Challenging times ahead for shoebox landlords

Landlords of shoebox apartments located outside the city centre will find it “challenging” to rent out their units once the influx of new homes enters the market next year, said experts quoted in the media.

Most of the 53,900 new condo units set to hit the market over the next 30 months are small or shoebox apartments, or units measuring up to 506 sq ft.

“Owners of such units for investment would not be as successful at getting the kind of rentals they want going forward,” said Desmond Sim, Research Head at CBRE.

“There will be pressure on vacancies, as they will be facing competition from the broader market too.”

While there are no official figures on the number of shoebox units in the market, in September 2012 the Urban Redevelopment Authority (URA) estimated that there were around 2,400 completed units as at 2011, with the number climbing to 11,000 by the end of next year.

From 2009 to 2012, shoebox units featured heavily at newly launched projects including the 72-unit Suites@Guillemard in Lim Ah Woo Road, the 138-home Parc Imperial in Pasir Panjang Road and the 293-unit Alexis in Alexandra Road.

Although they tend to have a higher psf price due to their small size, investors find the overall quantum “more palatable, especially amid tightened financing”, noted Chia Siew Chuin, Director of Research and Advisory at Colliers International.

Typically, rental yields of shoebox units range from three to four percent, up from the two to three percent yields for residential developments islandwide.

However, experts warn investors looking to acquire shoebox apartments that rents for such units are expected to moderate in line with the flood of newly completed homes.

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