Hot shophouses market cools off after money-laundering bust

Shophouse sales volume and values in the period July to September this year are far from the 2021 peak.

Su Jianfeng was one of 10 accused, and is connected to a deal that involved a freehold storehouse located at 28 Keong Saik Road. The shophouse is held under the name of an unidentified company.

The second quarter saw 73 transactions, and the fourth quarter saw shophouse sales of S$606,000,000.

In September 2023 only eight transactions were recorded, compared with 19 in the preceding month.

The market watchers say that increased scrutiny, customer due diligence checks and the arrest of 10 foreigners last August have dampened legitimate buyer demand.

Foreign buyers are taking a rest after the S$2.8 billion crackdown on money laundering in August.

Huttons Asia has compiled data from Urban Redevelopment Authority to show that 37 shophouses have been sold during Q3. It was a decrease of 21,3 per cent from the previous quarter. However, it was still higher than 36 shophouses in the prior period.

The District 8 district was the most sought-after by investors due to its lower price and location on the city fringe. It accounted about a quarter in Q3’s transactions.

After rising for seven quarters in a row, the median rent of a shophouse fell to S$5.97/sqm per month.

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Huttons published a report on Friday, Nov. 10, which showed that transaction value had fallen by 26.6% from S$432.3 in Q2 to S$317.1.

Orders prohibiting the disposal of 152 property types were issued. This included 94 homes, 53 commercial properties, and five industrial buildings.

Lee Nai Jia is the head of Real Estate Intelligence, Data and Software Solutions at PropertyGuru Group. He said there were a variety factors that could have led to a recent decline in shophouse transactions.

However, despite the fact that increased regulatory controls and enhanced due diligence may temporarily slow sales, it’s plausible to view this as a short-term fluctuation.

Shophouses were the most popular property in Q3. A three-storey freehold house in Cheong Chin Nam Road sold for S$41m in September. Three adjoining freehold two-storey houses along Jalan Besar sold for S$38.5m.

The last quarter saw the sale of shophouses with a total area of land of 1,446 sq. ft. to a Singapore-based vehicle of a Swiss company for S$32 million.

Rents have likely peaked because of increased tenant resistance against higher rents and will remain stable going forward.

The volume of transactions is expected to be low, and the prices will stay flat. Shophouse owners do not sell their shophouses, even when they own several. “Shophouses are a versatile asset that can be transformed into gyms or hostels as well as co-living areas and restaurants.

Shophouse owners are more likely to keep their shophouses for the long-term and not to sell them until the price is right. Not all buyers will pay top dollar, however, due to the current interest rates and other high-yielding investments.

About 6,500 of Singapore’s shophouses are listed as conservation areas.

Knight Frank’s data shows that in 2021 the shophouse sales reached S$1.9billion, a record high.

The volume of shophouse deals in the first nine month of 2023 was just below 120, worth around S$1.1billion. This is down from 155 deals worth S$1.3B in the same period last year.

Richard Tan of PropNex Shophouse Elites stated that while he noticed a decrease in foreign buyers during Q3, his team has closed more transactions since October.

He stated that there is still a demand for shophouses below S$15 million. However, he noted a weakness in the higher priced shophouses due to fewer buyers. He said that foreign buyers could have been taking a wait and see approach.

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