bargain hunter
19-04-12, 11:27
Beware oversupply of shoebox flats, property analysts warn
Experts warn investors that thousands of them are set to flood market
By Gan Yu Jia
Property analysts have issued a blunt warning to investors keen to buy so-called shoebox apartments in hopes of capital gains and good rental returns.
The strong interest in these units - mainly 500 sq ft or smaller - is playing a central role in fuelling the robust demand in the overall private property market.
Analysts at major research firms cautioned that investors should look before they leap even though the price tags look tempting, given the units' small size.
They said investors should understand that thousands of these tiny homes are set to flood the market in the next year or so, which could mean headaches in getting a tenant - or a good resale price.
The analysts said most buyers for such units tended to be investors rather than owner occupiers, many of whom lived in Housing Board flats that were larger than the shoebox units they were buying.
A report by BNP Paribas Group noted a spike in private units purchased by Housing Board dwellers since 2008, many of which were shoebox-size, 'which we believe is not for owner occupation'.
A Citi Investment Research report added: 'Judging by the increase in proportion of smaller units sold, we believe there has been an increase in investment demand.'
A research report by Nomura Group pointed out that the number of completed shoebox units could triple next year.
Most units scheduled for completion are mass and mid-market projects and more than half of such units were purchased by Housing Board dwellers, it said.
It added that shoebox units completed in the past two years had turned in a 'mixed' investment performance - with varying levels of rental demand among different developments.
'While rental demand for projects such as Parc Imperial... appears healthy, demand for others like Kembangan Suites appears comparatively slow,' it said.
The BNP report also stated that tighter immigration rules may mean investors would face even more difficulty finding enough tenants for the units.
'Facing an uncertain demand ahead, we believe the physical market could start to feel the first pains of oversupply as early as (the second half of next year) via softening rents and buyer sentiments,' it said.
The researchers also warned that rising interest rates could dampen home demand. 'Coupled with other risks such as an earlier-than-expected climb in interest rates, this could indeed have a significant impact on the financial well-being of Housing Board households, which typically have less holding power,' said Nomura.
Likewise, the BNP report warned that a rise in mortgage rates could hurt home affordability, 'unless household income rises faster or home prices fall faster'.
Investor Leona Lo, who has just bought a 463 sq ft shoebox unit in Petir Road, said she is not concerned that the surge in the number of shoebox units next year will hurt rents if she intends to lease hers out.
'You must always like what you buy. We've also chosen very carefully. In the area we've chosen, Bukit Panjang, there are no visible shoebox developments, so we'll be the first,' the public relations consultant said. 'It's not saturated like in the East Coast.'
She added that she had just sold a 430 sq ft shoebox apartment in East Coast Road, which she had previously rented out at a yield of 'above 2.5 per cent - more than break-even'.
[email protected] ([email protected])
Experts warn investors that thousands of them are set to flood market
By Gan Yu Jia
Property analysts have issued a blunt warning to investors keen to buy so-called shoebox apartments in hopes of capital gains and good rental returns.
The strong interest in these units - mainly 500 sq ft or smaller - is playing a central role in fuelling the robust demand in the overall private property market.
Analysts at major research firms cautioned that investors should look before they leap even though the price tags look tempting, given the units' small size.
They said investors should understand that thousands of these tiny homes are set to flood the market in the next year or so, which could mean headaches in getting a tenant - or a good resale price.
The analysts said most buyers for such units tended to be investors rather than owner occupiers, many of whom lived in Housing Board flats that were larger than the shoebox units they were buying.
A report by BNP Paribas Group noted a spike in private units purchased by Housing Board dwellers since 2008, many of which were shoebox-size, 'which we believe is not for owner occupation'.
A Citi Investment Research report added: 'Judging by the increase in proportion of smaller units sold, we believe there has been an increase in investment demand.'
A research report by Nomura Group pointed out that the number of completed shoebox units could triple next year.
Most units scheduled for completion are mass and mid-market projects and more than half of such units were purchased by Housing Board dwellers, it said.
It added that shoebox units completed in the past two years had turned in a 'mixed' investment performance - with varying levels of rental demand among different developments.
'While rental demand for projects such as Parc Imperial... appears healthy, demand for others like Kembangan Suites appears comparatively slow,' it said.
The BNP report also stated that tighter immigration rules may mean investors would face even more difficulty finding enough tenants for the units.
'Facing an uncertain demand ahead, we believe the physical market could start to feel the first pains of oversupply as early as (the second half of next year) via softening rents and buyer sentiments,' it said.
The researchers also warned that rising interest rates could dampen home demand. 'Coupled with other risks such as an earlier-than-expected climb in interest rates, this could indeed have a significant impact on the financial well-being of Housing Board households, which typically have less holding power,' said Nomura.
Likewise, the BNP report warned that a rise in mortgage rates could hurt home affordability, 'unless household income rises faster or home prices fall faster'.
Investor Leona Lo, who has just bought a 463 sq ft shoebox unit in Petir Road, said she is not concerned that the surge in the number of shoebox units next year will hurt rents if she intends to lease hers out.
'You must always like what you buy. We've also chosen very carefully. In the area we've chosen, Bukit Panjang, there are no visible shoebox developments, so we'll be the first,' the public relations consultant said. 'It's not saturated like in the East Coast.'
She added that she had just sold a 430 sq ft shoebox apartment in East Coast Road, which she had previously rented out at a yield of 'above 2.5 per cent - more than break-even'.
[email protected] ([email protected])