SINGAPORE - Shophouse transactions declined in the second half of 2022 as investors turned cautious amid rising interest rates, according to a report by Knight Frank Singapore released on Wednesday.
Some 67 shophouses changed hands for $625.2 million between July and December 2022, with the transaction value dipping 35.6 per cent compared with the first half of 2022.
The shophouse market had posted record-breaking transaction figures in each half-yearly period between 2021 and the first half of 2022, but as interest rates surpassed the yield from recurring shophouse income, institutional investors began to shy away from the asset class, said the real estate consultancy.
A total of 187 shophouses changed hands in 2022 – driven by the 120 transactions that took place in the first half of the year – compared with 244 such transactions in 2021.
According to Knight Frank, shophouse transactions here reached $1.6 billion in 2022, falling from the all-time high of $1.9 billion in 2021. In 2020, the overall sales value was $912.7 million.
Most of the shophouses sold in the second half of 2022 were freehold, with the 54 units making up 80.6 per cent of the total sales volume.
This was about half of the sales volume clocked in each half-yearly period since 2021, when between 95 and 102 units were transacted.
There were 13 leasehold shophouse deals worth $155.3 million in the second half of 2022, down by 34.6 per cent from the $237.6 million in the first half of the year, and about two-thirds of the $242.2 million registered in the second half of 2021.
Despite the slowdown, notable deals were sealed, such as the row of 11 leasehold shophouses in Lavender Street that were sold for $71.3 million to Hafary Holdings in July.
Shophouses in the Farrer Park and Serangoon area (District 8) also remained a hot spot amid the slowdown, with 26 deals worth $182.5 million lodged in the second half of 2022.
This was in contrast to other districts where fewer than 10 transactions took place in the same period, noted Knight Frank.
The $40 million deal in September for a row of five conservation shophouses in Jalan Besar by 8M Real Estate topped the deals in this district, and it was also among the top five deals in the second half of the year.
A shophouse unit at 35 Rowell Road changed hands for $4.9 million in October – about 21 per cent higher than its previous sale in June, when it went for about $4.1 million.
“Nonetheless, subsequent sales within months of each other remain more the exception to the rule,” Knight Frank added.
“For most shophouse owners or investors, the longer the unit is held, the greater the returns over time, where a holding period spanning decades typically results in more than 100 per cent returns.”
Knight Frank said transactions are expected to slow in 2023, although shophouses in the Bugis and Serangoon areas are still likely to attract investors due to the upward price trajectory that is supported by tourist activity and gentrification.
Family offices and individuals are expected to form the bulk of the buyers, which may drive up rents as they refurbish the property and change up tenancy types.
Given the growing cautious climate, the shophouse market is not likely to reach the levels of 2021 and 2022, Knight Frank added. It expects sales to reach between $1.3 billion and $1.5 billion in 2023.