Shophouse market ends on quiet note in 2023: Knight Frank

Information compiled by Knight Frank in its latest shophouse industry report launched on Jan 31 shows that a total amount of 53 shophouses worth $428.2 million were negotiated in the latter fifty percent of in 2023, toppling 26.4% and 35.5% compared to 1H2023 in regards to the number of shophouses sold and overall sales worth respectively. Beyond the 53 shophouses sold in 2H2023, over 43 (81%) were freehold purchases worth $358.9 million, while the remaining 10 were leasehold transactions worth $69.3 million.

The top shophouse deal in 2H2023 was the sale of 3 units on Jalan Besar in District 8 last September for $38.5 million. District 8 maintained its setting as one of the most involved district for the shophouse market, with 16 units worth $132 million sold there in the last half of 2023. Sai credits the continued gentrification happening in the district– consisting of the continuous completion of spots combined development Guoco Midtown on Coastline Road– and its improvement into a hip tourism destination as factors for sustained demand for shophouses in the area.

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

Looking ahead, Sai believes that while total demand for shophouses stays intact as a result of their limited supply and the capital appraisal they use over the medium-to-long term, buyers have actually begun to withstand “unlikely” cost premiums given the current setting. “Sellers require to balance the evergreen appeal of shophouses with the much higher degrees of care among purchasers and moderate their revenue expectations in order for a sale to materialise in the year in advance,” she adds.

Sai also posits that the quantity of reported purchases might be less than real numbers. “There is every possibility that even more shophouse transactions took place in between July and December, going unreported without warnings being lodged.” Sai adds in that the deals likely entailed wealthy customers that “favored to be low-key”.

Nonetheless, the general typical cost of shophouses surged up in 2023, climbing up almost 10% from $4,849 psf on land area in 2022 to $5,325 psf in 2023.

The reduced sales volume in 2H2023 was guided by a fall in rates, with the average unit cost for shophouse purchases decreasing 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 purchases which saw common unit rate dive 34.2% from 1H2023 to $3,937 psf based upon land area. On the other hand, the average unit rate for freehold shophouses inched up 1% to $5,389 psf contrasted to 1H2023.

Sai highlights that interest for preservation houses has actually continued to be durable provided their deficiency and historic relevance that underpin their prospective for substantial capital appreciation. In 2H2023, the sale of a shophouse at 37 Bussorah Road in the Kampong Glam Conservation Area was the most rewarding shophouse deal. The vendor bagged a general return of 1,196% when it was sold for $4.8 million in July after being held for 20 years.

Therefore, she expects rates to trend to levels more lined up with market expectations this year. “With a far better economic outlook in 2024, as well as with rate of interest stabilising and possibly being adjusted downwards, the pace of deal task is assumed to take up,” she continues.

Midtown Modern floor plan

For the entire of 2023, 132 shophouses shifted hands, representing a 30.9% slip y-o-y. Complete sales value for the year appeared at $1.2 billion, some 25% less than the $1.6 billion racked up in 2022.

The lesser volume comes as high interest rates and large cost costs urged buyers to hold back on decision-making, claims Mary Sai, executive director, capital markets, at Knight Frank Singapore. “Some institutional buyers, particularly those reliant on liability financing and repeating rental earnings for favorable returns, practiced caution and withdrew to the sidelines, embracing a wait-and-see pose.”

While shophouse event was robust in the very first half of in 2023, the reigning high rate of interest environment and some other industry uncertainties contributed to a slowdown on the market in 2H2023.

Freehold purchases composed 105 units (79.5%) of shophouses marketed, noting a 31.4% decrease y-o-y, while normal costs for this section climbed 10.1% y-o-y to $5,354 psf. Sai notes that the increase in rates has actually triggered private-wealth customers to withhold resources in anticipation of even more sensible price levels and reduced rates of interest this year.

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