Flat glut to intensify as shoebox condos flood the market

The price cut mania will escalate.

Small condos will bring big problems to giant developers, as a large number of “shoebox” flats are expected to flood the market in 2015.

Shoebox flats, so named because their size does not exceed 500 square feet, were extremely popular investment properties immediately after the Global Financial Crisis. Shoebox units were well-received by property buyers because of the low downpayment outlay that these flats require.

After the popularity of shoebox flats peaked in 1Q12, the government began to crack down on shoebox units in September that year by limiting the gross floor area of projects.

According to CLSA, the first batch of owners who bought shoebox units as investment properties in 2011 will be exempted from Sellers Stamp Duty from 2015 onwards. The majority of these owners are sitting on unrealised paper gains and are looking to sell their properties in 2015, which could add to the current ready inventory in the system and further drag property prices.

“We estimate a total of 5,016 units are now profitable, prompting owners to take profit in 2015. If this materialises, we estimate it will add 24.3% to the current ready incentory in the system, putting downward pressure on prices,” stated CLSA.