The drop in transaction values comes not from sagging demand, but rather a lack of quality supply being offered for sale.
Mostly demands for conservation shophouses would be in Districts 1 and 2, where many quality stocks that had been put on the market were sold in the first two quarters of this year.
Since then, not many new owners have made their properties available for sale.
District 1 includes places in the Central Business District (CBD) such as Amoy Street and Boat Quay; District 2 includes Chinatown, Tanjong Pagar Road, and Duxton.
Industry players reckon many owners prefer to hold on to their properties for now, as they are eyeing capital appreciation.
Giving an investor’s perspective, According to, 8M Real-Estate founder Ashish Manchharam said: “Shophouse prices have run up in the past 12 months, but rents have not caught up, leading to yield compression”.
“Owners continue to expect higher prices, which has caused a price gap between buyers and sellers – resulting in limited transactions.”
Property market observers suggest that some investors may be looking to switch to the residential sector, which seems to offer better value right now.
An analysis of URA Realis caveats data as of Tuesday showed that the value of island-wide shophouse deals eased from S$344.9 million in the second quarter to S$207.6 million in the third.
Caveats lodged so far this quarter (the latest was on Nov 1) amount to S$88.2 million. More deals are in the works, but most market watchers do not expect the second-half tally to surpass the S$520 million achieved in the first half, which in turn exceeded the S$453 million in H2 2016.
That said, the full-year 2017 figure is set to be the highest in four years. Already, the year-to-date figure of S$815.7 million is ahead of the S$707.1 million for the whole of last year. The last peak was in 2013 when S$1.27 billion worth of shophouses changed hands.
These figures exclude deals for which buyers have not lodged caveats; this could be the case for transactions involving share sales in companies that hold shophouses. There were three major non-caveated deals this year: These are the S$76 million sales of the Naumi Liora hotel comprising 10 adjoining shophouses in Keong Saik Road, the S$33 million sales of 70, 71 and 72 Boat Quay, and the nearly S$60 million sales of three shophouses in Amoy Street.
Investors are steering away from 99-year leasehold shophouses and waiting for 999-year and freehold ones to be put on the market. Investors typically find it harder to get a bigger loan quantum for shophouses with fewer than 70 years left on their leases.
Demand is stronger for conservation shophouses that are permanently approved for food & beverage use – compared to those granted temporary permission (TP) for such use. The Urban Redevelopment Authority usually grants only TP, ranging from one to three years, for F&B use for shophouses in places with traffic and car-parking issues.
F&B tenants pay the highest ground-floor rents in conservation shophouses, but these rents have generally been flat or even dipped over the past year, given the mushrooming of F&B outlets in recent years, as well as the generally soft economic conditions, said industry players.
Landlords are either signing lower rents or providing basic F&B provisions such as grease traps and electricity upgrades, the cost of which used to be borne by the incoming tenants in the past.
However, premium locations with high foot traffic still command stable rents.
Landlords also invest significant sums to re-do the facade to draw F&B tenants.
Shophouse prices, on the other hand, have risen.
For example, prices of 999-year leasehold shophouses in Amoy Street were transacting at between S$2,300 and S$2,500 per square foot of built-up area last year and earlier this year. In the last six months, two transactions were made at higher prices – S$2,900 psf for 89 Amoy Street and nearly S$4,000 psf for 52 Amoy Street. Analysts pointed out that the high psf price for No. 52 was partly due to its smallish size and lower absolute price quantum.
That said, with the general price appreciation and softening rents, gross yields on conservation shophouses in Districts 1 and 2 have eased by 0.5 percentage point in the past year. Among freehold/999-year properties, the softening has brought yields down to between 2 and 2.5 per cent, and among shophouses with 70-odd years left on the lease, to 3-3.5 per cent.
Buyers continue to be a mix of family offices (both local and overseas), ultra high net worth individuals (HNWIs) and property funds, although established property groups are also getting interested.
Despite shrinking yields, Singapore’s conservation shophouses continue to asking to buyers who value the intrinsic conception of these transferred properties. They are ready to buy into a piece of Singapore history.
Foreigners are allowed to buy entire shophouses, thus gaining ownership of land title – but only for shophouses that are on sites fully-zoned commercial and approved for commercial use.
The additional attraction of investing in commercial shophouses is that they are not liable for additional buyer’s stamp duty and seller’s stamp duty – unlike residential property.
Prices are expected to continue appreciating on the back of sustained demand and limited supply, though price hikes will be constrained by yield compression.
With limited stock of shophouses in the prime conservation shophouse districts 1 and 2, some parties are starting to look outside the CBD and in fringe areas such as Beach Road, Serangoon Road, Joo Chiat and the East Coast. Fringe properties tend to have the smaller quantum of less than S$5 million and slightly higher yields – which make them more attractive to HNWIs and family offices.
Adapted from: The Business Times, 18 November 2017