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Shophouse market sentiment turned cautious in 2H2022: Knight Frank

Notable shophouse deals in 2H2022 include the sale of 11 shophouses along Lavender Street to Hafary Holdings for $71.3 million (Picture: The Edge Singapore)

SINGAPORE (EDGEPROP) - Sales activity in the shophouse market contracted in 2H2022 following the “record-breaking” half-yearly performances recorded between 1H2021 and 1H2022, according to  Knight Frank Singapore.

Read also: Prime retail rents to see further recovery in 2023, with Orchard Road leading the way

Data compiled in a market research report by the consultancy shows that 67 shophouses changed hands in the second half of last year, with the deals amounting to about $625.2 million in value. This represents a 35.6% decline in transaction value compared to 1H2022 and a 38.7% decline y-o-y. For the whole of 2022, 186 shophouses were transacted, reflecting a sales value of $1.6 billion.

Mary Sai, executive director of capital markets at Knight Frank Singapore, attributes the damper activity to the recent surge in interest rates. “As interest rates surpassed the yield from recurring shophouse income, institutional investors began to shy away from the asset class,” she remarks.

Out of the shophouses that exchanged hands in 2H2022, 54 units (80.6%) were freehold properties. “This was about half of the sales volume registered half-yearly since 2021, where 102 to 95 units were transacted within each period,” says Sai. The freehold shophouses transacted in 1H2022 totalled $469.9 million in sales value and had an average price of $4,802 psf on the land area.

Meanwhile, 13 shophouses transacted in 2H2022 were leasehold properties, totaling $155.3 million in sales value. “This was 34.6% lower than the $237.6 million registered in the first half of the year, and almost two-thirds of the $242.2 million registered in 2H2021,” observes Sai. The leasehold shophouses transacted in 2H2022 had an average price of $4,275 psf on the land area.

Notable shophouse deals in 2H2022 include the acquisition of 11 shophouses along Lavender Street by Hafary Holdings last July for $71.3 million. The group plans to use the 99-year leasehold shophouses to establish its new flagship store.

Sai points out that amid the general slowdown in the shophouse market, District 8 remained a hotspot. In 2H2022, 26 shophouses in District 8 changed hands for about $182.5 million, exceeding every other district which chalked up less than ten transactions each.

The top transaction in District 8 during 1H2022 was the sale of a row of five conservation shophouses along Jalan Besar by 8M Real Estate for $40 million last September. Additionally, a shophouse unit at 35 Rowell Road was sold for $4.9 million in October 2022. The unit had previously changed hands in June 2022 for just under $4.1 million, meaning the seller had reaped a gain of around 20%. "Nonetheless, subsequent sales within months of each other remain more the exception than the rule," remarks Sai, adding that shophouses held for a period spanning decades typically see returns exceeding 100% when the property is sold.

Looking ahead, Sai believes that shophouses could see sustained from private sources of wealth, comprising high-net-worth investors and family offices from around the region. “Family offices and individuals are expected to form the bulk of the purchasers, acquiring in strategic locations, adding value through refurbishment, changing up the tenancy types to trendy occupiers, and increasing rents, as private capital investors believe in the long-term forward-looking appreciation of shophouses in affluent Singapore.” In addition, locals in Singapore are also scouring the shophouse sector for opportunities.

However, shophouse owners are becoming increasingly cognisant that holding the asset over a longer investment horizon would likely lead to exponential price appreciation, Sai notes. As such, some prospective sellers may have dropped out of the market, contributing to the slowdown in transaction activity amid an increasingly cautious climate. Knight Frank is projecting total shophouse sales value to come in at a "more moderate range" of $1.3 billion to $1.5 billion this year.

Nonetheless, Sai expects shophouses in Districts 7 and 8 to continue attracting investors. “Drawn by the potential of an upward moving price trend supported by tourist activity in the city fringe and consequent gentrification of these areas, investors could find value purchases at more affordable levels in Districts 7 and 8 when compared to the higher overall prices in Districts 1 and 2,” she remarks.

Check out the latest listings near Lavender Street, Jalan Besar, Rowell Road

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