Sales of commercial shophouses fell to their lowest quarter in 13 years in the final three months of 2023 as the market turned cautious after a billion-dollar case of money laundering in Singapore came to light in August.
Caveats were filed for just 15 transactions that quarter, compared with 37 deals between July and September. In terms of transaction value, the deals valued at $95 million from October to December 2023 represented a 70 per cent plunge from nearly $321 million recorded in the same period in 2022.
This is the lowest quarterly sales based on transaction data since 2010, noted a report by property agency PropNex released on Jan 19.
The year on the whole saw a notable slowdown in the once-bustling commercial shophouse market, with 131 shophouses worth about $1.14 billion changing hands. This is down from 191 deals worth $1.6 billion in 2022.
This is the lowest sales volume achieved in a year since 2019, when 123 shophouses fetched a total of $916 million.
PropNex head of research and content Wong Siew Ying said there were fewer big-ticket acquisitions in the final quarter of 2023. She attributed the lacklustre performance to a combination of factors, including a soft economic outlook and heightened due diligence following the anti-money laundering blitz.
At least 10 foreigners have been arrested in what is one of Singapore’s largest anti-money laundering operations, where $2.8 billion in cash and assets were seized.
Meanwhile, the market slowdown also means that owners who were initially confident with price hikes earlier in the year are now more open to negotiation, property agents told The Straits Times.
Mr Richard Tan, founder of PropNex Shophouse Elites, which specialises in the shophouse market, said many owners raised their prices after the last round of property cooling measures in April 2023. The higher additional buyer stamp duty (ABSD) rates on residential properties drove investors’ interest to the commercial shophouse market.
Currently, Singaporeans buying their second residential property would have to pay an ABSD rate of 20 per cent, and 30 per cent for subsequent properties.
Permanent residents pay 30 per cent ABSD on their second residential property and 35 per cent for subsequent properties. Foreigners bear the brunt of the new measures as they now have to pay a rate of 60 per cent when buying any residential property, up from 30 per cent.
Mr Tan said many foreigners see commercial shophouses as a “safe haven to park their wealth”.
“After the money laundering crackdown, we saw fewer foreign buyers. Owners did not immediately drop their asking prices,” he added.
“For months, both owners and buyers adopted a wait-and-see approach. But after a long, lull period and a notable drop in transaction volumes, some owners are now more open to negotiation.”
Mr Tan gave an example of a freehold five-storey shophouse in Upper Circular Road conservation area. The owner had asked for $40 million, but the highest offer received was at $35 million. Both owner and buyer have proceeded to discuss the terms and conditions of the sale, he said.
But there are still some owners who are firm on their asking prices as the leasing market is good and they are not in a hurry to sell, he added.
District 8 (Little India and Jalan Besar) dominated shophouse sales in 2023, with 44 transactions, the PropNex report noted, citing caveat data. This significantly surpassed the next most popular area, District 14 (Geylang and Eunos), where 18 deals were done in the year.
The top transaction in the last three months of 2023 was the sale of a 999-year leasehold four-storey shophouse in Serangoon Road for $18.5 million in November.
Caveats were not lodged for several transactions in prime locations in Districts 1 and 2, PropNex noted.
There were fewer transactions in the final quarter of 2023 by foreigners, who typically avoided lodging caveats to keep their identities private, market observers said. Caveats are lodged by buyers with the Singapore Land Authority to publicly assert their legal or financial interest in a property, but the process is not mandatory.
Meanwhile, leasing activity remained resilient, driven by a recovery in tourism. Monthly median rents bounced back to $6.39 per sq ft for the months of October to December 2023, from $5.98 psf in the previous three months.
“A positive turn in market conditions will bode well for occupiers, especially those in F&B, retail and accommodation segments,” Ms Wong said.
For the whole of 2023, the shophouse leasing market registered 3,660 transactions totalling $37.9 million, eclipsing the 3,589 transactions worth $34.3 million in 2022.
Ms Wong anticipates steady demand for shophouses in 2024, supported by their limited supply, heritage value and potential for capital growth.
The projection is further bolstered by expectations of interest rate cuts in 2024 and continued improvements in the tourism sector, she added.