Desperate homeowners launch fire sales of shoebox flats

The flat glut will only intensify.

Shoebox flats had seemed like the perfect investment property a number of years ago. These units, typically with a floor area less than 50 square meters, hooked penny-pinching investors because of their affordability and the cheap downpayment outlay that they required.

However, homeowners who bought shoebox flats as investment properties will soon find that these tiny homes will fail to deliver promised profits. According to CIMB, distressed sales of shoebox flats is likely in 2015 to 2016, as sellers struggle to eke out a profit in the soft market.

“The trigger for the distressed sales of suburban small-formats may come from rising vacancy rates. Smaller units are typically bought for investments, but investors will find themselves hitting a soft market caused by the cutback in foreign labour and ballooning property supply,” noted CIMB.

CIMB further warned that banks may see some non-performing loans from these mortgages. “But as LTVs for investment properties are lower, the ticket size of each loan is smaller and the smaller price quantum of these products is more likely to find a secondary buyer, we do not expect mortgage NPLs to balloon. The developers that are aggressive on the small-format trend tend to be the small developers, but most have sold off their stock,” CIMB stated.