Shophouse market sentiment turned cautious in 2H2022: Knight Frank

Shophouse sales activity saw a decline in 2H2022 following six months of record-breaking performance. According to Knight Frank Singapore, 67 shophouses were transacted in the second half of the last year with a combined sales value of approximately $625.2 million; a 35.6% decline in transaction value Champions Way Condo compared to 1H2022. Mary Sai, executive director of capital markets at the consultancy, attributes the damper activity to the recent surge in interest rates.

As interest rates surpassed the yield from shophouse income, institutional investors began to shy away from the asset class. According to Ms. Sai, out of total shophouses transacted in 2H2022, 54 units (80.6%) were freehold properties. Totalling $469.9 million in sales value and had an average price of $4,802 psf on the land area.

Meanwhile, the remaining 13 shophouses transacted in 2H2022 were leasehold properties totalling $155.3 million in value. The average price of the leasehold shophouses was $4,275 psf on the land area.

Notable shophouse deals in 2H2022 include the acquisition of 11 shophouses along Lavender Street by Hafary Holdings last July for $71.3 million, and a shophouse unit at 35 Rowell Road was sold for $4.9 million in October 2022.

District 8 however remained a hotspot with 26 shophouses transacted for about $182.5 million the highest among all districts, which had less than 10 transactions each.

Ms. Sai further notes that shophouse owners are becoming increasingly cognisant that holding the asset over a longer investment horizon would likely lead to exponential price appreciation. Thus, some prospective sellers may have dropped out of the market contributing to the slowdown in transaction activity. Knight Frank is expecting total shophouse sales value to come in a range of $1.3 to $1.5 billion this year.

Meanwhile, Sai believes that the shophouse market could see sustained activity from private sources of wealth, comprising high-net-worth investors and family offices from around the region. Districts 7 and 8 are expected to remain popular among buyers and investors, drawn by the potential of an upward moving price trend.