Shoebox property prices rising fastest in OCR

Up 10.7% qoq to S$1,523 psf.

Prices of shoebox properties rose across all market segments in 3Q 2013 with the most significant increase seen in OCR, where the average price on a $psf basis increased by 10.7 per cent q-o-q to $1,523 psf, following the 11.8 per cent q-o-q increase in 2Q 2013, according to the latest Kinght Frank market report.

Prices of mid-tier shoebox properties in RCR increased by 8.8 per cent to $1,640 psf while high-end shoebox properties in CCR rebounded by 2.2 per cent to $2,322 psf in 3Q 2013, compared to the decreases of 15.3 per cent and 0.4 per cent (an increase instead from 1Q to 2Q 2013?), respectively, in 2Q 2013.

But Knight Frank noted that with the accelerating price increase of shoebox properties in suburban areas, the price gaps between the OCR and RCR/CCR segments have been narrowing in the last two years.

The price difference between mass market and mid-tier new sale shoeboxes reduced to 4.9 per cent in 3Q 2013, almost half of the 8.9 per cent gap in 2Q 2013. This is much lower compared to the previous quarters where price differences were more than 10 per cent.

The price gap between mass market and high-end segments also narrowed to 55.3 per cent in 3Q 2013, compared to 68.1 per cent in 2Q 2013 and more than 70 per cent in the previous quarters. The narrowing gap is mainly attributed to the surge in new launches in OCR in the last 2 to 3 years arising from the supply influx under the Government Land Sales programme.

In order to meet the demand for smaller investment quantum, developers also built a higher proportion of smaller units in their projects located in suburban areas, which deviated from the conventional trend where shoebox units were normally more prevalent in central locations. With the government’s plan to enhance transportation networks and other facilities in non-central locations, home buyers and tenants, especially young professionals and the ‘DINKs’, are more open to reside in the suburban areas.

Meanwhile, average rents of shoebox units in CCR and RCR increased to $8.00 psf per month and $6.58 psf per month, as opposed to 0.3 per cent decline in OCR to $5.91 psf per month in 3Q 2013. Leasing transactions of shoebox units in suburban area is also not as active as CCR and RCR since most of the suburban projects are still under construction.

Gross yields of shoebox properties range from 3.6 per cent to 5.8 per cent in 2013. With average yields of 4.1 per cent, 4.8 per cent and 5.2 per cent in 2013 for CCR, RCR and OCR, respectively, shoebox properties command higher investment yields compared to the overall leasing market.