Shophouse market ends on quiet note in 2023: Knight Frank

/ EdgeProp Singapore |

January 31, 2024 2:05 PM SGT

Shophouse transactions slowed in 2H2023 to 53 units worth $428.2 mil (Picture: Samuel Isaac Chua/The Edge Singapore)

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While shophouse activity was robust in the first half of last year, the prevailing high interest rate environment and other market uncertainties contributed to a slowdown in the market in 2H2023.

Data compiled by Knight Frank in its latest shophouse market report released on Jan 31 shows that a total of 53 shophouses worth $428.2 million were transacted in the latter half of last year, tumbling 26.4% and 35.5% compared to 1H2023 in terms of the number of shophouses sold and total sales value respectively. Out of the 53 shophouses sold in 2H2023, over 43 (81%) were freehold transactions worth $358.9 million, while the remaining 10 were leasehold transactions worth $69.3 million.

The lower volume comes as high interest rates and large price premiums prompted buyers to hold off on decision-making, says Mary Sai, executive director, capital markets, at Knight Frank Singapore. “Some institutional buyers, particularly those reliant on debt financing and recurring rental income for positive returns, exercised caution and withdrew to the sidelines, adopting a wait-and-see posture.”

Sai also posits that the number of reported transactions may be lower than actual figures. “There is every possibility that more shophouse transactions took place between July and December, going unreported without caveats being lodged.” Sai adds that the transactions likely involved wealthy buyers who “preferred to be low-key”.

The lower sales volume in 2H2023 was accompanied by a fall in prices, with the average unit price for shophouse transactions declining by 6.1% to $5,116 psf based on land area, compared to $5,448 psf in 1H2023. The fall was largely driven by leasehold shophouse transactions which saw average unit price plunge 34.2% from 1H2023 to $3,937 psf based on land area. In contrast, the average unit price for freehold shophouses inched up 1% to $5,389 psf compared to 1H2023.

The top shophouse deal in 2H2023 was the sale of three units on Jalan Besar in District 8 last September for $38.5 million. District 8 maintained its position as the most active district for the shophouse market, with 16 units worth $132 million sold there in the latter half of last year. Sai credits the continued gentrification happening in the district – including the ongoing completion of landmark integrated development Guoco Midtown on Beach Road – and its transformation into a hip tourist destination as reasons for sustained demand for shophouses in the area.

Sai highlights that demand for conservation houses has remained resilient given their scarcity and historical significance that underpin their potential for significant capital appreciation. In 2H2023, the sale of a shophouse at 37 Bussorah Street in the Kampong Glam Conservation Area was the most profitable shophouse transaction. The seller netted an overall return of 1,196% when it was sold for $4.8 million in July after being held for 20 years.

For the whole of 2023, 132 shophouses changed hands, representing a 30.9% fall y-o-y. Total sales value for the year came in at $1.2 billion, some 25% lower than the $1.6 billion racked up in 2022.

Freehold transactions made up 105 units (79.5%) of shophouses sold, marking a 31.4% decrease y-o-y, while average prices for this segment rose 10.1% y-o-y to $5,354 psf. Sai notes that the rise in prices has prompted private-wealth buyers to withhold capital in anticipation of more realistic price levels and lower interest rates this year.

Nonetheless, the overall average price of shophouses surged upwards in 2023, climbing nearly 10% from $4,849 psf on land area in 2022 to $5,325 psf in 2023.

Looking ahead, Sai believes that while overall demand for shophouses remains intact due to their limited supply and the capital appreciation they offer over the medium-to-long term, buyers have begun to resist “improbable” price premiums given the current environment. “Sellers need to balance the evergreen popularity of shophouses with the higher levels of caution among buyers and moderate their profit expectations in order for a sale to materialise in the year ahead,” she adds.

As a result, she expects prices to trend to levels more aligned with market expectations this year. “With a better economic outlook in 2024, as well as with interest rates stabilising and perhaps being adjusted downwards, the pace of transaction activity is expected to pick up,” she continues.

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

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