Unloved, unaffordable shoebox units flood property auctions

27 units went on the block in Q2.

Back in their heyday several years ago, shoebox units were seen as a fail-safe and smart property investment option. But these units have since fallen from grace after policymakers unveiled measures to curb Singapore's then-heated property market.

Now, more investors are finding that their cheap shoebox units are unaffordable after all. With rents under pressure and vacancies on the rise, more shoebox unit owners are defaulting on their mortgages.

“Amid the sluggish leasing market with high vacancy of 8.3% for non-landed residential properties island-wide, investors of small-sized units face increased difficulties in obtaining rental income to service their mortgage loans. The subsequent mortgage defaults have resulted in lenders putting up these units for auction in a bid to secure recovery of their loan portfolios,” said Sharon Lee, Director & Head of Auctions at Knight Frank Singapore.

Shoebox units made a comeback in Singapore’s property auction in the second quarter, with the total number of small-sized residential units put on the auction block up 28.6% quarter-on-quarter to 27 units.

The period also saw shoebox units put up for auction for the first time since 4Q 2014. Of the four shoebox units that were on auction, three were under mortgagee sale.

“The re-emergence of shoebox units under mortgagee sale in 2Q 2015 suggests early signs of a weakening proposition for shoebox units as a property investment option, in the face of rising completed stock of private homes and a slow leasing market,” Lee said.