SINGAPORE - Commercial shophouse sales received a boost in the second quarter of 2023, on the back of higher additional buyer’s stamp duty (ABSD) rates for residential properties.

Between April and June 2023, 43 shophouses changed hands for $414 million. This is up from the 32 deals in the previous quarter, a report released by real estate agency PropNex on Monday showed.

Transaction values were up by 40 per cent.

There was more subdued interest in shophouses in the first quarter of 2023, after the buyer’s stamp duty for commercial properties was raised in February.

But the ABSD increases for residential properties, which kicked in at the end of April, diverted investment interest to commercial shophouses. This led to a rebound in shophouse sales, said PropNex.

Foreigners were hit with the highest ABSD hike, doubling from 30 per cent to 60 per cent.

ABSD does not apply to commercial properties.

A July 19 report by Savills Singapore, another real estate company, said ultra-high-net-worth individuals and family office buyers dominated the market for conservation shophouses in the second quarter.

Another report by real estate firm Knight Frank Singapore, released on Monday, said 75 shophouses changed hands in the first half of 2023, compared with 72 such transactions in the second half of 2022.

Shophouse transactions in the first half of 2023 rose to $711.6 million, up from $663.5 million in the second half of 2022.

But this was still lower than the transaction value of $962.8 million recorded in the first half of 2022, when 119 units were sold.

Knight Frank said there could have been even more shophouse transactions in the first half of 2023, which were not reported or did not have caveats lodged.

“For some of these transactions... many of these wealthy buyers favoured low-key profiles, prioritising privacy,” it said.

PropNex said shophouses in the Little India and Jalan Besar area (District 8) remained hot, with 18 deals worth $140 million lodged in the second quarter of 2023.

This was followed by the Geylang and Eunos area (District 14) and the Raffles Place and Cecil Street area (District 1), with six deals each.

In May, a $30 million deal for a 999-year leasehold conservation shophouse in Boat Quay topped the charts in the second quarter. The second-highest deal was for a pair of freehold shophouses in Geylang Road, which sold for $30 million in June.

Knight Frank said 59, or 78.7 per cent, of the shophouses sold in the first half of 2023 had 999-year leasehold or freehold tenures.

In the first six months of the year, there were 16 leasehold shophouse deals worth $139 million, down by 15.7 per cent from the $164.9 million registered in the second half of 2022.

Despite the drop, a four-storey leasehold shophouse at 11 New Bridge Road was sold for $23.8 million in May. Its ground floor houses Song Fa Bak Kut Teh’s flagship store, while the upper floors are leased to office tenants.

The priciest sale in the first half of 2023 was a $62.5 million deal for a row of six freehold shophouses in Serangoon Road in January. This transaction made up the bulk of sales volume in District 8, Knight Frank noted.

More shophouses leased

Meanwhile, PropNex said more shophouses were leased in the first half of 2023, buoyed by a recovering tourism sector.

There were 1,825 such rental transactions totalling $19 million, outpacing the 1,814 transactions worth $17.8 million in the second half of 2022.

Mr Aaron Wan, a shophouse investor and branch district director of PropNex Realty, believes the shophouse market will stay buoyant as the available stock is only going to dwindle.

In May, he bought two East Coast shophouses, which come with food-and-beverage (F&B) tenants.

“The intention of buying shophouses is to preserve and grow wealth and, if possible, hold the property for future generations. The amazing thing about shophouses is you own the land – not a strata title like other commercial properties,” he said.

Huttons Asia senior group district director Jeremy Lim, who specialises in shophouses, said he has a mix of Singapore and foreign clients, including those from family offices in China, Malaysia and Indonesia.

“The ABSD hike is not the only reason the shophouse market has remained strong. Investors are confident about the commercial market, with the pickup in the retail business,” he said.

He noted that Geylang shophouses had been gaining interest from Singapore investors in the past few months, owing to the consistent crowds there.

Knight Frank said interest from investors is expected to remain, as foreign private wealth sources turn from residential assets to shophouses.

More Singapore buyers building F&B businesses are attracted to shophouses in trendy dining and tourist spots, it added.

“The ongoing gentrification of conservation areas in Singapore as culinary hot spots has been and will continue to pull in the growing tourist throng as international visitor arrivals normalise to pre-pandemic levels,” said its report.

Knight Frank expects shophouse sales to reach $1.3 billion to $1.5 billion for the whole of 2023.

PropNex believes changes to the Residential Property Act in July – requiring foreigners to obtain government approval to buy property or land zoned for mixed commercial and residential use – will have limited impact on the shophouse market. That is because only a small portion of shophouses is zoned as such.

Instead, the changes could result in more interest from foreigners – individuals and entities – for fully commercial shophouses, and may cause prices to rise given that such properties are limited.

Owners of mixed-use shophouses may also be less inclined to sell, which will tighten the supply of shophouses further.