Are Shoebox Apartments Good Investments?

Are Shoebox Apartments Good Investments?

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Shoebox or “mickey mouse” apartments as they are also known in Singapore has seen a rise in popularity in the last few years.

Typically, these apartments are 500 sq ft or less. Sales figures have seen a jump from 300 units in 2008 to 1,900 units at the end of last year. They account for 12 per cent of total sales of new private apartments for 2010.

About 80% of the buyers are Singaporeans. Out of this group, 50% bought units below 1,000 sq ft and 58% below 500 sq ft had HDB (Housing Development Board) addresses. This is based on caveats lodged with URA as of June 28.

Why are these shoe box apartments popular?

They form a smaller total quantum outlay, typically less than S$1 million and so are more affordable. They are popular with the young singles and expatriate professionals who spend more time at work and even in their free time, are seldom at home.

Depending on the project, rental yields are attractive. With a return of 3 to 4 percent, it is better than putting it in the back where the interest rates are less than 1 percent.

So do shoebox apartments make good investments?

They can be quite profitable depending on location and timing.

Popular areas include, Raffles Place, Little India, Chinatown, Anson and Tanjong Pagar areas. These areas are attractive because of their close proximity to the business district and habitat of the various ethnic groups.

Buyers who buy directly from the developers and flip the property tend to make more profit. Flipping or sub-sale takes place when the buyer of the new apartment sells the property before the project is completed.

This is very common among people who speculate. The latest Government cooling measures of 16 percent stamp duty imposed on properties sold within four years of purchase and tighter financial controls of 60% borrowing limit (loan-to-value ratio) on the second and subsequent mortgage for homebuyers with an existing loan has put a damper on speculators. Resale prices were seen dipping from 1.9 percent in September after rising 3 percent in August according to the National University of Singapore’s Singapore Residential Price Index (SRPI).

With all these measures, speculators find that it is better to hold on to the properties until the project is completed. Once completed, they look for tenants and sell when market conditions are more favourable.

Finally, although the total quantum for the shoebox units are lower, the per square foot prices are higher than the normal larger units in the development. Buyers have to take into consideration how much higher they can sell and weigh the risk-return ratio.

I hope you find this property chat on “Are Shoebox Apartments Good Investments?” useful.

write by Alma

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