PropNex CEO: What Seniors & Singles Should Be Thinking About Right Now

In this exclusive one-on-one interview with iProperty.com at the recent iProperty.com Expo at Marina Bay Sands, CEO of PropNex and Singapore’s leading real estate expert Mohamed Ismail Gafoor discusses the latest trends in the Singapore and Malaysia property market. He also provides valuable advice for 2 growing demographic groups in Singapore: seniors who own a house and are planning for their life after retirement, and singles under 35 contemplating their first studio home purchase.

Mohamed Ismail speaking to a full crowd at the iProperty Expo at Marina Bay Sands

Q. You have often emphasized that landed housing in Singapore is by far the best choice for real estate investors. Could you tell us why? 

Landed property will always be a goldmine – for the simple reason that land is in limited supply, and Singaporeans will always consider owning a landed house to be their ultimate dream.

However, not all landed properties are created equal. While the government can still release sites for landed properties with a 99-year lease, the existing stock of freehold landed properties are highly limited. I would lean away from landed properties with a 99-year lease as they present unique challenges for their owners. It is much harder for leasehold landed properties to meet the criteria for enbloc, as a 100% owner consensus is required – as compared to private condos more than 10 yrs old which need only 80%. There is only a 20-25% price difference at the entry-level for freehold vs. leasehold for landed properties, but the key advantage of freehold landed homes is that it provides for perpetual ownership, making it a much better deal.

Q. What are the possible implications of the proposal to double the entry price at which foreigners can buy real estate in Malaysia?

First of all, I can certainly understand the rationale behind such a policy proposal. Just as what has happened in Singapore, the Malaysian government is concerned about a property bubble forming, and likewise they also have to address the growing public concerns on the ground about rising property prices.

In spite of this, I remain very confident that the M$1 million minimum price for foreign purchasers of Malaysian property will not be a blanket limit across all states. In particular, such a policy would not be advantageous for the state of Johor especially when the entire Iskandar project is still at the infancy stage of development. It is likely the MY$1million minimum purchase price will apply to properties in the downtown KL region, but highly unlikely for areas such as Ipoh and Malacca.

As many well-off Singaporeans have already been picking up units well above the MY$1 million mark, it will not be surprising if they remain willing to pay for a good product which is still relatively affordable, particularly given the strength of the Singapore currency. Those most likely to be affected by the higher entry price are HDB upgraders, who have been mostly buying lower-tier fringe properties.

Q. What should senior citizens keep in mind when deciding if they should opt for the LBS (Lease Buy-Back Scheme), or “downsizing” to a studio flat instead?

PropNex CEO Mohamed Ismail

The LBS has the advantage of allowing seniors to continue to stay in the same flat in the same environment they have grown used to after many years. While some may be concerned about “outliving” the 30 years remaining on the lease under this program, the reality is that there are many seniors who will require specialized care at a health-care facility by that age. Hence, although the take-up rate for the LBS scheme has been low, I do see some do see some merit in this program.

However, I consider “downsizing” to be the more exciting option among the two.  Downsizing to a studio apartment allows seniors to be able to completely cash-out on their existing property and use part of the proceeds to buy a smaller elder-friendly property at a reasonable price. Living in an elder-friendly community with adapted facilities (e.g.: lifts and ramps) will also provide a close-knit community where seniors can grow old together. Furthermore, having a lump sum payment in hand also gives one a greater feeling of strength and security. However, the inherent risk in “downsizing” is that seniors who do not have necessary skill or discipline to manage their funds can lose everything very quickly. Hence, deciding which option to go is very much an individual decision.

Q: What advice do you have for single working professionals under the age of 35 who are contemplating investing into a private studio flat for their own-stay?

As Singapore’s population continues to increase, it is inevitable that property sizes will shrink. Although shoebox unit sizes in Singapore are still decent compared with cities such as Tokyo and Hong Kong, it is undeniable that reduced space and high density will lead to a compromised lifestyle.

For single working professionals who want to move out of their parent’s house into their own home for lifestyle reasons, I would say that it is perfectly okay to buy studio apartment –  but they really need to look out for the PSF (price per square feet) they are paying. Although the quantum of studio apartments may be low, all capital appreciation is ultimately a by-product of rental yield. Hence, the risk is that if rentals do not go up much, there is limited room for capital to appreciate. Paying high prices for an entry-level studio flat in the outlying areas could mean there may be limited scope for rental appreciation.

