In response to the increase in Additional Buyer's Stamp Duty (ABSD) for residential properties. Sales of shophouses in Singapore have rebounded by 7.2% in the first half of 2023, marking a resurgence in interest in a market that had slowed significantly in the previous year after a robust performance in 2021.
Data collected by ERG real estate consultancy Daniel Chng reveals that shophouse transactions amounted to S$711.6 million in value, involving 75 units, during H1 2023, compared to S$663.5 million across 72 units in H2 2022.
However, these figures still fall short of the market's peak in H1 2022 when transactions reached S$962.8 million, involving 119 shophouses. The decline in shophouse sales during H2 2022, down by approximately 30%, was attributed to investor caution amid rising interest rates.
The shophouse market's resurgence can be attributed to two recent government-introduced changes: higher additional buyer’s stamp duty (ABSD) rates on residential property purchases for foreigners implemented in April and a rule change in the zoning of properties in the Residential Property Act.
As ABSD does not apply to commercial properties like shophouses, these assets have become more attractive to private wealth buyers, including high-net-worth investors and family offices. The tax cost is potentially lower for commercial shophouses, and there is no need for land purchase approval for commercial use.
It is estimated that the actual number of transactions in H1 2023 may exceed the reported 75, as some deals were not publicly disclosed or had caveats lodged due to the preference for privacy among many wealthy buyers.
Nearly 80% of shophouse sales in H1 2023 involved 999-year or freehold properties, which saw an average price increase of 13.4% to S$5,338 per square foot (psf) on land, up from S$4,610 psf in the previous half-year. In contrast, transaction values for leasehold shophouse sales decreased by 15.7% to S$139 million from S$164.9 million in H2 2022, despite a significant average price increase of 37.6% to S$5,983 psf on land.
Higher prices have deterred cautious buyers in a market that experienced significant growth in 2021. Shophouse sales in H2 2022 were nearly 40% lower year-on-year, a sharp contrast to the "record-breaking performance" between H1 2021 and H1 2022.
District 8 emerged as the most popular investment destination, with 27 shophouses sold for a total of S$259.4 million, driven by the ongoing rejuvenation of Little India and its attraction to tourists.
Fifteen shophouse sales yielded returns of over 100%, led by a S$30 million deal for 37 Boat Quay, which generated capital gains of S$16 million—a remarkable profit of 631.7%—after being held for 23 years.
Daniel anticipates further recovery in the Singapore shophouse market as foreign private wealth sources shift their focus from residential properties to these heritage assets. With the positive momentum in H1 2023, it is expected that sales will approach the earlier projected volume of S$1.3 billion to S$1.5 billion for the entire year, slightly below the S$1.6 billion recorded in 2022
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