SINGAPORE – The latest round of property cooling measures has driven interest from residential properties, which are now substantially more expensive investments, to the commercial shophouse market.
This has led owners to raise their prices in the face of higher offers from buyers.
One such owner is J, who owns a three-storey freehold shophouse in the Telok Ayer Conservation Area.
When he heard that the additional buyer’s stamp duty (ABSD) had been doubled for foreigners and increased – though not by as much – for locals, J immediately raised the selling price of his property from $20.5 million to $22 million.
He recently received an offer of $20 million but is now seeking to make a bigger profit.
“I want to make a profit from this sale so I can buy more shophouses,” said J, an Indonesian who asked not to be named. He owns two shophouses in Singapore.
“I have been in negotiations with the buyer for a while. But after the ABSD hike, I am not interested to sell my unit any more. If the deal is not closed soon, I will take it off the market and wait for prices to go up further before I put it up for sale again,” he said.
The potential buyer has since raised his offer to $21 million, but J has decided to wait.
He is not alone. Other shophouse owners are holding out, expecting prices to rise even further as demand for non-residential properties goes up, said real estate agents.
In the Government’s latest round of cooling measures, which kicked in on April 27, the ABSD for Singaporeans buying their second residential property was raised from 17 per cent to 20 per cent, and from 25 per cent to 30 per cent for those buying their third and subsequent property.
Singapore permanent residents buying their second residential property would have to pay an ABSD rate of 30 per cent, and 35 per cent for third and subsequent properties. Foreigners bear the brunt as they now have to pay a rate of 60 per cent when buying any residential property, up from 30 per cent.
Property portal Mogul.sg’s chief research officer Nicholas Mak said investors who are firm believers in real estate will turn to other types of property if the transaction cost, such as stamp duty, is too high.
He noted that the same trend was observed in 2011 and 2012, when the Government introduced the ABSD and then raised the rates.
Foreigners do not need to pay ABSD for commercial properties.
“The types of non-residential properties include strata units of office, retail, industrial developments and shophouses. Family offices and high-net-worth individuals will also prefer to invest in non-residential properties because of the ABSD. Some would even explore investing in a hotel, which is an asset that is beyond the reach of the average property investor,” said Mr Mak.
Real estate agency Huttons Asia said in a report that demand for shophouses is expected to pick up in the coming months, as prices are likely to trend upwards in 2023.
Huttons Asia senior director of research Lee Sze Teck said there were 29 shophouse transactions with lodged caveats from January to March 2023, according to data from the Urban Redevelopment Authority. Caveats are legal documents lodged by purchasers with the Singapore Land Authority to register their legal interest in a property.
The total transaction value was $281.8 million, which was 5.7 per cent lower than the previous three months.
Agents said investors prefer freehold shophouses which hold their value better compared with leasehold units.
Little India and Jalan Besar are the most popular areas among investors. Units in these areas accounted for 31 per cent of the transactions in the first three months of 2023, said Mr Lee.
PropNex Realty noted in a separate shophouse market report that the rental market for shophouses remained brisk with nearly 900 rental contracts worth $9.5 million signed between January and March 2023.
For J and other shophouse owners, this means that holding on to their properties may be a wise investment decision in the long run, said market observers.
Mr Richard Tan, a senior associate group district director of PropNex Realty who is marketing J’s property, said he sold two shophouses in the Central Business District on the day the revised ABSD took effect.
“I received so many calls in the past one week, from both buyers and sellers.
“The buyers decided to make an offer as they were afraid the sellers would raise their prices after foreigners flock to the commercial sector. Many sellers also called to raise their prices,” said Mr Tan, who declined to reveal details of the transactions.
Mr Tan, who noted that the majority of shophouse buyers are foreigners, said it is not often that agents sell two shophouse units in one week.
Mr James Yeow, an agent from Huttons Asia, said he received better response to his shophouse listings following the ABSD hike. Most of the inquiries were from local investors.
One of his sellers raised the price from $8 million to $9.5 million for a unit with a built-up area of 2,700 sq ft. Another seller raised the price by about 9 per cent for his 1,500 sq ft unit, added Mr Yeow. Both units are located in Little India.
Another PropNex agent, Mr Loyalle Chin, said he closed two deals for shophouses in the past one week.
One unit, located in Bugis, was sold to a foreign buyer and the other, in Chinatown, went to a local investor, said Mr Chin. He declined to reveal more details but said both shophouses transacted at above $20 million each.
The buyers did not lodge any caveats as they did not want their identities to be known to the public, added Mr Chin.
“Source:[Interest in shophouses rises after latest ABSD hikes for residential properties] © Singapore Press Holdings Limited. Permission required for reproduction”