 

Highlights from the iProperty.com International Property Expo

Showcasing only the top properties from around the globe, the iProperty.com International Property Expo held on 20-22 April 2012 at the Marina Bays Sands Convention Center offered visitors a unique opportunity to preview and purchase from the finest collection of the most sought-after real estate around the world.

Attended by hundreds of investors eager to get their hands on one (or more) of the dozens of properties for sale, the much-anticipated event offered visitors a chance to preview an impressive list of more than 30 exhibitors from all over the world. With options ranging from residential to commercial, from holiday homes in Malaysia to storage spaces in the UK, and with prices starting from as little as S$10,000 to over S$1 million, there was something to cater to every visitor’s taste and budget – regardless of whether they were buying for investment purposes or simply looking for their dream holiday home on one of the world’s most beautiful beaches in Thailand.

The exhibitors at this weekend’s Expo were some of the world’s most highly-respected property agents and developers, and some of the show’s highlights included:

  • The Elements, a serviced apartment in Kuala Lumpur offering a prime location combined with top-notch in house facilities, presented by ML Mayland

  • Central Park, a superbly located A$2B village at the southern edge of Sydney’s CBD presented by PropNex

  • Neptune Center, a professionally managed development with a prime location in Chengdu, China, presented by Centaline Property Agency

Apart from the properties showcased at the Expo, visitors were also able to meet with other specialists in the high-end property industry, including WayOnNet’s Master Tan Khoon Yong, one of Singapore’s best-known Fengshui experts.

Drawing the crowds was also the packed schedule of free-to-attend seminar sessions, which provided advice on buying property in places such as Malaysia, Australia and the UK. Top industry professionals such as Jamie Hall of Central Equity Australia were one of the presenters who took to the stage to give top tips on what to look out for when managing overseas properties from Singapore.

And as if that was not enough, highly regarded property experts such as Dato Eric Cheng, the Founder and Group CEO of ECG Group, once again took time to be at the Expo to talk to visitors about investing in Bangkok.

The popularity of the iProperty.com International Property Expo has grown immensely over the last several years. As iProperty.com diversifies and expands its scope for its next Expo planned for the second half of 2012, visitors will be able to once again look forward to the industry’s flagship event, with even more opportunities to network and gain first-hand knowledge of the hottest properties and international market trends.

 

5 Great Windows Phone Apps To Make Property Hunting Easier

If you’ve been wondering about how your Nokia Windows Lumia phone will be able to help you in your property search, you’ve come to just the right place. Here’s a quick review on some of the most promising apps available in the Windows Phone Marketplace, guaranteed to help make your new home hunting an enjoyable experience.

Fengshui Kua Finder

The Fengshui Kua Finder, a free app, is the closest you will get to an actual consultation with Fengshui master on your phone. To get started, you’re asked to fill in your birth date, gender and name, and your “kua” number will be automatically calculated. Once you’ve got this, you can also slide to view  your most favorable directions within the app, and read more about what facings to avoid. This app is especially useful when you are looking to position important furniture pieces such as your office desk or bed, as it provides a handy “kua” chart you can refer to anytime you want to plan out the layout of your home. Fortunately, the app also allows you to save the details of your reading, so you don’t have to key in your personal details each time. The app is also chock-full of valuable information such the philosophy about Fengshui, as well as what the significance of your personal “kua”.

 

Home Decorator

Perfect for those planning the theme and style of their new homes, Home Decorator is a powerful creative app tool will allow you to not only take photographs of any space, but also choose different colors from an extensive color pallet for rooms and objects with a single touch. The unique features of this app is especially useful for larger areas such as the living room, as the flexibility of Home Decorator allows you to experiment with a variety of colors for different walls (tangerine orange, anyone?) before you even have to pull out your paint brush!

Home Affordability

Rich in features, the Home Affordability app will help you compare your debt-to-income ratio to so you can calculate the affordability of your dream home.  It gives you the option of inputting the current interest rate and choosing a 15 or 30 year mortgage before allocating 31% of your income toward your house payment. The app allows you to enter any savings you want to set aside monthly for incidental expenses, so you don’t stretch yourself too thin by taking on too large a home loan. By taking into account all your future income and spending, this app is an essential tool for helping you visualize your current and future financial position before you commit to a housing mortgage.

