A weak leasing market may be hitting prices of shoebox units – long seen as a stronghold for rental yields.
Consultants note that while prices of new flats have risen marginally, resale prices have fallen.
In another sign of the weaker market, four shoebox units – apartments of up to 506 sq ft – were put up for auction by mortgagees in the first 10 months of this year, consultancy JLL found.
There were no mortgagee sales of shoebox units in the same period last year or in 2012.
“The weak residential leasing market has resulted in the lower ability of borrowers to finance their mortgages, and higher loan defaults,” said head of auction and sales at JLL.
Market analyst said it has been a “tale of two markets” for “shoeboxes” – one for new sales and the other for resale and sub-sale units.
While transactions have plummeted for new homes, prices rose 1.1 per cent from the first quarter of last year to the middle of this month.
Prices in the secondary market are down 4.8 per cent over the same period, with transactions falling as well.
The decline in the number of sales of new homes has been greater than that in the resale and sub-sale markets.
This supports the hypothesis that prices of new units are holding firm, as developers have reached a point where they cannot cut further as it would mean negative margins or below-normal profits.
“With no crisis brewing currently and from the healthy profits they made in previous years, they cannot be cowed into selling below cost.”
But prices in the secondary market have fallen more as individuals have weaker holding power. The four shoebox units put on sale by lenders were at Estilo in Wilkie Road in Rochor, Casa Aerata in Lorong 26 Geylang, Parc Rosewood in Woodlands and Eis Residence in Haig Avenue. None has been sold. Two other shoeboxes were put up for auction by their owners – at Jupiter 18 in Lorong 102 Changi Road and The Verve in Jalan Rajah in Whampoa – but these have not been sold either.
Residential vacancy rates are expected to exceed 10 per cent in the next 18 months, so the pressure on owners with recently completed shoeboxes lacking a tenant will grow, said one market expert.
It is noted that units in outer areas, where owners are competing for low-budget tenants, are particularly at risk. At Parc Rosewood, for example, asking rents are from about $1,600 a month for a 431 sq ft unit, close to the roughly $2,000 rent for a 800 sq ft three-room Housing Board flat.
Overall, experts regard the outlook for shoebox units as being relatively positive.
“The increase in supply of shoebox units over the years has generally been well absorbed in a high liquidity and low interest rate environment… More affordable shoebox units will continue to appeal to singles, couples without kids, and investors looking for higher- than-market rental yields,” said market analyst.