Leasing out a shoebox flat

[mr funny]

http://www.straitstimes.com/Invest/S...ry_586047.html

Oct 3, 2010

property

Leasing out a shoebox flat

While Mickey Mouse flats may be relatively affordable, buyers should be aware that rents depend on location and proximity to amenities

By Joyce Teo


While buyers are paying more for shoebox apartments, rental projections at the launch may not always pan out. -- ST FILE PHOTO

Buying a shoebox apartment for lease sounds like a very attractive proposition because such units are relatively more affordable. But investors should know what to expect because not everyone will want to rent such small units, experts said.

A record number of these small-format homes - also known as Mickey Mouse flats - have been sold in the first three quarters of the year, and at higher and higher prices.

The sale of 906 apartments of 500 sq ft and below in that period is 84 per cent higher than that in the same period last year, said CBRE Research, citing URA Realis. This has also exceeded the full-year sale of 722 units last year, it said.

Median prices of such homes have risen to $1,314 per sq ft (psf) so far this year, from $1,190 psf last year, and asking rents on a psf basis are comparable to those for prime developments in town.

'At first glance, investing in shoebox apartments might appear to be an attractive proposition due to the relative quantum affordability and rental yields,' said CBRE Research executive director Li Hiaw Ho.

However, the rents will depend on many factors, such as location, proximity to amenities, and demand and supply conditions, he said.

Currently, some owners of one-bedroom and studio units in projects such as Kembangan Suites in Kembangan, Parc Imperial in Pasir Panjang and Soho 188 in Race Course Road are asking for rents of $2,000 to $3,600 a month.

In July, a 431 sq ft one-bedroom unit in Urban Lofts in Rangoon Road was leased out at $2,400 a month, while a similar-sized one-bedroom unit at Mountbatten Lodge in Mountbatten Road went for $2,300 a month.

Based on current valuations, indicative gross rental yields for shoebox units are estimated at 3 per cent to 5 per cent, said CBRE Research.

'These figures, however, do not take into account the utility and condo management fees, insurance, mortgage interest payments, property taxes and maintenance charges - all of which will make the net yield considerably lower,' said Mr Li.

ECG Property chief executive Eric Cheng said most people buy shoebox units to lease out but they should be aware that any rental projection given at the launch may not pan out.

For instance, when a project in the Thomson area was launched a few years ago, the rentals were projected at $3,500 to $4,500 a month, but the transacted rents now are more like $1,800 to $2,600 a month, he said.

Cushman & Wakefield's senior manager of Asia-Pac research, Mr Ong Kah Seng, said a large supply of shoebox apartments is scheduled for completion, and rents may come under pressure as leasing competition intensifies.

Also, while tiny apartments seem suitable for single expatriate tenants, not all will want to pay so much for a small unit unless it is in a prime area, or conveniently located near an MRT station, experts said.

Said Mr Ong: 'Owners of shoebox apartments... can at best rely on junior expatriates, besides local professionals.'

But since junior expatriates are cost-sensitive, they may be open to HDB flats which are conveniently located and offer a larger space for nearly the same rent as that for a shoebox apartment, he said.

Yet, CBRE Research found that more people are paying higher prices for a shoebox unit during new launches.

Buyers picked up 383 new shoebox units which cost $600,000 and above in the first nine months of this year, compared with 133 last year and 121 in 2008.

Experts said the question is whether these units can support even higher rentals when they are completed.

The introduction of cooling measures by the Government in late August has also affected the 'flippers'. Extending the imposition period of the sellers' stamp duty of about 3 per cent from one to three years makes it less lucrative for speculators to flip a unit, experts said.

Previously, investors could make significant capital gains from shoebox units with just a small investment sum and a short holding period.

Of the shoebox units launched last year, 66 units were sold in the first eight months of the year for capital gains of $6,400 to $232,000, said CBRE Research.

But for projects launched this year, only four units were sold and gains were in the $9,400 to $101,000 range, it said.

The 'already high buy-in prices' during a new launch might make it hard for an investor to sell it later at higher prices unless it is in a prime location, said Mr Li.

In the next few months, about 10 projects with mainly small-format units are expected to be launched. Apart from one in River Valley Road, the rest are in suburban areas such as Geylang and Eunos, said CBRE.