GuidePal

While searching for a new home, many Singaporeans consider easy accessibility to good food almost as important as the transportation network. To help you scope out the eating options in the area, GuidePal’s “online maps” function will zoom in on your location to let you know where are the closest F&B outlets in the area, shopping malls as well as popular tourist attractions the region. While trying GuidePal out in the Bukit Timah area, GuidePal was able to recommend the Dulukala Peran restautant located at Beauty World, famous for its Beef Rendang and Ikan Bakar, both considered to be one of the best in Singapore. For vegetarians, GuidePal picked up on the Original Sin restaurant in the Holland Road area, well known for its delicious middle-eastern flavored Mousakka. To make things even easier for you, the “call” and “show map” functions make it effortless for you to quickly make a reservation and find your way there in a breeze.

iProperty.com Singapore

With no registration required, the free iProperty app is the virtual 24-7 real estate agent you always wish you had. You can use the “Find Properties” function to pair you with “for sale” and for “for rent” real estate listings which fit your search criteria.

By taking your requirements into consideration, the app displays a full list of the properties on the market meeting your search criteria. This means that if you are only interested in “4 room HDB flats” in Bukit Merah, that is all you will see.  Using GPS, the app determines your position and displays a live map of the nearby listings of properties for rent on sale on the screen.

Want to find out more details of a particular property? The “Call Agent” function allows you to directly call, SMS or email the marketing agent via a direct touch button. Other functions from the home page, such as the Condo and Agent Directories and Property News  help to make your property search smooth and hassle-free, making this app a must-have for those serious about being a winner in the property market.

How to Know You Are Ready to Buy A HDB BTO Flat

Are you and your partner planning to apply for a HDB BTO (Build-To-Order) flat this year? If so, you are not alone – for many Singaporeans, a BTO flat is their number one choice of first home, mostly due to its lower price tag as compared to homes on the open market, as well as the various grants and subsidized pricing offered. However, as a first-time homebuyer, you may find that applying for and selecting a new HDB flat can be an intimidating experience. Below are some helpful tips to help you successfully select the right BTO HDB flat and come out a winner.

HDB Flat Launch. Image courtesy of HDB.

Understand latest HDB Policies & Developments

For those who have not been actively following local property news, it is very important that you start now.  Recent policy changes such as the extension of the MOP (minimum occupancy period) from 3 to 5 years may have significant implications on your decision to apply for a BTO flat. Also remember that the loan term for HDB flats can be significantly shorter than that for private properties: private banks can offer loan terms of up to 40 years, while the HDB concessionary loan is only available for 65 years minus the buyer’s age or 30 years, whichever is shorter. Also, although you may not be thinking of buying a 2nd residential property now, do bear in mind that HDB flats cannot be used for getting a 2nd mortgage to leverage or “cash-out” for financing another property purchase – unlike private homes.

Timing Your Application for A BTO Flat

If after considering all the factors involved with buying a BTO flat, and you still decide to go ahead and apply, bear in mind one of the most critical factors: your timing. To give some background, prior to around May 2011, HDB would usually release smaller batches of BTO units on a monthly basis, a process which would result in a frantic rush where everyone would apply for the next consecutive month’s BTO release, without even knowing if they had been successful in the previous exercise. The good news HDB has since revised the system to put up flats in bigger, less frequent releases, meaning that the applicant to flat ratio has been much improved. This is good to know of course, but how can you use this to your advantage?

Maximizing Your Chances of Getting a Good ‘Q’ Number

While luck certainly matters, there are steps you can take to maximize your odds of getting the best queue number. Although the tangible cost of submitting a BTO application is only S$10, and HDB does not limit the number of BTO exercises you can participate in, the larger, less implicit cost lies in how multiple applications will be used “against” you. In a move to discourage buyers from being “picky”, HDB has programmed its balloting system to place applicants who have rejected an invitation to select a flat more than twice at the back of the queue. Because of this, it may not be advisable to apply for a neighborhood which has been oversubscribed over 10 times for a popular release, as your chances of being able to get a good queue number are very small.  You might be better off applying for another neighborhood to increase your odds of getting a better queue number instead.  Bear in mind that HDB’s offer to you to select a 2nd floor, rubbish-dump facing unit also counts as an invitation, making it even more important you use your application chances wisely.

