Shophouse Sales Volume
After reaching a beak of 74 deals in 2Q 2021, the number of shophouse sales transactions declined gradually to 35 shophouse deals, representing a 44.4% year-on-year (yoy) contraction in the number of transactions.
The 35 shophouse transactions in 3Q 2022 is Worth a total of $339.1 million, which is 31.4% lower than the $494 million transacted in the preceding quarter.
The decline in the number of shophouse transactions in 3Q 2022 is sharper than the decrease in the total transaction value. As a result, the average size of each shophouse transaction at $9.69 million in the third quarter is higher than the average $7.38 million for each deal in 2Q 2022.
Figure 1: Number of quarterly sale transactions
Shophouse price trend
The quarterly price trend of transacted shophouses is relatively volatile as the characteristics of each shophouse can vary widely. However, the overall price trend of shophouses has increased since reaching the bottom in 2Q 2022.
Although the median transacted price of a shophouse in 3Q 2022 slipped 3.2% quarter-on-quarter (qoq) to $4,434 psf, it still registered a 40% yoy increase from a year ago.
The price weakness in the third quarter of 2022 comes on the back of a drop in the number of shophouse sale transactions.
Figure 2: Shophouse quarterly price trend
Shophouse Rental Market
Shophouse rental rates contracted 15.0% from March to September 2020, when the pandemic adversely affected investors’ and consumers’ sentiments at that time. Since then, the rental rates of shophouses have increased steadily.
The median monthly rentals of shophouses increased 2.7% qoq in 3Q 2022 to $5.65 psf. Compared to the same period one year ago, the rental rates expanded 15.3% year-on-year.
The shophouse rental transaction volume has also increased steadily since mid-2020. In 3Q 2022, it rose 6.8% qoq to $8.88 million for the July to September period. This translate to an average of $9,820 per leasing transaction.
Figure 3: Shophouse median rental & total rental value
Freehold and 99-year leasehold Shophouses
Typically, a majority of the transacted shophouses are freehold or come with long leasehold land tenure, such as 999-year leasehold properties.
ln 3Q 2022, 82.9% of the transacted shophouses are freehold and long leasehold properties. The remaining 17.1% of the shophouses that were sold in the third quarter sit on 99-year leasehold land.
A mixture of freehold and 99-year leasehold shophouses can be found in most locations where there is a high number of historical shophouses. For example, in Chinatown, Little India, and Tanjong Pagar, a freehold shophouse can be located across the street from a 99-year leasehold one.
Figure 4: Freehold and 99-year leasehold shophouse sales transactions as a percentage of total sales
Overall Market Update & Ouﬂook
The Singapore shophouse property market is enjoying a good bull run for the past nine quarters, where the median transacted prices had doubled from $2,150 psf in 2Q 2020 to $4,434 psf in 3Q 2022.
Demand remains healthy as investors are still eager to acquire commercial real estate, such as shophouses. The hike in Additional Buyer’s Stamp Duty (ABSD) as part of the property market cooling measures implemented by the government had driven some property investors to the commercial property market.
After two years of rising prices and active trading, the number of available shophouses for sale is thinning. As a result, the number of shophouse sales declined in 2022. in the first nine months of this year, there are 154 reported shophouse sale transactions. This is 20.6% fewer than the number of shophouse sale transactions in the first nine months of 2021.
The rising rentals had prompted some shophouse owners to rise the rents to generate leasing income from their shophouses, rather than to put up the properties for sale. This contributes to the drop in the number of available shophouses for sale.
The latest round of cooling measures would have little impact on the shophouse property market. The property curbs will mainly affect the HDB resale housing market and HDB flat owners, which is a different market segment compared to the commercial shophouse market.
The rising mortgage rates could reduce the demand for real estate from some investors. However, the rising rates may not deter other investors who wish to invest in real estate as a hedge against inflation and for wealth preservation. Furthermore, there is a limited stock of shophouses in Singapore. As a result, the investment demand for shophouses is expected to remain buoyant in the coming months.