More foreign private wealth diverted to commercial shophouses as cooling measures bite

By EdgeProp Singapore

/ EdgeProp Singapore |

August 31, 2023 3:14 PM SGT

Close to 50 shophouses were sold in 2Q2023, 45.5% higher than 1Q2023's 33 deals (Photo: Samuel Isaac Chua/EdgeProp Singapore)

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The shophouse market in Singapore continued to be attractive to buyers in 1H2023. The doubling in additional buyer’s stamp duty (ABSD) for foreigners buying residential property on April 27, and new control measures on land zoned for commercial and residential use on July 20, have directed even more foreign private wealth to focus on shophouses with commercial zoning.

The shophouse market saw a strong pick-up in transaction volumes and values in 2Q2023, says Lee Sze Teck, senior director of data analytics at Huttons Asia, in his report on Aug 14. Close to 50 shophouses were sold in 2Q2023, 45.5% higher than 1Q2023’s 33 deals. Total transacted value amounted to $512.3 million in 2Q2023, up 53.6% q-o-q.

“The sharp increase in ABSD to 60% for foreigners saw interest diverted to the shophouse market,” adds Lee. “Ultra-high net worth individuals (UHNWIs) and family offices maintained their keen interest in this market segment to preserve and grow their wealth.”

The largest shophouse deal in 1H2023 was the purchase of a row of shophouses along Circular Road for $80 million by a Chinese buyer in June (Photo: Samuel Isaac Chua/EdgeProp Singapore)

In 1H2023, an estimated 81 shophouses were sold, down 31.9% from the same period a year ago. Total transacted value was $845.9 million in 1H2023, about 12.1% lower than 1H2022’s $962.8 million.

The largest shophouse deal in 1H2023 was the purchase of a row of shophouses along Circular Road for $80 million by a Chinese buyer in June. The Singapore Maritime Officers’ Union bought six shophouses at Serangoon Road for $62.5 million in January, while Tai Tak Estates acquired 52 Boat Quay for $37 million in March.

Deals with the biggest gains

Two other shophouse deals in 2Q2023 stood out for their sale prices and extraordinary gains.

One was the sale of a three-storey shophouse at 37 Boat Quay for $30 million in May. The seller registered a profit of 631.7% — the highest in 1H2023, according to Knight Frank in its 1H2023 shophouse report on July 31. The 999-year leasehold shophouse sits within the Boat Quay Conservation Area and in the heart of a cluster of bars and restaurants along the Singapore River. The shophouse is tenanted to a restaurant operator.

The other was a pair of adjoining four-storey shophouses along Geylang Road that was sold for $30 million in June, translating to a 605.9% gain for the seller after a 23-year holding period, notes Knight Frank. The corner shophouse occupies a site spanning over 4,500 sq ft and enjoys dual road frontage. These freehold shophouses in District 14 are leased to an eating house and F&B operators on the ground floor.

According to Leonard Tay, Knight Frank’s head of research, between January and June, 15 shophouse sales made more than 100% returns.

“As conservation shophouses are highly coveted for their heritage value, cultural qualities and limited quantity in the market, supernormal profits from capital appreciation are regularly observed when the asset is held longer,” he says.

The three-storey shophouse at 37 Boat Quay was sold for $30 million in May. The seller registered a profit of 631.7% -- the highest in 1H2023 (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Most sought-after districts

Shophouses in the city fringe area of Farrer Park and Little India in District 8 were the most popular among investors and accounted for 52.8% of total shophouse transactions in 2Q2023. “It’s largely due to its more affordable quantum,” says Huttons’ Lee.

This was followed by the shophouses in District 14 (Geylang and Eunos) and District 1 (Raffles Place, Cecil and Marina) with six deals each, notes Wong Siew Ying, PropNex head of research and content. Several deals in prime Districts 1 and 2 in 2Q2023 were transacted but not caveated.

Freehold and 999-year leasehold shophouses remained the preferred choice among investors for wealth preservation, notes Lee. “Investors are less bothered with borrowing costs as they either pay in cash or borrow a small quantum,” he says.

A pair of adjoining four-storey shophouses along Geylang Road was sold for $30 million in June, translating to a 605.9% gain for the seller after a 23-year holding period (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Shophouses with ‘commercial and residential use’

The Government introduced control measures on land zoned for commercial and residential use on July 20. Such land will now fall under the Residential Property Act as these sites will now be zoned residential. Foreigners will therefore need the Singapore Land Authority’s approval to purchase shophouses on sites zoned for commercial and residential use.

Shophouses with a “40% commercial and 60% residential” use are primarily found on Purvis Street, Seah Street, Liang Seah Street and Balestier Road. “Previously, foreigners could purchase such properties,” says Yap Hui Yee, executive director of investment sales and capital markets at Savills Singapore. “However, they have to pay ABSD on the residential portion.”

Under the new regulations, foreigners will not be able to buy such shophouses with commercial and residential zoning, adds Yap.

Huttons’ Lee estimates that shophouses on land zoned for commercial and residential use account for just 5% of all shophouses. “Almost all investors buy commercial-zoned shophouses for the flexibility in its use,” he says.

Shophouse prices are poised to remain resilient in 2H2023, reckons PropNex’s Wong, “given the limited stock as well as renewed interest among foreigners and investors, in the light of higher ABSD tax rates for residential properties for this group of buyers”.

The positive momentum in the shophouse market in 1H2023 will likely continue, with Knight Frank’s Tay projecting a sales volume of $1.3 billion to $1.5 billion for the year.

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