[SINGAPORE] At least 8,700 shoebox
units are expected to hit the resale
market between now and 2017, as the
Seller's Stamp Duty (SSD) lock-in period
approaches expiry. While this figure is
more than double the current completed shoebox residential stock of 3,472 units,
signs in the market suggest that demand
for such resale units remains relatively
resilient amid a slow-moving overall
resale market. This figure, revealed in the latest report
from the Singapore Real Estate
Exchange (SRX), is predicated on a first
wave of at least 805 resale units -
comprising units bought between Aug 30,
2010 and Jan 13, 2011 - and a second wave of at least 7,910 units entering the
market from 2015 to 2017. It also assumed that the first wave of
units would be sold in the fourth year of
acquisition, which attracts a 4 per cent
SSD. This is a reasonable assumption given
that these units have, on average,
achieved capital gains of around 30 per
cent over the three-year SSD lock-in
period, as shown by the SRX Property
Index, which should overcome the SSD disincentive, noted SRX. As a proportion of the total number of
units transacted in the overall resale
market, the proportion of shoebox units
transacted in the resale market has been
steadily increasing, from about 0.4 per
cent in the first nine months of 2009 (of 10,019 units transacted), to about 2.5 per
cent this year (of 5,550 units transacted). While the proportion of resale shoebox
units versus the overall resale market is
increasing, this must be viewed in the
context of an increasing supply of
shoebox units entering the market,
pointed out Ku Swee Yong, chief executive officer of Century 21 Singapore
Holdings. Indeed, part of the shoebox resale trend
is attributable to the substantial number
of new shoebox homes sold between
2009 and August 2010, which totalled
some 2,239 units. Looking at the investment viability of
shoebox units, in the face of what some
consultants have considered a potential
oversupply situation, Alan Cheong, head
of research at Savills Singapore posited
that the picture was one of relative undersupply. On the supply side, assuming that units
sold in 2009 have since received their
Temporary Occupation Permit (TOP),
there are some 10,076 units that have
been sold and will be ready for occupation
between now and 2016. Including 2013's annualised sales figures,
some 10,674 units are expected to
receive their TOP in coming years. This
translates to an average of 2,668
shoebox units being completed annually,
between 2014 and 2017. On the demand side, while the number of
non-citizens entering Singapore has
averaged 71,500 per annum historically,
this dropped to 60,200 last year. Using 2012's figure as a guide - given the
more stringent controls over the
admission of foreign workers in the past
year - and adopting an ultra-conservative
assumption that only 30 per cent of them
are employment pass (EP) holders with a family of three, the number of EP head of
households comes to 6,020 persons. Said Mr Cheong: "Anecdotally, we find
that a significant number of the new EP
holders are singles with constrained rental
budgets, and some not even given any
housing allowance. Hence, it is only
logical to deduce that they will either rent HDB flats or shoeboxes." Discounting this figure by another 50 per
cent, the number of incoming singles is at
least 3,010 per year. "Some may argue that not all singles or
couples who can afford to rent shoeboxes
will take one," conceded Mr Cheong.
"However, we can reduce the likelihood of
these permutations because we can infer
that with the tightened immigration policy, shoeboxes could be the preferred choice
for this group of non-residents." The reason, he explained, is that it is
very likely that a foreigner who has been
granted an EP would have a non-
indigenous skillset, which then implies
that they have a salary that is high
enough to afford renting a shoebox rather than going for a HDB flat. "With the URA limiting the average size
of a unit in a residential development to
70 square metres, the supply of
shoeboxes is expected to fall from these
numbers we have seen in recent years.
Therefore, although gross yield of shoeboxes has been falling over time,
with this picture of relative undersupply,
total returns (both rental and price
appreciation) should still be well
supported."
units are expected to hit the resale
market between now and 2017, as the
Seller's Stamp Duty (SSD) lock-in period
approaches expiry. While this figure is
more than double the current completed shoebox residential stock of 3,472 units,
signs in the market suggest that demand
for such resale units remains relatively
resilient amid a slow-moving overall
resale market. This figure, revealed in the latest report
from the Singapore Real Estate
Exchange (SRX), is predicated on a first
wave of at least 805 resale units -
comprising units bought between Aug 30,
2010 and Jan 13, 2011 - and a second wave of at least 7,910 units entering the
market from 2015 to 2017. It also assumed that the first wave of
units would be sold in the fourth year of
acquisition, which attracts a 4 per cent
SSD. This is a reasonable assumption given
that these units have, on average,
achieved capital gains of around 30 per
cent over the three-year SSD lock-in
period, as shown by the SRX Property
Index, which should overcome the SSD disincentive, noted SRX. As a proportion of the total number of
units transacted in the overall resale
market, the proportion of shoebox units
transacted in the resale market has been
steadily increasing, from about 0.4 per
cent in the first nine months of 2009 (of 10,019 units transacted), to about 2.5 per
cent this year (of 5,550 units transacted). While the proportion of resale shoebox
units versus the overall resale market is
increasing, this must be viewed in the
context of an increasing supply of
shoebox units entering the market,
pointed out Ku Swee Yong, chief executive officer of Century 21 Singapore
Holdings. Indeed, part of the shoebox resale trend
is attributable to the substantial number
of new shoebox homes sold between
2009 and August 2010, which totalled
some 2,239 units. Looking at the investment viability of
shoebox units, in the face of what some
consultants have considered a potential
oversupply situation, Alan Cheong, head
of research at Savills Singapore posited
that the picture was one of relative undersupply. On the supply side, assuming that units
sold in 2009 have since received their
Temporary Occupation Permit (TOP),
there are some 10,076 units that have
been sold and will be ready for occupation
between now and 2016. Including 2013's annualised sales figures,
some 10,674 units are expected to
receive their TOP in coming years. This
translates to an average of 2,668
shoebox units being completed annually,
between 2014 and 2017. On the demand side, while the number of
non-citizens entering Singapore has
averaged 71,500 per annum historically,
this dropped to 60,200 last year. Using 2012's figure as a guide - given the
more stringent controls over the
admission of foreign workers in the past
year - and adopting an ultra-conservative
assumption that only 30 per cent of them
are employment pass (EP) holders with a family of three, the number of EP head of
households comes to 6,020 persons. Said Mr Cheong: "Anecdotally, we find
that a significant number of the new EP
holders are singles with constrained rental
budgets, and some not even given any
housing allowance. Hence, it is only
logical to deduce that they will either rent HDB flats or shoeboxes." Discounting this figure by another 50 per
cent, the number of incoming singles is at
least 3,010 per year. "Some may argue that not all singles or
couples who can afford to rent shoeboxes
will take one," conceded Mr Cheong.
"However, we can reduce the likelihood of
these permutations because we can infer
that with the tightened immigration policy, shoeboxes could be the preferred choice
for this group of non-residents." The reason, he explained, is that it is
very likely that a foreigner who has been
granted an EP would have a non-
indigenous skillset, which then implies
that they have a salary that is high
enough to afford renting a shoebox rather than going for a HDB flat. "With the URA limiting the average size
of a unit in a residential development to
70 square metres, the supply of
shoeboxes is expected to fall from these
numbers we have seen in recent years.
Therefore, although gross yield of shoeboxes has been falling over time,
with this picture of relative undersupply,
total returns (both rental and price
appreciation) should still be well
supported."
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