Use the Tools at Your Disposal

HDB InfoWeb. Image courtesy of HDB.

With over 25,000 BTO flats slated to be released in 2012, make sure you don’t miss out on any of them by signing up for HDB alerts on the HDB website. HDB will send you an SMS or email prior to the release of a new BTO launch, when full details of the units, including indicative pricing, are available.  Keeping abreast of latest releases is even more critical now that the time frame for submitting your application online has been reduced to one week. Many have missed the deadline for a BTO launch by not keeping track of when applications close – make sure you are not one of them.

Your Patience Will Be Rewarded

In your desire to quickly ‘secure’ a new home for you and your partner, the urge to quickly apply for every BTO exercise there is can be overwhelming. However, do bear in mind your goal is to maximize your chances of getting a good flat, not just any flat – which means it pays to wait for the right launch at the right time. In particular, those eyeing popular areas such as Clementi and Bedok might want to wait for new flats in these areas to be released rather than simply applying for every launch and being invited to select a flat for an area you don’t actually want.

The SBF (Sale of Balance Flats) Exercise (Or HDB’s Special “Bonus” Exercise)

Kim Tian Green, Sep 2011 SBF Exercise. Image courtesy of HDB.

For those with a little more patience (and time on their side), it may be well worth your while to wait for the announcement of the SBF exercise. This may be conducted on an annual basis, but really depends on the number of ‘surplus’ flats HDB has built up in its reserve. The key benefit of the SBF exercise is the absence of the 2-3 year construction period, as SBF flats are typically already completed or near completion. The September 2011 SBF exercise was a good example of how good things come to those to wait: units in highly sought-after areas such as Queenstown and Tiong Bahru were released to 1st-timers, who were able to collect their keys to these completed units within 6 months after applying. With the hot competition for SBF completed flats, it becomes even more apparent why it is important that you ‘conserve’ your chances so you can use them at a time when it really matters.

Keeping An Eye on the Competition

Once you have decided you are interested in a particular launch, watch the live updates on the HDB InfoWEB website like a hawk once HDB starts accepting applications. Do not submit your own application yet. Why? Very simple: By identifying the neighborhoods which have the least number of applicants, you maximize your chances of getting a good queue number. Checking the number of applications versus the number of units available on the day before applications close will give you a good idea of what your likelihood of drawing a good queue number is, and help you decide if you should use one of your precious first-timer ‘chances’ during this particular launch.

Scoping Out the Site

Buying a property off-plan, while having the benefit of ensuring you get a brand-new unit, does mean that the buyer has to do additional due diligence because they will not have the benefit of inspecting the actual unit. For example, you will have to rely on materials such as floor plans and the SLA (Singapore Land Authority) announced plans for the next several years to figure out if a 40-storey high-rise will be built on the plot directly in front of a BTO site, or if an MRT or Chinese temple will be constructed near-by. Tip: going over to the nearly existing blocks in the neighborhood and taking the lift up to the highest floors will give you an idea of the view the new flats will have when they are finally constructed.

Choosing Your Unit: Balance Out Your Must-Haves vs. Nice-to- Have

So you have submitted your BTO application – and lucky you – have received a good queue number. What to do next? Before breaking out the champagne to celebrate, bear in mind that your work has just started at this point. Preparing for your selection date involves doing your homework by understanding the features on the different units offered, including potential negatives such as the amount of afternoon sun the bedrooms will face as well as the extent of street noise that will travel up. While going over the pricing list, if the main reason for your preference for a unit on a high floor is for the view, bear in mind that you may be able to choose a unit on the 20th floor vs. one on the 40th floor and yet still be able to enjoy the view you desire. As HDB charges a substantial incremental for higher floors, the money you save may be better used toward other expenses such as paying for your granite kitchen countertops or customized floor-to-ceiling shoe cabinets -  or any ‘what-ifs’ that may come up during the 30 years you will be financing your flat for.

