reporter2
08-09-12, 16:58
http://www.straitstimes.com/premium/money/story/it-may-not-pay-invest-shoebox-units-20120908
It may not pay to invest in shoebox units
Rental yields may drop in long run, few resale transactions: Report
Published on Sep 08, 2012
By Esther Teo Property Reporter
A RECENT report has identified hot spots across Singapore for "shoebox" homes but has questioned the viability of these tiny homes as investments.
Even before the Government's move this week to restrict the ballooning number of shoebox units outside the central area, market experts were raising a red flag.
These homes of less than 50 sq m used to be mainly in the central areas, but many small studio apartments are now springing up on the outskirts.
An analysis by Maybank Kim Eng found that the highest number of new shoebox apartments has been sold in Bales-tier, MacPherson and Geylang. Since 2005, 2,401 tiny homes have found buyers in these areas.
This is followed by the city and south-west areas with 1,371 units, and the East Coast area with 1,359 units changing hands.
The stock of completed shoebox units is expected to reach 11,000 units by the end of 2015, with 3,800 of these in suburban areas, the Urban Redevelopment Authority said.
Experts note that while shoebox units with affordable price tags, typically less than $1 million, are usually bought for investment, those in suburban areas might not pull in rental yields similar to centrally located units'.
The Maybank Kim Eng report noted that rental yields in central areas may not be representative of potential yields in suburban areas.
"We understand why central region units have higher price tags with rental yields slightly exceeding those of larger-sized apartments at around 5 per cent due to their prime locations.
"However, we are questioning the viability of suburban shoebox units that developers are rushing to price at $1,500 to 2,000 per sq ft (psf)," the report said.
The lack of transactions of completed units in the resale market could also suggest a certain level of difficulty in realising capital gains on shoebox units, it added.
For instance, there have only been about 550 resale transactions since 2005 to May this year, the report noted.
"As the supply of completed units surges by 2015, the viability of the shoebox unit market in the suburbs will be seriously put to the test," it said.
However, data from the Singapore Real Estate Exchange (SRX) found that rental yields for shoebox homes in suburban areas were 4.77 per cent in the second quarter of the year.
This is comparable to the yields of 4.75 per cent for shoebox units in the city centre and 4.86 per cent for similar units in the city fringe regions.
But experts say these yields might not hold in the long run as a slew of new suburban shoebox units get built.
The 3,800 suburban shoebox units by 2015 easily tops the 2,400 completed units already in suburban projects like Thomson V One and Kovan Grandeur and city centre projects like Vida as at the end of last year.
Of the 11,000 shoebox units, 2,200 units will be in the city centre and 5,000 units are set for the city fringe region.
HSR Property Group special adviser Donald Han said that as the completions gain momentum, yields are likely to be compressed across the board but suburban shoebox units far from MRT stations and amenities are likely to be the most vulnerable.
Suburban areas will also see tens of thousands of private homes completed in the coming years and shoebox units will face stiff competition for tenants, he said. He expects rents for central shoebox units to fall by about 1 to 2 per cent in 2014 while those in suburban areas will see larger drops of 6 to 7 per cent.
Mr Nicholas Mak, head of research for SLP International, said the small number of suburban shoebox completions have propped up yields in the short term. "In the long term, however, shoebox yields should fall in line with residential yields within the same area," he added.
Teacher Isabel Khoo, 32, who bought a 560 sq ft unit in Yio Chu Kang in 2009, said she purchased the unit because it was close to her parents' home and had a freehold lease.
"It was within my budget, and since it is for my own stay, I don't really worry about prices. I'm happy with the purchase," she added.
The Government unveiled its new policy on Tuesday to discourage the fast-rising number of tiny shoebox homes being built outside the central city area.
It is placing a cap on the number of homes that can be built at each private non-landed development outside this area. The central area is unaffected.
[email protected]
It may not pay to invest in shoebox units
Rental yields may drop in long run, few resale transactions: Report
Published on Sep 08, 2012
By Esther Teo Property Reporter
A RECENT report has identified hot spots across Singapore for "shoebox" homes but has questioned the viability of these tiny homes as investments.
Even before the Government's move this week to restrict the ballooning number of shoebox units outside the central area, market experts were raising a red flag.
These homes of less than 50 sq m used to be mainly in the central areas, but many small studio apartments are now springing up on the outskirts.
An analysis by Maybank Kim Eng found that the highest number of new shoebox apartments has been sold in Bales-tier, MacPherson and Geylang. Since 2005, 2,401 tiny homes have found buyers in these areas.
This is followed by the city and south-west areas with 1,371 units, and the East Coast area with 1,359 units changing hands.
The stock of completed shoebox units is expected to reach 11,000 units by the end of 2015, with 3,800 of these in suburban areas, the Urban Redevelopment Authority said.
Experts note that while shoebox units with affordable price tags, typically less than $1 million, are usually bought for investment, those in suburban areas might not pull in rental yields similar to centrally located units'.
The Maybank Kim Eng report noted that rental yields in central areas may not be representative of potential yields in suburban areas.
"We understand why central region units have higher price tags with rental yields slightly exceeding those of larger-sized apartments at around 5 per cent due to their prime locations.
"However, we are questioning the viability of suburban shoebox units that developers are rushing to price at $1,500 to 2,000 per sq ft (psf)," the report said.
The lack of transactions of completed units in the resale market could also suggest a certain level of difficulty in realising capital gains on shoebox units, it added.
For instance, there have only been about 550 resale transactions since 2005 to May this year, the report noted.
"As the supply of completed units surges by 2015, the viability of the shoebox unit market in the suburbs will be seriously put to the test," it said.
However, data from the Singapore Real Estate Exchange (SRX) found that rental yields for shoebox homes in suburban areas were 4.77 per cent in the second quarter of the year.
This is comparable to the yields of 4.75 per cent for shoebox units in the city centre and 4.86 per cent for similar units in the city fringe regions.
But experts say these yields might not hold in the long run as a slew of new suburban shoebox units get built.
The 3,800 suburban shoebox units by 2015 easily tops the 2,400 completed units already in suburban projects like Thomson V One and Kovan Grandeur and city centre projects like Vida as at the end of last year.
Of the 11,000 shoebox units, 2,200 units will be in the city centre and 5,000 units are set for the city fringe region.
HSR Property Group special adviser Donald Han said that as the completions gain momentum, yields are likely to be compressed across the board but suburban shoebox units far from MRT stations and amenities are likely to be the most vulnerable.
Suburban areas will also see tens of thousands of private homes completed in the coming years and shoebox units will face stiff competition for tenants, he said. He expects rents for central shoebox units to fall by about 1 to 2 per cent in 2014 while those in suburban areas will see larger drops of 6 to 7 per cent.
Mr Nicholas Mak, head of research for SLP International, said the small number of suburban shoebox completions have propped up yields in the short term. "In the long term, however, shoebox yields should fall in line with residential yields within the same area," he added.
Teacher Isabel Khoo, 32, who bought a 560 sq ft unit in Yio Chu Kang in 2009, said she purchased the unit because it was close to her parents' home and had a freehold lease.
"It was within my budget, and since it is for my own stay, I don't really worry about prices. I'm happy with the purchase," she added.
The Government unveiled its new policy on Tuesday to discourage the fast-rising number of tiny shoebox homes being built outside the central city area.
It is placing a cap on the number of homes that can be built at each private non-landed development outside this area. The central area is unaffected.
[email protected]