Shophouse Investment Interest Remained Brisk 3Q2024 Despite Fewer Caveated Deals Propnex
In the third quarter of 2024, there were 16 recorded transactions of caveated shophouses, which is a 20% decrease from the 20 transactions in the second quarter. This represents a 56% decline from the 36 deals recorded in the same period in 2023, as noted in an Oct 28 report by PropNex Research.
The total sales value of the 16 transactions in the third quarter amounted to $121.6 million, reflecting a 35.5% decline from the second quarter and a 56.4% decrease from the $278.6 million recorded in the third quarter of 2023.
However, PropNex believes that these figures may not be an accurate reflection of the market. The agency points to media reports and information from real estate agents, which suggest that investment interest in shophouses remained strong. This is likely due to the attractive interest rates and realistic prices of shophouses currently on the market.
PropNex also acknowledges that some shophouse transactions may not have been reflected in the Urban Redevelopment Authority (URA) data, possibly due to buyers choosing not to file caveats or conducting transactions through the sale of shares in special-purpose vehicles. Thus, the actual number of shophouse transactions in the third quarter of 2024 is likely higher than the recorded numbers.
The highest valued transaction in the third quarter, according to the URA caveats, was the sale of Atland House, a freehold five-storey shophouse on Bukit Timah Road, for $17 million.
However, there were several higher valued transactions reported in the media that were not reflected in the URA data, notes PropNex. These include the September sale of a four-storey conservation shophouse on North Bridge Road for $42 million, and the reported sale of three adjoining shophouses on North Bridge Road for $72 million in October.
PropNex’s report also highlights a softening in shophouse prices in prime districts compared to the previous year. Freehold and 999-year leasehold shophouses in Districts 1 and 2 saw a 22% decline, while prices in Districts 7 and 8 dropped by 13%. The rest of Singapore saw a 12% decrease in prices per square foot (psf) based on land area.
The prices for 99-year leasehold shophouses mirrored that of freehold and 999-year leasehold shophouses, recording a similar 22% decrease from the previous year. However, PropNex notes that there were only two 99-year leasehold shophouse transactions in the third quarter, which may not accurately represent the sector’s capital values.
On the rental front, demand for shophouses in prime districts remained strong, with 927 new contracts signed in the third quarter, amounting to a total value of about $10.7 million. This is a new record for the highest quarterly leasing value in the shophouse sector, according to the report.
For the first three quarters of 2024, there were 2,689 shophouse rental contracts signed, with a combined value of $30.6 million. This represents a 7.7% increase from the same period in 2023, which recorded a total value of $28.4 million.
Despite the increase in rental contract value, shophouse rents moderated by 2.8% in the third quarter to $6.64 psf per month, breaking three quarters of consecutive growth since 3Q2023. On a yearly basis, rents saw an 11% increase.
According to PropNex, the moderation of shophouse rents was influenced by declining rental prices in popular districts. The median shophouse rent in District 15, encompassing Katong and Joo Chiat, saw a 6.8% decrease, while District 8, covering Little India, saw a 4.7% decline. District 1, including Raffles Place, Marina and Boat Quay, saw the steepest drop in median rental price, with a decrease of 8% to $7.86 psf per month. The only district to see a growth in rental prices was District 2, with a 2.8% increase from $8.08 psf per month to $8.31 psf per month.
Looking at the market outlook, PropNex notes that interest in shophouses has largely recovered following a period of slowdown due to anti-money laundering regulations last year. The agency adds that retail investors could take advantage of the current low interest rates and market sentiment to explore potential purchases in the shophouse sector.
With their scarcity and ability to retain value over time, PropNex predicts that sales momentum in the shophouse investment market will continue to increase, driven by both occupiers looking to expand their businesses and investors seeking defensive assets to add to their portfolios.
The smaller size and lower land cost of the Clementi Avenue 1 site could be the key factors behind its rising popularity among developers. In addition, there has been a decrease in the number of bidders for this site, with only three competing for each of the other two sites. Elta Showflat has also been included as part of the development.
The projected economic recovery of Singapore, along with the anticipated growth in the tourism sector driven by various events and activities, is also expected to drive up the values and rentals of shophouses in the coming years.