Shophouse market sentiment turned cautious in 2H2022: Knight Frank

The shophouse market in Singapore saw contracted sales activity in 2H2022 following record-breaking activity between the first half of 2021 and first half of 2022, according to Knight Frank Singapore. Data compiled by the consultancy shows that 67 shophouses were transacted in the second half of last year for a total value of $625.2 million, reflecting a 35.6% decline in transaction value when compared to 1H2022 and a 38.7 decline year-on-year. For the entire year of 2022, 186 shophouses were transacted, totaling $1.6 billion in value.

Mary Sai, Executive Director of Capital Markets at Knight Frank Singapore, notes that the dampened activity is likely due to a spike in interest rates exceeding the yield from recurring shophouse income. Out of the shophouses that exchanged hands in 2H2022, a majority of the units (80.6%) were freehold properties and 54 units in total. This was half of the sales volume registered between 1H2021 and Tengah EC 1H2022, with an average price of $4,802 psf on the land area.

The remaining 13 were leasehold properties, totaling $155.3 million in sales value. This was 34.6% lower than the $237.6 million registered in 1H2022 and almost two-thirds of the $242.2 million registered in 2H2021, with an average price of $4,275 psf on the land area.

One significant shophouse transaction in 2H2022 was the acquisition of 11 shophouses along Lavender Street by Hafary Holdings, for around $71.3 million.

District 8, in particular, remained a hotspot during the period. 26 shophouses in the district changed hands in 2H2022 for $182.5 million. The top transaction was a row of five conservation shophouses on Jalan Besar by 8M Real Estate for $40 million.

Additionally, a shophouse on 35 Rowell Road was sold for $4.9 million in October 2022, having previously exchanged hands earlier in the year for just under $4.1 million.

With private capitals, high-net-worth investors and family offices from around the region showing sustained interest in the asset class, Knight Frank is expecting shophouse sales value to come in a more moderate range, from $1.3 billion to $1.5 billion, this year.

Districts 7 and 8, with their potential for upward price trends supported by gentrification, could continue to be targeted areas for investors. However, many sellers have removed themselves from the market, leading to an increased cautiousness amongst purchasers.

All in all, while 2H2022 saw a downturn in activity, shophouses remain an attractive investment opportunity – and one with substantial returns in the long-term.