Shophouse market ends on quiet note in 2023: Knight Frank
Sai emphasize that demand for conservation homes has actually stayed resilient provided their shortage and historic importance that underpin their possible for considerable funding appraisal. In 2H2023, the sale of a shophouse at 37 Bussorah Road in the Kampong Glam Sanctuary was one of the most successful shophouse purchase. The seller nabbed a total profit of 1,196% when it was sold for $4.8 million in July after being held for two decades.
Sai even posits that the number of declared transactions might be less than actual numbers. “There is every possibility that even more shophouse purchases happened between July and December, going unlisted without caveats being lodged.” Sai includes that the purchases most likely included wealthy purchasers that “favored to be low-key”.
The top shophouse offer 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 marketed there in the latter half of 2023. Sai credits the ongoing gentrification happening in the area– including the ongoing finalization of landmark integrated development Guoco Midtown on Coastline Road– and its improvement right into a hip tourism location as reasons for sustained demand for shophouses in the area.
Therefore, she expects costs to trend to levels much more aligned with market requirements this year. “With a far better financial overview in 2024, along with rates of interest stabilising and possibly being changed downwards, the pace of transaction activity is expected to take up,” she proceeds.
While shophouse activity was robust in the very first half of in 2023, the prevailing high rate of interest atmosphere and other industry dilemmas contributed to a stagnation in the market in 2H2023.
Looking ahead, Sai thinks that while overall demand for shophouses stays undamaged due to their restricted supply and the funding appreciation they provide over the medium-to-long term, buyers have started to resist “improbable” rate costs provided the existing atmosphere. “Vendors require to stabilize the evergreen popularity of shophouses with the higher degrees of caution among customers and moderate their revenue requirements in order for a sale to happen in the year ahead,” she includes.
Information collected by Knight Frank in its newest shophouse industry report published on Jan 31 displays that an overall of 53 shophouses cost $428.2 million were transacted in the final half of in 2023, tumbling 26.4% and 35.5% matched up to 1H2023 in with regards to the range of shophouses marketed and total sales value respectively. Out of the 53 shophouses marketed in 2H2023, over 43 (81%) were freehold deals worth $358.9 million, while the remaining 10 were leasehold purchases worth $69.3 million.
The lower sales volume in 2H2023 was followed by a fall in costs, with the standard unit cost for shophouse deals decreasing by 6.1% to $5,116 psf based upon land area, compared to $5,448 psf in 1H2023. The loss was mostly driven by leasehold shophouse deals which saw average unit price plunge 34.2% from 1H2023 to $3,937 psf based on land area. In contrast, the average unit cost for property shophouses inched up 1% to $5,389 psf contrasted to 1H2023.
Freehold purchases comprised 105 units (79.5%) of shophouses marketed, noting a 31.4% reduction y-o-y, while average rates for this section rose 10.1% y-o-y to $5,354 psf. Sai mentions that the surge in rates has motivated private-wealth purchasers to keep funding in anticipation of even more practical price levels and reduced rate of interest this year.
Hillock Green showflat location
For the whole of 2023, 132 shophouses shifted hands, standing for a 30.9% fall y-o-y. Total sales worth for the year appeared at $1.2 billion, some 25% lower than the $1.6 billion racked up in 2022.
The reduced quantity comes as high rate of interest and big cost premiums triggered buyers to hold back on decision-making, says Mary Sai, executive supervisor, capital markets, at Knight Frank Singapore. “Some institutional customers, especially those reliant on financial debt financing and repeating rental revenue for positive gains, practiced care and withdrew to the sidelines, embracing a wait-and-see position.”
However, the overall typical rate of shophouses surged upwards in 2023, climbing roughly 10% from $4,849 psf on land location in 2022 to $5,325 psf in 2023.
Knight Frank is forecasting shophouse sales value to follow in between $1.1 billion and $1.2 billion for 2024.
