For existing owners who have bought shoeboxes for investment purposes, they will be competing for rentals with not just the brand new units that are expected to flood the market next year but also with the bigger apartments. Given the current depressed state of the rental market, which looks to get worse next year, landlords are likely to drop asking rentals to get tenants rather than leaving their apartments vacant. This will sure to put additional downward pressure on rental yields for shoeboxes - given a choice between a shoebox and a bigger apartment at about the same monthly rent, it is a no-brainer as to which a potential tenant will opt for.
Tuesday, September 2, 2014
Weather forecast for shoeboxes: Stormy with a likelihood of flood!
According to a ST report today, owners
of shoebox apartments outside of the city centre may be in for a fix next year.
This is because of the 53,900 new condo units expected to come onstream within
the next 30 months, most will be small or shoebox apartments with a floor area
of up to 506sqft.
The
greater choice available may spell bad news for suburban shoebox homes, which
have a limited appeal given their location and relatively cramped living space.
Shoeboxes
became popular in 2009 and of the 12,097 units sold since then, about 47% were
in the city fringe areas and around 37% in the suburbs. There are no official
figures available on the number of shoebox units that are on the market, but
URA's projection in September 2012 put it at about 2,400 units as at 2011, with the figure rising to 11,000 by the
end of next year.
These
small homes featured heavily at newly launched projects from 2009 to 2012,
including the 293-unit Alexis in Alexandra
Road , the 138-unit Parc Imperial in Pasir Panjang Road
and the 72-unit Suites @Guillemard in Lim
Ah Woo Road . Although these apartment type tend to
sell at a higher psf because of their small size, they were popular with
investors due to the smaller total quantum, which make them more affordable.
Rental
yields of shoebox units typically range from 3 - 4%, higher than the 2 - 3%
yields for residential developments islandwide. However, rents for shoeboxes are
expected to soften in line with the flood of newly completed condos.
Outlook
for capital appreciation for shoebox units also appears bleak - the median
prices (psf basis) have risen by about 24% in the four years since the Q2 2009.
Median prices fell by 5% against a 2% depreciation for non-landed homes after
tighter property financing rules were imposed in Q2 2013.
Despite
so, there were 710 shoebox units sold in the first half of the year.
Followers
of SG PropTalk will probably know how big of a fan (NOT) the wife and I are when
comes to shoeboxes. And we have posted quite a bit on this subject
since 2011 - just key in "shoebox" on our "Search this Blog"
function to find these. Our previous blog posts had also generated numerous comments and
even debates about the liveability and long-term prospects of such unit type.
While
we agree that shoeboxes will continue to see some demand from singles and DINKs (double
income, no kids), and probably expats on local employment terms, we have always
been of opinion that the number of units that have come/are coming onto the
market since 2009 far exceed the actual demand for such units.
We
also firmly believed that majority of shoebox units that were purchased since 2009
were not for self-stay - we do not have the figures to substantiate our claim so
we are prepared to "agree to disagree" on this point.
For existing owners who have bought shoeboxes for investment purposes, they will be competing for rentals with not just the brand new units that are expected to flood the market next year but also with the bigger apartments. Given the current depressed state of the rental market, which looks to get worse next year, landlords are likely to drop asking rentals to get tenants rather than leaving their apartments vacant. This will sure to put additional downward pressure on rental yields for shoeboxes - given a choice between a shoebox and a bigger apartment at about the same monthly rent, it is a no-brainer as to which a potential tenant will opt for.
For existing owners who have bought shoeboxes for investment purposes, they will be competing for rentals with not just the brand new units that are expected to flood the market next year but also with the bigger apartments. Given the current depressed state of the rental market, which looks to get worse next year, landlords are likely to drop asking rentals to get tenants rather than leaving their apartments vacant. This will sure to put additional downward pressure on rental yields for shoeboxes - given a choice between a shoebox and a bigger apartment at about the same monthly rent, it is a no-brainer as to which a potential tenant will opt for.
And
to add salt to injury, existing owners - especially those whose units are
outside the city centre - may find it near to impossible to resell their units
profitably, thus fulfilling the prophesy of a "cannot rent, cannot sell"
scenario that we made back in 2011-12...
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