Shophouse Investment Interest Remained Brisk 3Q2024 Despite Fewer Caveated Deals Propnex
During the third quarter of 2024, there were 16 shophouse transactions with caveats lodged, marking a 20% decrease from the 20 deals recorded in the second quarter. Comparing the same period last year, the number of transactions fell by 56%, from 36 deals in the third quarter of 2023, according to a report by PropNex Research on October 28.
The 16 transactions in the third quarter of 2024 amounted to a sales value of $121.6 million, representing a drop of 35.5% from the second quarter and a significant decrease of 56.4% from the $278.6 million recorded in the third quarter of 2023.
Century Square has recently undergone a revamp, bringing about a more intimate shopping experience for its visitors. The mall boasts a diverse range of establishments, including educational centers, lifestyle shops, as well as dining options. Besides retail, Century Square also houses a cinema and a gym, giving shoppers the added option of entertainment and fitness. Additionally, the mall is also home to Aurelle of Tampines EC, providing residents with the convenience of having a residential option within the mall premises.
However, PropNex points out that the number and value of caveated sales transactions may not be an accurate reflection of the market. The agency states that based on information from media reports and real estate agents, interest in shophouse investments remained strong, as buyers were encouraged by lower interest rates and reasonable shophouse prices.
In addition, some shophouse deals that took place in the third quarter were not reflected in the records of the Urban Redevelopment Authority (URA), possibly because buyers chose not to lodge caveats, or because the transactions were conducted through the sale of shares in special-purpose vehicles. As a result, the actual number of sales could be higher.
According to URA data, the highest-value shophouse transaction in the third quarter of 2024 was the sale of Atland House, a five-storey freehold shophouse on Bukit Timah Road, for $17 million.
However, PropNex notes that several higher-value shophouse deals have been reported in the media but were not reflected in URA records. These include the sale of a four-storey, 999-year leasehold conservation shophouse on North Bridge Road for $42 million in September, and the sale of three adjoining 999-year leasehold shophouses on North Bridge Road for $72 million in October.
The report also highlights a softening of shophouse prices in prime districts compared to the previous year. Prices for freehold and 999-year leasehold shophouses in Districts 1 and 2 declined by 22% from the previous year, while prices in Districts 7 and 8 decreased by 13%. Shophouses in the rest of Singapore saw a smaller decrease of 12% based on per square foot of land.
The same trend was observed for 99-year leasehold shophouses, which saw a 22% decrease in prices compared to the previous year. However, PropNex notes that only two transactions for 99-year leasehold shophouses were recorded in the third quarter, which may not be an accurate representation of the sector’s capital values.
In terms of leasing, demand for shophouses remained strong in prime districts, with 927 rental contracts signed in the third quarter, amounting to a value of approximately $10.7 million. This sets a new record for the highest quarterly leasing value in the shophouse sector, according to the report.
For the first three quarters of 2024, a total of 2,689 shophouse rental contracts were signed, with a combined contract value of $30.6 million, representing a 7.7% increase from the $28.4 million recorded in the same period last year.
Despite the overall increase in rental contract value, shophouse rents saw a 2.8% decrease from the previous quarter to $6.64 per square foot per month (psf pm). This ended three consecutive quarters of growth since the third quarter of 2023. On a yearly basis, rents still increased by 11%.
PropNex states that the drop in rental prices in popular districts had a significant impact on the moderation of shophouse rents this quarter. The median rent in District 15, which includes Katong and Joo Chiat, fell by 6.8% from the previous quarter, while District 8, which covers Little India, saw a decrease of 4.7%. In District 1, which includes Raffles Place, Marina and Boat Quay, median rental prices saw the most significant decrease, dropping by 8% to $7.86 psf pm. The only district that saw an increase in median rental prices was District 2 (Anson and Tanjong Pagar), which saw a 2.8% growth to $8.31 psf pm.
Looking ahead, PropNex notes that interest in commercial shophouses has recovered after a lull due to the anti-money laundering crackdown last year. The agency adds that retail investors may take advantage of lower interest rates and tentative market sentiment to explore investment opportunities in the shophouse sector.
Additionally, the expected economic recovery of Singapore, coupled with strong growth in the tourism sector driven by various events and activities, is expected to enhance the values and rentals of shophouses.
