'Beware oversupply of shoebox flats'

'Beware oversupply of shoebox flats'

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 fueling 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 HDB flats that were larger than the shoebox units they were buying.

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 HDB 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'.

Source: The Straits Times – 19 April 2012