VALUE OF SHOPHOUSE TRANSACTIONS DECLINED IN 2019

SINGAPORE RESEARCH

COMMERCIALSALES

“In 2020, we anticipate the interest in shophouses to remain keen given such assets are good for wealth preservation and provide a relatively good yield compared to assets such as bonds. The value of shophouses is also less volatile compared to stocks and commodities.”

MARY SAI Executive Director, Investment & Capital Markets

Q4 2019 SHOPHOUSEMARKET SNAPSHOT

Shophouse property sales* totalled S$889.6 million in 2019.*Sales exclude big-ticket transactions valued S$100.0 million and higher.

OverviewShophouse transactions amounted to S$889.6 million in value in 2019, declining by 38.7% from S$1.45 billion in 2018. There were also fewer caveats lodged in 2019. There were 118 caveats lodged in 2019, a 29.8% drop from 168 caveats in 2018. The reduction in the number of transactions was primarily due to a mismatch of price expectations. The shophouse owners were unwilling to lower their asking prices as such shophouses, especially those that are conserved and are in heritage districts, are limited in supply.

Like in 2018, the freehold shophouses accounted for most of the transactions in 2019. Some 103 caveats lodged in 2019 were for freehold shophouses and only 15 caveats lodged were for leasehold shophouses. Leasehold shophouses have a higher yield and investors are unlikely to divest them unless they have a change in plans.

The transactions in Q4 2019 seemed to indicate that buyers were less willing to commit to freehold shophouses at higher average unit prices. The average price of freehold shophouses in 2019 was S$3,427 per sq ft land area, 16.5% lower than the S$4,106 per sq ft land area in 2018.

The largest deal in 2019 was the sale of the iconic Eu Yan Sang Building by Eu Realty. Located at 265, 267, 269 and 271 South Bridge Road, the four shophouses were sold for S$54 million to 8M Real Estate. The land area of the four shophouses combined is about 6,262 sq ft and the gross floor area added up to 19,885 sq ft. While the tenure for the four shophouses is 999-years leasehold, the sale to 8M Real Estate is on a 199-year leasehold land tenure.

Outram and Rochor Planning areas witnessed the highest value of sales of shophouses in 2019. In Rochor Planning Area, which comprises Kampong Glam Historic District, 38 Sultan Gate was sold for S$35.5million (Annex A).

SINGAPOREQ4 2019 COMMERCIAL SALES RESEARCH BULLETIN

EXHIBIT 1

Number of shophouses sold by districts*, 2019

No

. of

sho

ph

ou

ses

sold

40

35

30

25

20

15

10

5

02017 20192015 2016 2018

D1 D2 D8 D14 D15 D1 D2 D8 D15 D1 D2 D7 D8 D14 D15 D1 D2 D7 D8 D14 D15 D1 D2 D8 D14

Source: REALIS, Knight Frank Research*Only districts with 10 or more lodged transactions are included. Transactions are based on caveats lodged.

EXHIBIT 2

Top 5 Deals in 2019 (By Price Quantum)

Unit Price(S$ psf)

Address

265/267/269/271 South Bridge Road 37/39/41/43 Tanjong Pagar Road 2 Cavan Road 38 Sultan Gate 39/45 Boat Quay

Area (sq ft)

8,623

8,260

1,9264,7969,870

6,262

6,480

20,0967,4063,261

District 8, which includes little India, continues to lead in shophouse sales in 2019 after topping in sales in both 2017 and 2018. Given that the shophouses are primarily in secondary settlements areas, a new rear extension up to the maximum height is allowed. Investors probably see these shophouses as more attractive given its development potential and its lower quantum.

Source: REALIS, Knight Frank Research

The top two transactions by value in 2019 were shophouses in the Outram area. Investors are willing to invest in adjoining shophouses in the prime districts, even at a lower tenure.

TransactedPrice (S$ million)

54.0

53.5

38.735.532.2

Tenure

199 Yrs

99 Yrs

FreeholdFreehold999 Yrs

EXHIBIT 3

Property Gains from Strata-titled Office Units Transacted in 2019

Price Sold inQ3 2019 (S$ million)

Address

19 Hongkong Street 8 Desker Road 87 Club Street 316/316A Lavender Street 789 Geylang Road

Land Area(sq ft)

99 YrsFreehold999 Yrs

FreeholdFreehold

1,8621,0551,9911,7441,206

Return

1239%574%525%426%209%

Estimated Numberof Years Held

2117131713

Source: REALIS, Knight Frank Research

Investors with long investment horizons tend to reap high returns for holding period of at least 13 years.

