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Where to buy a shoebox apartment for investment?

Thursday, October 3, 2013

If we are going to buy a shoebox apartment (506 sq ft in size or smaller) as an investment property, make sure to buy in CCR or RCR (central region). 

Don't buy one in OCR. 

As developers tried to move their stock more quickly, they introduced shoebox apartments in OCR in the last couple of years. 

As investment properties, National Development Minister Khaw Boon Wan cautioned not too long ago that this was an untested market.

According to Square Foot Research, out of 50 projects with shoebox apartments completed since 2012, 38 are located in the central region and these saw a higher rental take-up rate compared to those in OCR. They also rented for as much as $3,400 a month or about $6.72 psf (based on a unit of 506 sq ft in size).

There is also an interesting observation that short term leases of 6 months are on the rise. 6 months is the shortest lease period allowed by the URA for private residential properties.

Square Foot Research said that the high replacement rate is yet another indication that rental demand for such units is strong.

Related post:
Smaller apartments' prices more resilient.


Andy said...

hi assi,

any thoughts on the 5 to 1 share consolidation by saizen?

AK71 said...

Hi Andy,

It doesn't affect the fundamentals of the REIT. So, it doesn't bother me. :)

AK71 said...

The supply of condominiums are set to grow in coming months as more of such private homes are being built. Apart from catering to local demand, property investors are also targeting to rent out their units to foreigners working in Singapore.

However, recent policy changes are clamping down on foreigners being allowed to work here.

This potential mismatch between supply and demand has resulted in rentals heading southwards -- latest data released by SRX showed that rentals dropped 1.5 per cent from September, the largest decrease since June 2012.

But rentals of shoebox units seem to buck the trend -- data compiled by property consultancy Knight Frank showed that rentals of shoebox units located in the city (core central region) rose to S$8 psf from S$7.65 in the third quarter. In the city fringes (rest of central region), shoebox units rose to S$6.58 psf.

Only shoebox units in the suburbs (outside central region) saw rentals dipped slightly to S$5.91 psf down from S$5.93.

Market watchers note that Singapore's changing immigration policies have also changed the tenant profile. Previously, foreign professionals would bring families in to live with them, requiring more space. But now, more singles are coming in to work in Singapore instead."

AK71 said...

Resale prices of private homes slid in September according to Singapore Residential Price Index (SRPI) estimates, which were released on Tuesday (Oct 28).

The SRPI, compiled by the National University of Singapore's Institute of Real Estate Studies, showed overall prices fell 0.7 per cent in September from the previous month. In August, prices rose 0.2 per cent from a month earlier.

Prices of homes in the central region, excluding small units, led the decline with a 0.9 per cent fall. Homes in the non-central region, excluding small units, fell 0.6 per cent in September from August.

Prices of small units, which have a floor area of 506sqf or below, bucked the trend, rising marginally by 0.4 per cent on-month.


AK71 said...

Rentals of shoebox units could fall by five to ten per cent in the coming years due to an expected increase in supply, said property analysts.

Shoebox units are small apartments - they include one-bedroom or studio units and are often bought as investments.

About 6,200 shoebox units will be completed in the next two years. Property consultant SLP International said this is a record number - compared to the 3,000 units on average per year for the last decade.

SLP said shoebox units within the city centre or near MRT stations would command better rentals compared to others.

Nicholas Mak, executive director of research & consultancy at SLP International, said: "Those shoebox developments that are located away from the city or MRT stations, I think they will not be doing very well in terms of their rental demand.

"And furthermore, if they are located within the suburban areas where typically family units are in more demand, such developments may actually languish in the rental market."


AK71 said...

Based on the study, the proportion of shoebox units in selected projects in the Central Region rose from 16.4 per cent in the pre-guideline period to 16.7 per cent in the post-guideline period while that proportion in the East rose from 6.6 per cent to 13.4 per cent.

The rise is attributable to projects such as the popular Commonwealth Towers in Queenstown (Central Region), where some 40 per cent of its 845 units are shoebox apartments, as well as The Glades at Tanah Merah (East region), where 20 per cent of 726 units are shoebox units.

The North-east region also registered a three percentage point increase in the proportion of shoebox units to 9.6 per cent in the post-guideline period. On the other hand, the proportions of shoebox units in the North and West regions saw notable declines, possibly due to the anticipated lower demand for such units in far-flung locations, Ms Tan said.

A caveat analysis of new sales shows that new sales of shoebox units in the West region as a proportion of total sales lodged in that region was 14.1 per cent in the post-guideline period, up from 10 per cent in the pre-guideline period.

Close to half of the caveats lodged in the West region were for the highly popular J Gateway, which was launched in the weekend just before the total debt servicing ratio (TDSR) came into effect, followed by some 15 per cent of caveats lodged for Hillion Residences.

Ms Tan attributed this to the Jurong Lake District rejuvenation story that is spurring investment interest for smaller units.

About 2,022 units or 42.2 per cent of the total number of shoebox units in the selected projects studied between May 2011 and April 2014 are expected to be completed in 2016, which could weigh on rents.

The wide options available and the risk of rising vacancy levels "could exert pressure on rental yields of private residential properties, including shoebox units", said Ms Tan.

"With rental and location considerations, shoebox units in developments located in the city fringe areas could achieve higher take-up compared to larger units and shoebox units in the suburbs."


AK71 said...

AK71 said...
The combination of the location (D19) and the type of residential property (i.e. shoebox apartments) makes for a bad investment, I believe. The fact that there is going to be massive oversupply is likely to make the outcome much worse.
How long is it going to take for that oversupply to be digested? I have no idea...
June 27, 2015 at 8:26 PM

AK71 said...
... shoebox rents in the North-East Region will be under pressure given at least 2,000 shoebox units have recently been, or will soon be, completed.
The vacancy rate for apartments and condominiums in the North-East Region stood at 12.3% and 11.9% respectively as at 1Q2016.
September 19, 2016 at 8:33 PM

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