Shophouse market ends on quiet note in 2023: Knight Frank
Information collected by Knight Frank in its latest shophouse market report launched on Jan 31 reveals that a total amount of 53 shophouses worth $428.2 million were negotiated in the latter fifty percent of last year, toppling 26.4% and 35.5% compared to 1H2023 in regards to the number of shophouses sold and total sales value respectively. Beyond the 53 shophouses marketed in 2H2023, over 43 (81%) were freehold deals worth $358.9 million, while the remaining 10 were leasehold transactions worth $69.3 million.
The lesser volume comes as high rate of interest and large rate costs prompted purchasers to hold back on decision-making, says Mary Sai, executive supervisor, capital markets, at Knight Frank Singapore. “Some institutional purchasers, especially those reliant on financial debt financing and repeating rental income for favorable returns, exercised caution and withdrew to the sidelines, adopting a wait-and-see pose.”
The lower sales volume in 2H2023 was followed by a fall in costs, with the average unit cost for shophouse deals decreasing by 6.1% to $5,116 psf based upon acreage, contrasted to $5,448 psf in 1H2023. The fall was greatly driven by leasehold shophouse transactions which saw average unit cost plunge 34.2% from 1H2023 to $3,937 psf based upon acreage. In contrast, the average unit rate for property shophouses inched up 1% to $5,389 psf contrasted to 1H2023.
While shophouse activity was sturdy in the initial fifty percent of in 2023, the dominating high rate of interest setting and some other market uncertainties added to a slowdown in the market in 2H2023.
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 placement as one of the most active district for the shophouse market, with 16 units worth $132 million offered there in the latter half of last year. Sai credits the continued gentrification occurring in the district– consisting of the ongoing finish of spots combined growth Guoco Midtown on Beach Road– and its transformation right into a hip tourism destination as factors for continual demand for shophouses in the location.
Looking in advance, Sai thinks that while general need for shophouses stays undamaged due to their restricted supply and the capital appreciation they supply over the medium-to-long term, buyers have begun to withstand “improbable” rate premiums offered the existing setting. “Vendors require to balance the evergreen appeal of shophouses with the much higher levels of care amongst customers and moderate their profit requirements in order for a sale to happen in the year in advance,” she adds.
Knight Frank is predicting shophouse sales value to follow in between $1.1 billion and $1.2 billion for 2024.
Estate transactions made up 105 units (79.5%) of shophouses offered, marking a 31.4% decline y-o-y, while normal prices for this section climbed 10.1% y-o-y to $5,354 psf. Sai notes that the increase in costs has prompted private-wealth purchasers to keep funding in anticipation of more sensible price levels and lower interest rates this year.
For the whole of 2023, 132 shophouses changed hands, representing a 30.9% drop y-o-y. Overall sales value for the year appeared in at $1.2 billion, some 25% lower than the $1.6 billion racked up in 2022.
Sai highlights that interest for preservation residences has actually remained durable provided their deficiency and historic importance that underpin their potential for significant funding appraisal. In 2H2023, the sale of a shophouse at 37 Bussorah Street in the Kampong Glam Sanctuary was one of the most rewarding shophouse transaction. The vendor netted an overall profit of 1,196% when it was cost $4.8 million in July after being held for two decades.
Because of this, she expects rates to trend to degrees extra straightened with market expectations this year. “With a far better economic expectation in 2024, along with interest rates stabilising and perhaps being changed downwards, the pace of transaction activity is expected to pick up,” she continues.
Sai also posits that the number of reported transactions might be less than actual amounts. “There is every possibility that more shophouse purchases took place between July and December, going unreported without caveats being lodged.” Sai adds in that the transactions likely included wealthy buyers who “favored to be subtle”.
Nevertheless, the general ordinary price of shophouses surged upwards in 2023, climbing up roughly 10% from $4,849 psf on land area in 2022 to $5,325 psf in 2023.