What To Do on Selection Day

As there may be around 8-10 couples selecting their flat that day, be mentally prepared for the possibility that your choice flat may already be taken up by the time you get to the front of the queue. To mitigate the anxiousness you will feel when sitting in front of HDB sales officers and not knowing which remaining unit to select, make sure you show up early for your selection appointment slot, and more importantly, fall in love with 15 units instead of just one or two beforehand. Also bring detailed reference information and photos of each site you’re interested in to avoid panic because the units you had your eye on are all already taken up.

Do you have other tips for first-time BTO flat buyers? We encourage and welcome any tips you may have to add in the “comments” section below.

iProperty.com Singapore Site Search Dec 2011 – Top 10 Most Searched Condos and New Developments

The list for Top Searched Keywords (Condo Name) includes all condos, both condos which have already reached TOP as well as new launches.

For the month of December 2011, Icon was clearly the most popular condo all, accounting for more than 12% of all searches. The high level of interest in Icon is likely due to its super-prime location in the middle of the CBD area, as well as its proximity to Tanjong Pagar MRT, where plots of land are usually reserved for commercial office buildings. Armies of office workers in the area also walk by the “iconic” building daily -  who although may not be able to afford the S$2,000 psf price tag of this new development, are unable to resist searching online and drooling with envy over photos of the Icon’s  top-end designer apartments.

Top Searched Keywords (Condo Name) – Dec 2011

Top 10 Most Searched New Developments – Dec 2011

Condo development names such as The Hiller and Woodhaven are likely already familiar to those of us who regularly browse through the newspapers and have come across their eye-catching advertisements featuring a glimpse into the luxurious lifestyle the privileged few can enjoy in one of their condos . These developments have been aggressively building awareness of their condo’s brand through the local media, and have been rewarded by their efforts by having their projects claim the top 5 spots in the Top 10 New Developments list. While the sales results are not fully out yet, it is likely condos ranking high on this list will perform well,  and enjoy strong showroom sales.

It is also interesting to note that many of the new developments in the top 10 lists are also located in the non-central areas – likely a reflection of overall falling sales in the core central region as a result of the additional 10% stamp duty on foreigners, as well as Singaporean HDB upgraders who are taking advantage of the wide-selection of new mass-market condos launched within their price range.

 

Looking back on 2011: Key Property Highlights of the Year

As we ring in the New Year, iProperty.com takes a look back to remind you of the highlights of the real estate market over the last 12 action-packed months:

1. Cooling Measures 2011

The additional cooling measures introduced by MND (Ministry of National Development) was by far the most talked-about topics within the property industry this year. These included the increase of seller stamp duty rates to 4 to 16% for residential properties sold within four years of purchase, as well as the lowering of LTV (Loan-to-Value) limits from 70% to 60% per cent for buyers financing two or more properties.

In November 2011, MND also shocked the market by announcing the increase in Additional Buyer’s Stamp Duty of 10% for foreigners purchasing private residential property.

2. Relief for The Middle-Class Masses

Those in the “sandwiched middle-class” had much to rejoice about this year, when MND announced that the income ceiling for buyers of HDB flats would be raised from $8,000 to $10,000, and from $10,000 to $12,000 for buyers of ECs (Executive Condominiums).

Other measures included the release of large numbers of BTO (Build-To-Order) flats, accompanied by a SBF (Sale of Balance Flats) exercise in September earlier this year.

3. En-Bloc Schemes a Plenty

Rochor Centre, Redhill Close, East Coast Road and Clementi Avenue 5 were all examples of the areas which were ear-marked for SERS (Selective En bloc Redevelopment Scheme) this year. While the sentiment of residents affected was mixed, a good many were most concerned about compensation and replacement programs – with some even writing some (very public) letters to voice their unhappiness, contributing to the extensive media coverage on this topic.

4. DBSS Sticker-Shock

While high property prices in Singapore are nothing new, the price tag of $880,000 for a unit at Centrale 8, a DBSS (Design, Build & Sell) project in Tampines proved too much even for the locals to swallow.

Very quickly, petitions from the public led to MND stepping in to freeze all land sales under the DBSS program. However, prices of Centrale 8 were eventually lowered, and DBSS sales soon continued into the year, with projects such as Lake Vista @ Yuan Ching, the first DBSS project in western Singapore, launched at more affordable prices, from S$360,500 for the smallest unit to S$680,400 for the largest flat.

