Tag Archives: Shoebox Units

Shoebox influx in 2017

Investors of shoebox units may face some difficulty renting them out, reported The Straits Times.

This is because a bumper supply of shoebox units are expected to enter the market, peaking by around 2017, revealed R’ST Research data. Leasing demand for such units is also untested, with fewer foreigners able to afford them.

“Increasingly, many (overseas nationals) can’t even afford renting a single shoebox unit, but would instead rent a room in an apartment… Rents will be under further pressure,” noted Alan Cheong, research head at Savills Singapore.

Based on caveats lodged, majority of the supply will come from District 19Sengkang, Hougang and Punggol – with at least 700 units expected to be completed during this period.

R’ST Research noted that at least 527 shoebox units could come from District 14, and at least 383 units from District 12. Over in the suburbs, districts 17 and 22 will contribute at least 224 units and 151 units respectively.

In the Guillemard to Changi Road area (Districts 14 and 15), Cheong stated that prices of newly-completed shoebox units stood at around $1,350 psf in 2013, increasing to more than $1,400 psf late last year and this year.

However, rents for such units fell from $2,600 per month in 2013 to around $2,000 to $2,200, bringing the gross yield down from 5.2 percent in 2013 to 4.1 percent.

Most shoebox owners have holding power, opting to keep their units rather than sell them at a low price. Hence, yields have more room to fall into the mid-three percent level in more accessible areas such as District 14, where rents stood at less than $2,500 per month.

“Once we venture into the new developments in the outlying HDB estates, the market is untested. There, yields may tend closer to three percent or even dip below that,” said Cheong.

Overall, prices of shoebox units fell by about 10 percent from their last peak in August 2013, based on flash estimates of the NUS Singapore Residential Price Index. Prices dropped about 1.1 percent in June from the month before.

R’ST Research director Ong Kah Seng said while prices of shoebox units keep falling due to growing supply, such units are still relevant.

“These tend to be occupied by younger tenants or owners, who will bring energy to the development and area – especially important for newer residential areas like Bartley, or those undergoing rejuvenation like Hillview and Lakeside.”


Shoebox units ‘hit by weak leasing market’

A WEAK leasing market may be hitting prices of shoebox units – long seen as a stronghold for rental yields.

Consultants note that while prices of new flats have risen marginally, resale prices have fallen.

In another sign of the weaker market, four shoebox units – apartments of up to 506 sq ft – were put up for auction by mortgagees in the first 10 months of this year, consultancy JLL found.

There were no mortgagee sales of shoebox units in the same period last year or in 2012.

“The weak residential leasing market has resulted in the lower ability of borrowers to finance their mortgages, and higher loan defaults,” said Ms Mok Sze Sze, head of auction and sales at JLL.

Mr Alan Cheong, research head at Savills Singapore, said it has been a “tale of two markets” for “shoeboxes” – one for new sales and the other for resale and sub-sale units.

While transactions have plummeted for new homes, prices rose 1.1 per cent from the first quarter of last year to the middle of this month.

Prices in the secondary market are down 4.8 per cent over the same period, with transactions falling as well.

The decline in the number of sales of new homes has been greater than that in the resale and sub-sale markets.

This supports the hypothesis that prices of new units are holding firm, as developers have reached a point where they cannot cut further as it would mean negative margins or below-normal profits, said Mr Cheong.

“With no crisis brewing currently and from the healthy profits they made in previous years, they cannot be cowed into selling below cost,” he added.

But prices in the secondary market have fallen more as individuals have weaker holding power. The four shoebox units put on sale by lenders were at Estilo in Wilkie Road in Rochor, Casa Aerata in Lorong 26 Geylang, Parc Rosewood in Woodlands and Eis Residence in Haig Avenue. None has been sold. Two other shoeboxes were put up for auction by their owners – at Jupiter 18 in Lorong 102 Changi Road and The Verve in Jalan Rajah in Whampoa – but these have not been sold either.

Residential vacancy rates are expected to exceed 10 per cent in the next 18 months, so the pressure on owners with recently completed shoeboxes lacking a tenant will grow, said Mr Ku Swee Yong, Century 21 chief executive officer.

He noted that units in outer areas, where owners are competing for low-budget tenants, are particularly at risk. At Parc Rosewood, for example, asking rents are from about $1,600 a month for a 431 sq ft unit, close to the roughly $2,000 rent for a 800 sq ft three-room Housing Board flat.

Overall, experts regard the outlook for shoebox units as being relatively positive.

“The increase in supply of shoebox units over the years has generally been well absorbed in a high liquidity and low interest rate environment… More affordable shoebox units will continue to appeal to singles, couples without kids, and investors looking for higher- than-market rental yields,” said Ms Chia Siew Chuin, director of research and advisory at Colliers.