EXHIBIT 4

Number of Transactions and Average Price Psf of Freehold and Leasehold Shophouse Units

Nu

mb

er o

f tr

ansa

ctio

n

Ave

rag

e $p

sf u

nit

pri

ce

NO. OF FREEHOLD UNITS TRANSACTED (RHS) NO. OF LEASEHOLD UNITS TRANSACTED (RHS)AVERAGE PRICE OF FREEHOLD UNITS (LHS) AVERAGE PRICE OF LEASEHOLD UNITS (LHS)

8,000

6,000

4,000

2,000

0

200

150

100

50

02015 2016 2017 2018 2019

Source: REALIS, Knight Frank Research

There is a mismatch of price expectations between buyers and sellers, leading to a slower market.

SINGAPOREQ4 2019 COMMERCIAL SALES RESEARCH BULLETIN

EXHIBIT 5

Total Transaction Volume by Land Area, 2019

EXHIBIT 6

Proportion of Units Transacted by Price Quantum, 2019

Tra

nsa

ctio

n V

olu

mn

(S$

mill

ion

)

BELOW 1,000 SQ FT 1,000 SQ FT TO BELOW 5,000 SQ FT5,000 SQ FT TO BELOW 10,000 SQ FT AVERAGE PRICE OF LEASEHOLD UNITS (LHS)

2,000

1,500

1,000

500

02015 2016 2017 2018 2019

Pro

po

rtio

n o

f u

nit

s tr

ansa

cted

S$1.0 MILLION TO LESS THAN S$2.0 MILLION S$500,000 TO LESS THAN S$1.0 MILLIONS$5.0 MILLION AND ABOVE S$2.0 MILLION TO LESS THAN S$5.0 MILLION

100%

75%

50%

25%

0%2015 2016 2017 2018 2019

Source: REALIS, Knight Frank Research

Source: REALIS, Knight Frank Research

The y-o-y decline in the value of transactions in 2019 cut across shophouses on different sizes of land parcels. While the market was flush with capital, the investors remained cautious.

In 2019, there were proportionately more purchases of shophouses in the range of S$1million to S2million. There was a drop in the transactions of S$5million or more in 2019, but they were still proportionately higher than in 2015 and 2016.

Market OutlookGiven that shophouses are limited in supply, they will be good assets to hold for wealth preservation. Those in the heritage districts, especially in the CBD, are further in demand due to their relatively high footfall and rental income. Given the uncertain external environment, we anticipate more interest in the shophouses, especially if the shophouse can be converted to a hotel.

However, we expect that investors are unlikely to up their prices as the yields have been quite depressed. Additionally, the higher transacted prices also translate to longer investment horizons, which may not appeal to opportunistic buyers with shorter investment horizons.

FOR COMMERCIAL SALES ENQUIRIES, PLEASE CONTACT:

Mary Sai Executive Director Investment & Capital Markets 6228 6886 mary.sai@sg.knightfrank.com

FOR FURTHER INFORMATION, PLEASE CONTACT: Lee Nai Jia Head Research 6228 6878 naijia.lee@sg.knightfrank.com Khoo Zi Ting Analyst Research 6228 7377 ziting.khoo@sg.knightfrank.com

This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank Pte Ltd and its subsidiaries for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank Pte Ltd and its subsidiaries in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank Pte Ltd to the form and content within which it appears. Knight Frank Pte Ltd is a private limited company which is incorporated in Singapore with company registration number 198205243Z and CEA licence number L3005536J. Our registered office is at 10 Collyer Quay #08-01 Ocean Financial Centre Singapore 049315.

© Knight Frank Singapore 2020

For further information about the company, please visit www.knightfrank.com.sg

Shophouse Transaction Volume

Below S$5.0 million

S$5.0 to S$10.0 million

S$10.0 to S$15.0 million

S$15.0 to S$20.0 million

S$20.0 to S$25.0 million

S$25.0 to S$30.0 million

S$30.0 million and above

Annex AEXHIBIT 1Top 10 Planning Area by Sales Value, 2019

Planning AreaOutramRochorKallangSingapore RiverGeylangBukit TimahMarine ParadeBukit MerahRiver ValleyNovena

Total Sales Volume(S$ million)

306.8155.791.383.780.928.026.423.517.115.6

Number ofTransactions

18.028.012.07.019.05.04.04.03.03.0