[email protected]

[proud owner]

http://www.straitstimes.com/Invest/S...ry_586047.html

Oct 3, 2010

property

Leasing out a shoebox flat

While Mickey Mouse flats may be relatively affordable, buyers should be aware that rents depend on location and proximity to amenities

By Joyce Teo


While buyers are paying more for shoebox apartments, rental projections at the launch may not always pan out. -- ST FILE PHOTO

Buying a shoebox apartment for lease sounds like a very attractive proposition because such units are relatively more affordable. But investors should know what to expect because not everyone will want to rent such small units, experts said.

A record number of these small-format homes - also known as Mickey Mouse flats - have been sold in the first three quarters of the year, and at higher and higher prices.

The sale of 906 apartments of 500 sq ft and below in that period is 84 per cent higher than that in the same period last year, said CBRE Research, citing URA Realis. This has also exceeded the full-year sale of 722 units last year, it said.

Median prices of such homes have risen to $1,314 per sq ft (psf) so far this year, from $1,190 psf last year, and asking rents on a psf basis are comparable to those for prime developments in town.

'At first glance, investing in shoebox apartments might appear to be an attractive proposition due to the relative quantum affordability and rental yields,' said CBRE Research executive director Li Hiaw Ho.

However, the rents will depend on many factors, such as location, proximity to amenities, and demand and supply conditions, he said.

Currently, some owners of one-bedroom and studio units in projects such as Kembangan Suites in Kembangan, Parc Imperial in Pasir Panjang and Soho 188 in Race Course Road are asking for rents of $2,000 to $3,600 a month.

In July, a 431 sq ft one-bedroom unit in Urban Lofts in Rangoon Road was leased out at $2,400 a month, while a similar-sized one-bedroom unit at Mountbatten Lodge in Mountbatten Road went for $2,300 a month.

Based on current valuations, indicative gross rental yields for shoebox units are estimated at 3 per cent to 5 per cent, said CBRE Research.

'These figures, however, do not take into account the utility and condo management fees, insurance, mortgage interest payments, property taxes and maintenance charges - all of which will make the net yield considerably lower,' said Mr Li.

ECG Property chief executive Eric Cheng said most people buy shoebox units to lease out but they should be aware that any rental projection given at the launch may not pan out.

For instance, when a project in the Thomson area was launched a few years ago, the rentals were projected at $3,500 to $4,500 a month, but the transacted rents now are more like $1,800 to $2,600 a month, he said. ahhahaha orh bee good .. listened to agents lah

Cushman & Wakefield's senior manager of Asia-Pac research, Mr Ong Kah Seng, said a large supply of shoebox apartments is scheduled for completion, and rents may come under pressure as leasing competition intensifies.

Also, while tiny apartments seem suitable for single expatriate tenants, not all will want to pay so much for a small unit unless it is in a prime area, or conveniently located near an MRT station, experts said.

Said Mr Ong: 'Owners of shoebox apartments... can at best rely on junior expatriates, besides local professionals.'

But since junior expatriates are cost-sensitive, they may be open to HDB flats which are conveniently located and offer a larger space for nearly the same rent as that for a shoebox apartment, he said.

Yet, CBRE Research found that more people are paying higher prices for a shoebox unit during new launches.

Buyers picked up 383 new shoebox units which cost $600,000 and above in the first nine months of this year, compared with 133 last year and 121 in 2008.

Experts said the question is whether these units can support even higher rentals when they are completed.

The introduction of cooling measures by the Government in late August has also affected the 'flippers'. Extending the imposition period of the sellers' stamp duty of about 3 per cent from one to three years makes it less lucrative for speculators to flip a unit, experts said.

Previously, investors could make significant capital gains from shoebox units with just a small investment sum and a short holding period.

Of the shoebox units launched last year, 66 units were sold in the first eight months of the year for capital gains of $6,400( WTF ?? ) to $232,000,(well done !!! ) said CBRE Research.

But for projects launched this year, only four units were sold and gains were in the $9,400 ( another WTF ??) to $101,000( well done!!) range, it said.

The 'already high buy-in prices' during a new launch might make it hard for an investor to sell it later at higher prices unless it is in a prime location, said Mr Li.

