Mass-market shoebox rents dip 3.5% in 3Q2015

By Lin Zhiqin / The Edge Property | October 17, 2015 10:00 AM SGT
Join our  Telegram  channel and follow our  Facebook  for the latest update.
Preliminary estimates indicate that rents for shoebox units dipped 1.9% quarter-on-quarter in 3Q2015. Mass-market shoebox units led the decline as monthly rents fell 3.5%or $73 from $2,089 in 2Q2015, to $2,016 in 3Q2015. Ona brighter note, shoebox rents in the city fringe stayed unchanged from the last quarter at $2,380 per month. In the high-end segment, monthly shoebox rents fell 2.1% or $59 from$2,815 in 2Q2015, to $2,756 in 3Q2015 (see Table 1).
Table 1: Mass-market shoebox units lead rental decline
Monthly Rent ($ psf pm)
Decline
Segment
3Q2013
2Q2015
3Q2015
3Q2013 to 2Q2015
2Q2015 to 3Q2015
URA rental index (last peak to 2Q2015)
High end
3,445
2,815
2,756
20
2.1
7.2%
City fringe
2,767
2,387
2,380
14
-
3.1%
Mass market
2,552
2,089
2,016
21
3.5
6.7%

Source: URA, The Edge Property

Shoebox units in the mass market continue to face strong competition from HDB flats for tenants. For the same rents, tenants could get a three-room HDB unit with two bedrooms and share their rental expenses with a flatmate. Based on HDB subletting contracts, the island-wide monthly rents for HDB flats averaged $1,958 for three-room units and $2,297 for four room ones in 3Q2015.
On the other hand, shoebox units in the high-end and city fringe segments are more attractive, particularly to tenants who work in the CBD as they can save on commuting costs and time. At the same time, they offer value alternatives to bigger units.
Advertisement
The analysis was based on a basket of properties tracked by The Edge Property. The figures differ slightly from those in our previous article owing to changes in the basket. Shoebox units are defined as private non-landed homes that are up to550 sq ft in size in this article. “High-end segment” refers to the Core Central Region (CCR), while the city fringe and mass market refer to the Rest of Central Region (RCR) and Outside Central Region (OCR), respectively.
Between 3Q2013’s peak and today, shoebox rents have fallen around 18% or $500 from $2,905 to $2,371 per month. Segment- wise, monthly rents for shoebox units have fallen20% in the high-end submarket, 14% in the city fringe and 22% in the mass market.
In comparison, rents for non-shoebox units have been more resilient. The URA rental index for private non-landed homes fell 7.2% in the high-end segment, 3.1% in the city fringe and 6.7% in the mass market between the last peak and 2Q2015.
The soft rental market continues to dent the profitability of shoebox transactions. Based on URA caveat data, 8% of residential shoebox units (15 of 185 transactions) were sold at a loss in the secondary market. In comparison, only 3% (eight of 307 transactions) of shoebox units were sold at a loss in 2013 and 7% (14 of 215 transactions) in 2014 (see chart).
Chart

Source: URA, The Edge Property

In the city fringe, the average loss for unprofitable shoebox transactions has risen from $31,080 (5%) in 2014 to $60,395 (10%) year to date. Similarly, those in the mass market rose from $25,509 (4%) to $79,112 (13%) over the same period. Bucking the trend was the high-end segment. The average loss for its unprofitable transactions pared down to 6% (see Table 2). The trend echoes the relative rental resilience in the various market segments. But the average gain per profitable transaction has generally diminished from last year’s.
Table 2: Bigger losses and smaller profits
Market Segment
Period
Loss ($ / %)
Gain ($ / %)
CCR
2014
243,079/18
130,409/17
2015-to-date
59,053/6
119,126/15
RCR
2014
31,080/5
133,908/25
2015-to-date
60,395/10
109,253/19
OCR
2014
25,509/4
108,556/20
2015-to-date
79,112/13
104,228/20

Source: URA, The Edge Property

Nonetheless, shoebox landlords have strong holding power owing to the affordability of the units. According to JLL, only six shoebox units were listed for auction in 3Q2015, down from nine in the same period last year. “We do not expect [a] significant increase in such units put up in 2016 and perhaps one to two more units in 4Q2015,” says JLL head of auction Mok Sze Sze.
Advertisement
Interested to be a shoebox owner? Click here to look for shoebox units.
This article appeared in The Edge Property Pullout, Issue 699 (October 19, 2015) of The Edge Singapore.

Follow Us
Follow our channels to receive property news updates 24/7 round the clock.
EdgeProp Telegram
EdgeProp Facebook
Subscribe to our newsletter