation homes has remained durable provided their scarcity and historical value that underpin their prospective for significant capital appreciation. In 2H2023, the sale of a shophouse at 37 Bussorah Street in the Kampong Glam Sanctuary was one of the most successful shophouse purchase. The seller nabbed a total profit of 1,196% when it was sold for $4.8 million in July after being held for 20 years.

Sai even posits that the range of reported transactions may be lower than actual numbers. “There is every option that even more shophouse deals took place between July and December, going unlisted without warnings being lodged.” Sai includes that the transactions most likely entailed wealthy purchasers that “preferred to be low-key”.

The leading shophouse offer in 2H2023 was the sale of three units on Jalan Besar in District 8 last September for $38.5 million. District 8 maintained its placement as one of the most involved district for the shophouse market, with 16 units worth $132 million sold there in the latter part of 2023. Sai credits the continued gentrification occurring in the district– consisting of the continuous completion of landmark combined advancement Guoco Midtown on Coastline Road– and its change into a hip tourism destination as reasons for sustained need for shophouses in the area.

Because of this, she anticipates rates to trend to levels a lot more lined up with market expectations this year. “With a much better economic overview in 2024, as well as with interest rates securing and probably being readjusted downwards, the speed of transaction activity is expected to pick up,” she continues.

Information collected by Knight Frank in its most recent shophouse industry record launched on Jan 31 reveals that an overall of 53 shophouses worth $428.2 million were negotiated in the latter half of last year, toppling 26.4% and 35.5% compared to 1H2023 in with regards to the number of shophouses sold and complete sales worth respectively. Among the 53 shophouses offered in 2H2023, over 43 (81%) were freehold transactions worth $358.9 million, whilst the remaining 10 were leasehold purchases worth $69.3 million.

The reduced sales volume in 2H2023 was followed by a fall in prices, with the common unit price for shophouse deals declining by 6.1% to $5,116 psf based upon land area, contrasted to $5,448 psf in 1H2023. The drop was greatly steered by leasehold shophouse deals which saw standard unit price dive 34.2% from 1H2023 to $3,937 psf based on land area. In contrast, the average unit rate for property shophouses inched up 1% to $5,389 psf compared to 1H2023.

While shophouse event was strong in the first fifty percent of last year, the reigning high interest rate atmosphere and other industry uncertainties contributed to a slowdown in the market in 2H2023.

Knight Frank is predicting shophouse sales value to come in between $1.1 billion and $1.2 billion for 2024.

Lentoria Hong Leong Group and Mitsui Fudosan

Property deals comprised 105 units (79.5%) of shophouses marketed, marking a 31.4% reduction y-o-y, while average prices for this sector climbed 10.1% y-o-y to $5,354 psf. Sai mentions that the surge in prices has triggered private-wealth buyers to keep capital in anticipation of even more practical price levels and lower interest rates this year.

Looking in advance, Sai believes that while overall demand for shophouses remains intact as a result of their limited supply and the funding appreciation they use over the medium-to-long term, buyers have started to withstand “improbable” cost costs provided the current setting. “Vendors require to balance the evergreen appeal of shophouses with the higher levels of care amongst buyers and moderate their profit requirements in order for a sale to happen in the year ahead,” she adds.

However, the general typical cost of shophouses surged higher in 2023, climbing up nearly 10% from $4,849 psf ashore area in 2022 to $5,325 psf in 2023.

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