As a property investor myself, I have reservations about investing in shoebox units.
On the surface, these ‘Micky Mouse’ units give buyers the impression of lower costs and more affordable prices.
But in reality, the price per square foot is higher, so is the maintenance per square foot compared with bigger units.
Rental of shoebox units
In a TODAY article published on Dec 17, the author painted a beautiful picture about investing in shoebox units.
A 350 sq ft unit can fetch a rental of $2,800 while a 550 sq ft unit can go for $3,800. With a gross return of 3.6 percent, the yield looks very attractive.
In a showflat, you can often find these unrealistic figures put forward by marketing agents.
To find the truth, simply check with a nearby condo on the current rent of their smallest unit.
When the condo is still new, it can fetch higher rent. But the development will age and there will be new condos being built in the same location.
I can share with you the real rental figures for the 1-bedroom units I owned. You can see the big differences during good and bad times.
Finding tenants
Pitching ‘lifestyle choice’ and ‘Singapore now a cosmopolitan city’, developers’ selling points seldom go beyond the following:
1) Lower investment and higher return
2) Prime location/in good districts
3) Proximity to facilities or MRT stations
I know a lot of buyers of shoebox units think that the place is perfect for younger expatriates, singles, young couples, etc.
If you have stayed in a shoebox unit like me, you’ll see the problems and limitations.
If you cannot imagine yourself living in such units, why do you think expatriates would like to stay there?
In fact, tenants do not ‘choose’ to stay in shoebox units. They have to settle for smaller units because there is no choice. Thus shoebox units tend to attract tenants with a lower budget.
Also, because of the proximity to the city, many shoebox units may be used as SOHOs. With visitors and strangers going in and out, tenants using the place as a residence may not feel comfortable.
Once they find a bigger place, they will shift out.
Consequently, tenants are only willing to sign short-term leases. Owners of shoebox units need to be prepared to spend more time and efforts finding tenants.
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