Thursday, April 19, 2012

Analysts warn of shoebox oversupply

Although shoebox apartments promise high capital gains and rental returns, analysts warn that a looming oversupply could have a negative impact on investments.

Shoebox units, which are no more than 500 sq ft, are currently very popular, contributing to strong demand in the private property market. But analysts expect a flood of new supply next year, which may cause problems among investors looking for tenants or wanting a good resale price.

Most shoebox buyers are investors while the rest are owner-occupiers who used to live in larger HDB flats.



A report by BNP Paribas Group said more HDB dwellers were reportedly buying private homes since 2008, mainly shoebox units, which are believed to not be for owner-occupation.

“Judging by the increase in proportion of smaller units sold, we believe there has been an increase in investment demand,” noted Citi Investment Research.

Meanwhile, Nomura Group said the number of completed shoebox units is expected to triple by 2013, mostly in the mass and middle markets. It added that over half of the units were bought by HDB dwellers.

Meanwhile, BNP’s report said the stricter immigration rules could be a challenge for investors looking to get tenants.

“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 noted.

View the original article here

Source From Property Guru

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