5. ECs: the Hot Property of 2011

ECs were in high demand in 2011, with notable launches including the Arc at Tampines –which commanded higher average PSFs as compared to Belysa, the previous EC launch in Pasir Ris earlier in the year.

ECs particularly appealed to home-buyers whose income was below the revised ceiling of $12,000, and who wanted accessibility to condo facilities such as 24-hour security, a swimming pool and tennis courts.

6. Record-Breaking PSFs

Developers certainly had reason to pop out the champagne at their annual company dinners this year. Earlier this month, more 80% of the freehold Charlton Residences was sold, even before its official launch. New benchmark prices were also set at the preview of Thomson Grand in Upper Thomson, with PSFs for apartments topping a jaw-dropping $1,600 psf. EC developers also had much to celebrate this year, as mass-market EC projects like Blossom Residences enjoyed strong consumer demand during the first weeks of their launch.

How Much House Can You Really Afford? Tips for Budgeting for your first Home

With housing prices having risen by double-digit figures annually for the past several years, an increasing number of young Singaporean couples are finding that servicing a monthly housing mortgage has become increasingly challenging.

Compared to a generation ago, where Singaporeans could select an HDB flat for the bargain price of $70,000, those in their mid twenties to thirties buying a home for the first time today have to grapple with rapidly rising costs and ominous signs of a looming global recession on the horizon.

If you find yourself in such a situation, what can you do to best ensure you choose a flat within your means, and that your CPF savings are adequate to service the mortgage loan? Read on to find out the key financial considerations for making the home of your dreams become a reality.

1. Can You Afford the Downpayment?

Although property buyers used to be able to borrow as much as 100% LTV (loan to value) during the property boom, those days of liberal lending are long over, and home buyers today have to put up more cash and CPF before they can buy a home.

While first-time HDB buyers can still put down just 10% of the value of their flat and get a loan from HDB for the remaining 90%, those who choose private property or do not qualify for an HDB loan can only borrow a maximum of 80%. Furthermore, buyers of resale HDB flats have to fork out an additional COV (cash over value), which can amount to as much as $50,000, and has to be paid out to the seller in cash.

 


2. The LTV (Loan to Value) Ratio

After you have determined that you are able to come up with the downpayment, private banks will loan up to 80% LTV, while those who qualify for a HDB concessionary loan may borrow up to 90%. Although current bank interest rates may be lower than the 2.6% extended by HDB, experts generally advise first-time home buyers to go with the HDB loan option instead, as HDB rates are pegged to the CPF rates plus 0.01%, hence offering greater long-term stability.

For those deciding between a private property or HDB purchase, it would be helpful to bear in mind that HDB will only extend loans for public housing purchases, but in recent times private banks have been seen to be more lenient in extending mortgage loans for private property vs. HDB – particularly given the stringent MAS regulations surrounding HDB loans.

3. How Much Would You Need to Make to Afford a $350,000 HDB Flat?

With a standard 4-room resale HDB flat costing around $350,000 these days, how much would you have to make to be able to be able to comfortably afford your monthly mortgage payments?

At an interest rate of 2.6% (currently the HDB concessionary loan rate) and a mortgage term of 30 years, a family would have to earn a combined gross monthly salary of at least $3,500 in order to be able to be able to afford a monthly loan payment of $1,400.

However, this minimum income of $3,500 is calculated on a 40% loan quantum, and each family should adjust their calculations should they have other major financial commitments to consider (eg: auto loan, baby expenses, parent allowances, etc).

4. A Steady Income Flow for the Next 30 Years?

Along with the other good rule of thumb of making sure that you and your partner’s combined CPF contributions can fully cover your monthly mortgage payments, one key factor to bear in mind is that both employer and employee CPF contributions are reduced after age 55, with total CPF contributions falling from 36% to 30% as a percentage of total income.

As it is likely you will still be servicing your 30-year mortgage loan at the age of 55, it is good to bear in mind that retrenchments affect workers aged 40 years and older the most. To avoid the worst-case scenario of being evicted from your home (touch wood) – the oft-repeated mantra of keeping to your budget, and buying only what you can afford is sound advice to follow.

