Sentiment in the shophouse market has turned cautious due to higher interest rates and borrowing costs. At the same time, property owners are reluctant to reduce their selling prices.
However, family offices and high-net-worth individuals who can pay entirely in cash or accept a lower loan-to-value limit are less affected by the higher cost of financing.
The combination of tight supply and a widening gap of 10% to 15% between bid and ask prices has led to a contraction in the transaction volume of conservation shophouses.
According to Edge Property, based on caveats lodged as of March 28, there were 25 shophouse transactions in 1Q2023, compared to 52 deals in 1Q2022. In terms of transaction value, it is a 39% y-o-y contraction to $284.9 million in 1Q2023 from $467.5 million a year ago.
Compared to the 34 transactions worth $308.5 million in 4Q2022, transaction value in 1Q2023 was down 7.6%. Nevertheless, while transaction volume may have fallen, prices have held steady.
Big-ticket deals pull up average prices
Two transactions in 1Q2023 have pulled up the average transaction price of shophouses. Firstly, a row of six shophouses along Serangoon Road that fetched $62.5 million in January and a six-storey shophouse at Boat Quay that recently changed hands for $37 million.
Singapore Maritime Officers’ Union was the buyer of the six shophouses at 322 to 332 Serangoon Road at $62.5 million in January this year. Meanwhile, the buyer of the 999-year leasehold, six-storey shophouse at 52 Boat Quay that changed hands for $37 million is said to be real estate company Tai Tak Estates. Based on the built-up area of 6,460 sq ft, the price translates to $5,740 psf and is considered one of the highest psf prices achieved to date.
Demand for conservation shophouses in the CBD and Chinatown by family offices and core real estate funds has driven prices of 999-year and freehold conservation shophouses in these areas to the $5,500 to $6,000 psf range.
Some Singapore-based investors who had acquired shophouses in the CBD and Chinatown in Districts 1 and 2 are now looking at the Little India and Kampong Glam conservation areas in the city fringe. For instance, in October 2022, 8M Real Estate acquired a block of five shophouses in Jalan Besar for $40 million. Back in late 2019, 8M Real Estate purchased the iconic Eu Yan Sang Building at 265 to 271 South Bridge Road for $54 million from Eu Realty (Singapore).
Over the years, some real estate funds, family offices and corporate companies have also been accumulating their portfolio of shophouses
In December 2022, a stretch of six shophouses at 311 to 321 Geylang Road changed hands for $42.6 million. The buyer was Aspen Prop, an entity linked to Lawrence Leow, chairman and CEO of conglomerate Crescendas Group.
There had been some notable deals in 2022 of portfolios of shophouses. In March 2022, a row of 17 shophouses at 17 to 33 Jalan Sultan were sold for $74.8 million.
The buyer was an 80:20 joint venture between Hong Kong-based accommodation operator Weave Living and Singapore-listed property developer SLB Development, while Hotel Clover was the seller. After extensive refurbishments, the new 65-unit serviced apartment property, Weave Suites — Midtown, opened at 33 Jalan Sultan on March 8, 2023. Lavender Place, a block of 11 shophouses at the junction of Lavender Street and Foch Road was sold to Hafary Holdings in July 2022 for $71.28 million in Jul 2022. The seller was Broadway Coffeeshop.
In May 2022, Hilltop Capital — whose shareholders are Aw and Sons Capital and Aw Kim Cheng Realty, entities linked to Kimen Group — sold the 45-room Hotel Soloha on Teck Lim Road, just off Keong Saik Road. The transaction price was $53.4 million, and the buyer was said to be a high-net-worth individual.
These buyers are adopting a long-term investment horizon as they believe that the value of conservation shophouses will continue to rise over time due to their limited supply, unique architecture and heritage value.
While Chinese and Hong Kong investors generally prefer freehold or 999-year leasehold properties, some are open to 99-year leasehold properties. This is because they find the 2% gross yields for freehold properties too low and the 3% to 3.5% gross returns for 99-year leasehold properties to be more attractive.