Shoebox flats rake in higher rental yields

Tiny 'shoebox' homes here are raking in much higher rental yields for investors than other apartment types but experts warn the good times might not last.

Data from the Singapore Real Estate Exchange (SRX) found that gross yields for shoebox apartments were 5.4 per cent in the first three months of the year.

This is well above the 2.5 to 3.5 per cent yields that residential properties typically return to investors.

The SRX shoebox yield was based on the average rent of $6.51 per sq ft (psf) per month for the 197 leasing deals inked in the period. The average unit price of the 123 shoebox homes sold then was $1,450 psf.

Experts say investors have flocked to the shoebox segment in droves, attracted by the affordable prices - typically less than $1 million. In fact, about one in seven buyers picked up new homes 500 sq ft and smaller last year.

This is more than double the rental yield of 2.4 per cent in the luxury segment. It also dwarfs the 3.6 per cent yield in the mid-end segment and 4.1 per cent yield for mass market homes.

But these high yields are not expected to last as an increasing supply of completed shoebox homes enters the market.

The number of these small homes is expected to double from about 4,100 units later this year to 8,200 units by the end of 2015.

While a dip in prices of shoebox flats could cause yields to rise temporarily, yields are likely to trend towards the norm of 2.5 to 3.5 per cent in the long run as supply picks up.

Source: The Straits Times – 20 April 2012