Rentals for shoebox units on the rise

Spanning less than 538 square feet, shoebox units may be the smallest type of condominium units available.

However, such units are gaining popularity among property investors — unit owners are getting better returns by renting out these units compared to rental yields from the larger condos.

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.”

Investment yields from shoebox units have been resilient. This averages about 4.1 per cent for shoebox units in the city and 4.8 per cent in the city fringes. Rental yields for the few shoebox units completed in the suburbs have also been the highest among the three regions, averaging 5.2 per cent.

Chua Yang Liang, the head of research at Jones Lang LaSalle, said: “Shoebox… are small sized, private and affordable. So they are in a way, directly comparable to HDB. But of course they are more private, more unique in terms of facilities.”

According to Knight Frank, another 10,700 shoebox units — expected to be completed by 2018 — may drag down rental rates. Analysts said the removal of property-tax refund concession for vacant properties next year could also make owners lower rents.

Alan Cheong, head of research at Savills Singapore, said: “At the moment, shoebox rental yields are one percentage point higher than the conventional condominiums. But both shoeboxes and conventional condos — the yields have been falling over time.

“That spread however, that premium for shoebox still exists and we expect the premium should maintain going forward.”

Shoebox supply should remain limited in the medium term — this is because of latest regulations in November 2012 which limit condominium average size to 70 square metres.

Source : Channel NewsAsia – 13 Nov 2013

Join The Discussion

Compare listings