Think out of the shoe box: Analysts

If you are thinking of investing in small apartments measuring less than 500 sq ft because they are cheaper, you may want to think again, according to property experts.

As there are only a few “shoe box” housing units available on the market, and with a popularity that’s still in the early stages, analysts said the returns on investment in these properties could be limited.

“This is a non-standard investment which, in terms of size, may not appeal to some tenants,” said Cushman and Wakefield Singapore managing director Donald Han.

“If you’re thinking of leasing out and holding this as an asset typical to any studio-sized residential apartment, then this is something very different.”

Such “shoe box” apartments have been popular with property buyers recently, as sales of such units this year have hit an all-time high of 412, up from 299 last year and 275 in 2007. In 1995, there was only one such transaction.

The investment returns for such small-sized apartments depend on tenants’ preference for these types of units. And analysts said that in times of a market downturn, potential tenants tend to hold the bargaining power.

“A majority of tenants in Singapore are foreigners and they will have a lot of choices in time to come, with more developments to be completed in the next few years,” said Ngee Ann polytechnic lecturer Nicholas Mak.

Thus, “shoe box” units would likely attract tenants who prefer short-term leases rather than those looking for typical two-year leases, said Mr Han, who also believes that there would be buyers of such resale units.

Meanwhile, director of property agency Dennis Wee Group, Mr Chris Koh, said the returns on such small format apartments could be comparable to larger units.

He cited the example of the 463-sq-ft apartments at Avila Gardens in Loyang, which transacted at a resale value of between $300,000 and $320,000 in 2000.

This year, their prices are in the range of $370,000 and $410,000, translating to a gain of more than 20 per cent. This is comparable to bigger units in the same development.

“Maybe that’s why there are still people biting,” said Mr Koh, who remains optimistic about the investment potential of these small units.

Source: Today, 10 Oct 2009