SALES of shophouses in the third quarter of 2023 dropped 19 per cent to 38 transactions from 47 deals in the previous quarter, and most of these deals were done in Districts 8 and 14, a report by PropNex on Friday (Oct 20) indicated.

Year on year, the volume of shophouse transactions in Q3 was up 5.6 per cent from the 36 deals in the same period a year ago. 

In terms of sales value, S$350.8 million deals were done in the third quarter, a 19 per cent decrease from Q2. Year on year, the value of transactions in Q3 rose 2.3 per cent from S$343 million in Q2 2022, said Wong Siew Ying, PropNex Realty’s head of research and content.

PropNex said the overall property market sentiment has softened going into the second half of the year due to macroeconomic uncertainties. The slower sales could also be because of the more stringent checks and due diligence conducted by parties involved in deals, in view of the anti-money laundering saga in August, it added.

The total volume of shophouse sales amounted to 117 deals worth S$1.1 billion for the first nine months of 2023, a drop from the 155 transactions worth S$1.3 billion in 9M 2022. 

PropNex estimates the total sales for 2023 will be far less than the 253 deals in 2021 and 191 deals achieved in 2022. Wong said that while buying interest remains, some investors are “biding their time in view of the limited selection of choice shophouses available for sale, as well as firm prices arising from the healthy growth in the shophouse sector in recent years”.

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Based on caveats lodged for the 38 deals in Q3, 58 per cent or 22 deals were priced above S$5 million, said Wong.

The bulk of the Q3 transactions were in District 8 (Little India, Jalan Besar) with nine units sold, followed by District 14 (Geylang, Eunos) and District 12 (Balestier, Toa Payoh, Serangoon) with six and five shophouses transacted respectively.

Top transactions

The biggest transaction in this quarter was a freehold three-storey shophouse on Cheong Chin Nam Road with a land area of 11,947 square feet (sq ft) which was sold for S$41 million in September, said PropNex. The unit rate achieved was S$3,432 per sq ft (psf) on land area, and is occupied by a religious society and a childcare operator. Other top transactions include a row of three adjoining two-storey freehold shophouses along Jalan Besar with a land area of 6,378 sq ft for S$38.5 million and are leased to an F&B operator on the ground floor.

Across districts, performance was uneven in terms of unit price on land area. Average prices increased quarter on quarter (qoq) for both freehold and 999-year leasehold properties in Districts 7 and 8, as well as the rest of Singapore. Prices in Districts 1, 2, 14 and 15 declined from the previous quarter. 

Wong said the rental market for shophouses is also showing signs of slowing down. Median rents had risen for seven straight quarters from Q4 2021, buoyed by post-Covid optimism and recovery in the tourism sector. “After peaking at S$6.21 psf per month in Q2, shophouse median rentals eased by 3.9 per cent qoq to S$5.97 psf per month in Q3,” she added.

Rental deals done in Q3 were valued at S$9.2 million (926 deals), higher than the S$9.25 million inked in Q2 2023. In the first nine months of 2023, the shophouse leasing market recorded 2,756 transactions worth S$28.3 million, surpassing the same period last year (9M 2022) which achieved 2,685 transactions valued at S$25.4 million. 

PropNex expects the shophouse leasing market to meet or possibly surpass 2022’s performance of 3,589 deals worth S$34 million for 2023.

Wong said despite the dip in sales in Q3, the market is expected to remain fairly resilient, given the tight supply and recovery in the tourism sector. It is possible that the flight-to-safety mindset among investors which was rampant following the pandemic in the past years has waned slightly, she added.

Safe-haven asset

But she believes that shophouses will still be a safe-haven asset for many investors due to their limited stock and heritage value. “Given their scarcity and ability to better retain value over time, the shophouse investment sales market should remain fairly resilient – supported by occupiers looking to acquire space for business operations post-pandemic, and investors looking to add a defensive asset to their portfolio.”

PropNex expects shophouse leasing activity to moderate slightly amid higher rentals and cautious sentiment as economic growth outlook remains muted.