PRICES of shophouses here have started to see resistance from the market, said a report from Knight Frank, which noted an increasing mismatch between sellers’ high asking prices and prices that buyers are willing to pay.
Sellers who need to let go of their properties have thus had to lower their asking price, which has sent the prices of shophouses down.
The average transacted prices of freehold shophouses have taken a tumble, falling 10.8 per cent from $3,626 per sq ft in H2 2013 to $3,235 per sq ft in H1 2014.
The demand for shophouses among food and beverage (F&B), and retail businesses is also waning, pushing their prices down, said the report.
Prices of leasehold shophouses registered a steeper drop of 23 per cent, from $6,163 per sq ft in the second half of 2013 to $4,717 per sq ft in the first half of this year.
The sharper fall was due mainly to a high base in the preceding half-year, where a property on Duxton Hill went at $8,779 per sq ft and one on Peck Seah Street for $7,818 per sq ft.
On sellers’ high price expectations, Knight Frank Singapore’s executive director and head of commercial sales Mary Sai said they may see their property as scarce, especially in central locations where conserved shophouses are not easily available for sale.
There has been pressure on rental yields following H2 2013, mainly resulting from sellers’ high price expectations.
She added that current owners may be getting decent rental yields from having paid less for their properties previously.
If buyers are unwilling to meet their prices, these sellers are able to hold on to the property for the longer term, considering that replacement units do not come easy, said Ms Sai.
Buyers who pay high prices will face the prospect of compressed rental yields – to as low as 2.5 per cent.
For commercial property, investors seek a minimum rental yield of 3.5 to 4 per cent, she said.
Mortgage loan constraints from the property cooling measures could have also shrunk the pool of prospective buyers.
The report pointed out that the heightened competition from foreign players in the F&B and retail space has also hit demand for shophouses.
On top of this, hiring difficulty and a crunch on manpower have put a crimp on businesses’ expansion plans. They may choose to rent instead of buying.
Transaction volumes for the first half of the year totalled 40, a drop from 49 transactions in the preceding half-year.
While transactions for leasehold properties held steady at seven, transactions for freehold properties in this half fell to 33, from 42 in the previous half.
With shophouse owners holding on to their assets betting on the limited supply of such properties, buyers waiting on the sidelines and retailers opting to lease, Knight Frank expects prices of shophouses to fall 10 to 15 per cent in the next six to eight months.