Singapore Shophouse Market: Cooling Transactions Amid Diverging Price Expectations

The current state of Singapore’s shophouse market reflects a stark shift from previous highs, with transaction volumes declining notably. Based on caveats lodged as of 10 July 2024, only 36 shophouses were sold in the first half of the year, with total sales amounting to $341.7 million. This marks a significant drop compared to the market peak in 2021, when around 245 units worth a combined $1.8 billion changed hands.

On a year-on-year basis, transaction volume and value in 1H 2024 fell by 53.3% and 52.7%, respectively, compared to the same period in 2023. This downturn continues the slowdown observed since 2H 2023, which saw just 45 units transacted.

Previously, prices were driven up by transactions linked to the $3 billion money laundering cases, with buyers paying above-market rates. Following their exit, market momentum declined. Currently, most shophouse owners are under no pressure to sell and continue to benchmark asking prices to prior peaks, except in cases involving foreclosure or investigations.

Conversely, buyers are taking a wait-and-see approach, hoping for prices to ease amid a higher-for-longer interest rate environment, which continues to suppress yields. This mismatch in pricing expectations has resulted in a market stalemate.

Freehold Shophouses Dominate Transactions

Of the 36 shophouses sold in 1H 2024, 31 were freehold or 999-year leasehold units—accounting for 86.1% of all transactions. These rare assets are highly sought after for their long-term value and resistance to lease decay. The average price of freehold shophouses rose by 2.0% y-o-y. In contrast, only four 99-year leasehold units were sold, with average prices plunging 76.7% y-o-y.

Despite slower activity, premium deals continue to shape market averages. Notable transactions include The Rail Mall, sold by Paragon REIT to a private investor for $78.5 million, with 21 years and 8 months left on its lease.

More Sales Under $5 Million

In 1H 2024, 36.1% of landed shophouse deals closed below the $5 million mark, while 25% exceeded $10 million. Although total transaction values have softened, demand remains supported by the limited supply of shophouses and their long-term capital appreciation potential.

Strong Foreign Interest Amid Restrictions-Free Status

Shophouses continue to appeal to foreign investors and family offices, thanks to Singapore’s stable economy, favourable tax regime, and the commercial zoning of these properties—exempting them from Additional and Seller’s Stamp Duties and allowing unrestricted foreign ownership.

Earlier this year, the Business Times reported a high-profile deal involving the spouse of Alibaba Group’s co-founder, who acquired three 99-year leasehold units on Duxton Road (with 63 years remaining) for an estimated $45–$50 million. These units are slated for conversion into mixed-use developments.

Of the 36 units sold, 33 were located in the Central Region—known for dining, fitness, and co-living amenities—making them more attractive for rental income. District 8 was the most active, accounting for 18 transactions, seven of which were below $5 million, indicating value-buying opportunities.

Muted Outlook for 2024, But Fundamentals Remain Strong

Looking ahead, demand for landed shophouses is expected to stay subdued amid elevated prices and compressed yields. However, their rarity, individuality, and exemption from residential property restrictions ensure they remain attractive investment assets.

Should interest rates decline or more seized properties from money laundering cases be released at discounted prices, the market could see a correction. Likewise, narrowing the pricing gap between buyers and sellers may reinvigorate transaction activity—though without dramatic price swings.