In the next few months, about 10 projects with mainly small-format units are expected to be launched. Apart from one in River Valley Road, the rest are in suburban areas such as Geylang and Eunos, said CBRE.

[email protected]

where were these experts when developers were selling these MM at higher and higher psf ??

why didnt they voice these concerns at that time ?


bunch of useless hind sight experts ... phwee !!!

[teddybear]

In Singapore, I see many young kids growing taller and bigger in size compared to their parents, yet their parents buying smaller and smaller MM units to live in (they projecting their grand-kids to be MM in order to be able to live comfortably)?
Nowsadays (since about 5 years ago), the rooms of the new condos are so smaller that it is only big enough to put a single bed (a Queen bed for Master bedroom), a small study table and a small wardrobe and there is no more space except the walkway to these items! Ops! Don't understand why people still go for these? Imagine I had seen a 1500+ sqft unit that I saw also like that?

where were these experts when developers were selling these MM at higher and higher psf ??

why didnt they voice these concerns at that time ?


bunch of useless hind sight experts ... phwee !!!

[vip]

Some developers bought small plots of land. One of the ways to optimize space and maximize profit is to build shoebox units.

Shoebox units give buyers the impression that the purchase price is low and affordable, though the psf is higher.

When the rental market is soft, tenants all go for bigger units (which are equally affordable).

Owners of shoebox units have no choice but to lower the rent. The return may not be able to cover fixed expenses like mortgage, maintenance fee and property tax. If owners don't want to leave these units vacant, they can only keep "subsidizing" the tenants.

One thing to keep in mind: Singapore is very different from densely populated cities like Tokyo or Hong Kong. In Singapore, tenants have plenty of living choices other than shoebox units.

[Geylang OKT]

I am willing to fork out SGD 600 dollah for a shoebox flat for my mei meis.

[blackfire]

Some developers bought small plots of land. One of the ways to optimize space and maximize profit is to build shoebox units.

Shoebox units give buyers the impression that the purchase price is low and affordable, though the psf is higher.

When the rental market is soft, tenants all go for bigger units (which are equally affordable).

Owners of shoebox units have no choice but to lower the rent. The return may not be able to cover fixed expenses like mortgage, maintenance fee and property tax. If owners don't want to leave these units vacant, they can only keep "subsidizing" the tenants.

One thing to keep in mind: Singapore is very different from densely populated cities like Tokyo or Hong Kong. In Singapore, tenants have plenty of living choices other than shoebox units.

I beg to differ. I would think whether MM units can be rented out at a good yield depends a lot on the location of the development. Tenants who are young and single with limited budgets wouldn't mind renting MM units if it suits his or her lifestyle and close to the workplace. Also some may not need a big space if they are frequently overseas. One impt point to note is that tenants have a mindset that living in a MM units is not gg to be permenant or for a long period, maybe one or two years. If they are not comfortable, they can upgrade or buy their own home eventually at the end of the tenancy, whilst in the meantime they can save some monies. One disadvantage is that MM units will tend to have short tenancy.

[devilplate]

I am willing to fork out SGD 600 dollah for a shoebox flat for my mei meis.

u dream on...nowadays HDB room rental easily 600 buck liao....hahaha

[devilplate]

MM fetch higher rental actually....bigger units always fetch lower rental yield...BUT bigger units much better for capital appreciation

LANDED best for cap appreciation...but i miss the boat

[vip]

Smaller units (1 or 2 bedrooms, not necessarily shoebox units) generally enjoy higher return than bigger ones like a 3-bedroom.

Agree that location makes all the difference.

From my own experience, the 1-bedrooms in district 3 and district 15 can fetch gross rental return of 4 to 6% even during bad times. Their rent can double in a good market like that of 2007! .

Mine are all between 700 to 900 sq ft. Find this size most easy to rent out. Tenants mostly single expats and frequent flyers. They like this size to cater to occasional visits of a friend, parent or relative.

I shy away from those below 500 sq ft shoebox units. When it is just TOP and new, agents bring their tenants to see. Few years later, tenants find them too smalll after comparing with studios/1-bedrooms in similar location.

(P.S. See a similar discussion on size of units and rental returns in one of the comments in my blog at http://propertysoul.com/2010/09/17/p...years/#respond )