Shophouse Investment Interest Remained Brisk 3Q2024 Despite Fewer Caveated Deals Propnex
The third quarter of 2024 saw a decline in caveated shophouse transactions, with only 16 deals recorded – a 20% drop from the 20 deals in the previous quarter. On a yearly basis, sales volume also decreased by 56% from the 36 deals recorded in 3Q2023, according to PropNex Research’s report on Oct 28.
The 16 transactions in 3Q2024 amounted to a total sales value of $121.6 million, reflecting a 35.5% decrease from the previous quarter and a 56.4% drop from the same period in 2023 where the sales value was recorded at $278.6 million.
Despite the decline in both the number and value of caveated sales transactions, PropNex believes that they may not be a true representation of the shophouse market. The agency notes that there were several media-reported deals and real estate salespersons have also reported a sustained interest in shophouse investments, likely due to lower interest rates and realistic prices of shophouses.
PropNex also highlights that some shophouse deals in the last quarter were not reflected in the URA data, potentially due to buyers opting not to file caveats or transactions being carried out through the sale of shares in special-purpose vehicles. Therefore, the actual sales figure for 3Q2024 is likely higher.
Based on URA caveats, the highest value shophouse transaction in 3Q2024 was the sale of Atland House, a five-storey freehold shophouse on Bukit Timah Road, sold for $17 million. However, several higher value shophouse deals, such as the sale of a four-storey 999-year leasehold conservation shophouse on North Bridge Road for $42 million in September and a trio of adjoining 999-year leasehold shophouses on the same road for $72 million in October, were not reflected in the URA records.
PropNex’s report also notes 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 recorded a 22% year-on-year decrease, while prices in Districts 7 and 8 saw a 13% drop. Shophouses in the rest of Singapore fared slightly better, with a 12% dip in prices per square foot based on land area.
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Prices for 99-year leasehold shophouses mirrored the trend of freehold and 999-year leasehold shophouses, recording a similar 22% decrease year-on-year. However, PropNex observes that there were only two 99-year leasehold shophouse transactions recorded in the last quarter, which may not accurately represent the sector’s capital values.
Leasing demand for shophouses remained strong in prime districts, with 927 rental contracts signed in the quarter, amounting to approximately $10.7 million. This sets a new record for the highest quarterly leasing value in the shophouse sector.
For the first three quarters of 2024, 2,689 shophouse rental contracts were signed, with a combined value of $30.6 million – a 7.7% increase from the $28.4 million recorded in the same period last year.
Despite the increase in rental contract value, shophouse rents showed a slight moderation in 3Q2024, with a 2.8% quarter-on-quarter decrease to $6.64 per square foot per month. This marks a break from three consecutive quarters of growth since 3Q2023, but still reflects an 11% year-on-year increase.
The decline in shophouse rents was influenced by decreasing rental prices in popular districts. The median shophouse rent in District 15 (Katong and Joo Chiat) saw a 6.8% quarter-on-quarter decrease, while the median rent in District 8 (Little India) dropped by 4.7%. The steepest drop was seen in District 1 (Raffles Place, Marina and Boat Quay), where the median rental price decreased by 8% to $7.86 per square foot per month. The only district that saw a growth in median rental price in 3Q2024 was District 2 (Anson and Tanjong Pagar), with a 2.8% increase to $8.31 per square foot per month from $8.08 in the previous quarter.
In terms of market outlook, PropNex notes that interest in commercial shophouses has largely recovered after a lull caused by the anti-money laundering crackdown last year. The agency also suggests that retail investors could take advantage of the current softening interest rates and tentative market sentiment to explore potential purchases in the shophouse sector.
With their scarcity and ability to retain value over time, shophouses may attract more investors and occupiers looking to expand their businesses. The expected recovery of Singapore’s economy, as well as growth in the tourism sector, could also enhance the values and rentals of shophouses.