Given that buying your first home is likely the biggest financial commitment of your life, one last important tip is to make sure you take advantage of all the help available out there. For example, HDB offers an Additional CPF Housing Grant (of as much as $35,000) for those who qualify. Generous relatives can also be excellent sources of help, and there are many cases of parents who will “help” their children get started out by contributing a sizable portion of the downpayment for their new flat. As always, in the case of buying a new home, when you need all the assistance you can get – it never hurts to ask!

Thinking of Buying a Shoebox Unit? The Districts You Might Want to Short-List

While the term “shoebox units” was virtually unheard of even by professionals within the real estate industry as recent as 5 years ago,this term has become a part of many Singaporean’s common lingo today.

With the rapid increase in Singapore’s population from approximately 4.4 million in 2005 to more than 5.18 million today, the shoebox unit is one of the solutions to coping with the growing housing needs of a larger resident population. These units, defined by National Development Minister Kaw Boon Wan as having an area of less than 500 square feet, made up 12% of new private home sales last year. The shoebox trend is not restricted to just the private market alone – HDB has also jumped onto the bandwagon, as seen by the increased number of studio flats released, and shrinkage of floor areas for new BTO flats recently constructed.

1. An Abundance of Shoebox Units

Compared to just 7 years ago, the number of shoebox units snapped up by eager buyers increased by a mind-blowing 79 times, from just under 30 in 2004 to more than 2,390 units during the last 12 months (Oct 2010 – Oct 2011). Certain districts proved more popular than others, with District 15 (Joo Chiat, Katong, Marine Parade) taking up 20% of the share of all transactions of shoebox units. Following close behind was District 14 (Geylang, Eunos and Paya Lebar) accounting for 17% of transaction volume.

Districts with Top Share of Shoebox Transaction Volume

2. CBD Shoebox Units Command the Highest PSF

Given the abundance of shoebox units on the market, one question remains: How does a prospective buyer look out for the “best deals”, or units which would enjoy strong appreciation in future? When we took a closer look at the movement of transacted shoebox unit, what stood out the most was that not all shoebox units are created equal.

Districts with Shoebox PSF Greater than $1,000

Only 13 districts in Singapore were able to hit the $1,000 PSF mark, with District 1 (Marina Bay and Raffles Place) commanding the highest average transacted PSF at $1,923. District 9 came in a close second, with an average PSF of $1,837. It should be noted that there is a sharp drop in the PSF which other districts other than District 1 and 9 are able to command, as the next highest PSF is almost 10% less than that of District 1 and 9.

Districts 21 (Ulu Pandan and Clementi) fetched one of the lowest average PSF, at $618. Although these 2 areas are generally considered desirable by many Singaporeans, the lower PSFs may reflect a preference for bigger family-sized flats rather than shoebox units in these suburban areas.

3. Up & Coming Shoebox Areas To Watch

While shoebox units in the CBD area are well ahead of the pack, a number of up and coming neighborhoods are showing their potential for steady appreciation down the road. District 20 (Ang Mo Kio, Bishan and Thomson) fetched an average PSF of $820, which is approximately 30% lower than that of District 13 (Macpherson and Potong Pasir). Given the strong appeal of areas close to town such as Ang Mo Kio, the PSF of shoebox units in these estates may well rise in the near future.

4. Future Supply & Demand for Shoebox Units?

So what is the outlook on the future of shoebox units in Singapore? For sure, the Singapore demographic trends of a rapidly aging population, combined with a lower birth rate, do point the way toward smaller household sizes in the future. In addition, given the URA’s announcements on the master plan to increase the country’s population to 6.5 million by 2020, it may be likely that continuing higher immigration rates will fuel the move toward smaller units becoming the norm – rather than the exception. Developers, of course, are one step ahead, with many already choosing to release higher percentages of shoebox units in recent launches, hence reaping the attractive profit margins (as much as 20 – 30% higher) from the higher PSFs that shoebox units currently can command.

While most of us would enjoy a larger living space, it looks like the trend of shoebox units is set to continue. The question then remains: Is a Shoebox Unit a good investment? Not all shoebox units are created equal, and investors would be well-advised to carefully examine the past movement of shoebox units transacted prices before buying.