Smaller homes take the cake once more

Shoebox apartments are back on the popularity charts. Chalk it up to the new home loan restrictions.

Instead of entirely deterring home buyers, the new loan curbs have instead steered buyers towards cheaper home options, in order to fit the smaller loans made available. And these cheaper options often mean the smaller homes, such as shoebox units or one-bedders. Smaller homes mean lower total quantum costs in accordance to the total debt servicing ratio (TDSR) framework put out by the Monetary Authority of Singapore.

eCO condominium in Bedok. Its developer, Far East Organization, has offered a 2 per cent furniture voucher to take the edge off MAS' latest home loan ruling.

eCO condominium in Bedok.

The lack of new units could also have contributed to the herding of sales towards the secondary market. 481 private home units were sold in July compared to the 1,806 in June. But that’s not to say demand has dropped 73 per cent. Only 557 units were launched in July, thus the 481 sold would mean a 86 per cent success rate.

Overall resale prices have risen by 0.2 per cent in July, according to the Singapore Residential Price Index (SRPI). In June, there was a 0.4 per cent drop. But with the other recent shift in housing policy for PRs, the further rise in private property prices may be quick and sharp. How will the resale HDB flat market fare in comparison?

Fewer Shoebox apartments in Suburban districts

Certain suburban property districts now have a quota of how many and how small studio apartments or shoebox units can be built within specified sites. These areas include Telok Kurau, Joo Chiat, Jalan Eunos and Kovan. The central districts are unaffected.

Palm Oasis Condo2

Property developers however were not in a rush to capitalise on sales or rush the submission of building plans before the cap kicked in on 4 November. The Urban Redevelopment Authority (URA), has apparently already begun clamping down on the number of new shoebox units since last year.

Is this a timely move by URA, and will the existing shoebox apartments become rare commodities since fewer will enter the market from hereon?

Perhaps not so soon, as this property type is still very popular with home buyers and investors. And as the society becomes more diverse, there will continue to be a demand for them, either for sale or rent. Land cost in Singapore is increasing, despite the government’s reassurance that there is an ample supply to go around. This, plus demand, could be deciding factors in the pricing of new residential units.

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.

Shoebox units: Dud or stud?

Are shoebox units worthy investment products for those speculating in the property market?, Singapore’s number one property website, today revealed staggering figures reaffirming the popularity of shoebox units among local property buyers. Shoebox units are generally defined as private apartments measuring less than 500 sq ft.

During the period of August 2010 to August 2011, transaction volume of shoebox units accounted for 7% of the total transaction volume for condominiums. On average, 197 transactions of such units were completed per month during the same period. Taking only a relatively small slice of the condominium pie, the appeal of such units remains strong even as average prices continue to climb.

 Cost versus value: Are shoebox units worthy investments?

From August 2010 to August 2011, the average price per square foot (PSF) for shoebox units stands at $1,546; 42% more than $1,090 for condominium apartments measuring between 501 to 1,500 sq ft; and 25% more than $1,232 for condominium apartments measuring more than 1,500 sq ft.

Average PSF price for shoebox units in August 2011 was $1,549, which is 14% more than it was in August 2010. Across the board, PSF prices increased from August 2010 and August 2011 – up 4.9% for condominium apartments measuring between 501 to 1,500 sq ft; and up 9.9% for condominium apartments measuring more than 1,500 sq ft. The biggest increase in PSF prices came from shoebox units and seemed to signify consumer confidence in this property category.

East Coast District: The lure for shoebox units peaks

Investors of shoebox units go for District 15 as their area of choice, with 513 units transacted from August 2010 to August 2011. This means an average of 39 shoebox units were transacted per month. District 15 covers mostly private residential developments in Katong, Marine Parade, Siglap and Tanjong Rhu. The average PSF price within this period stood at $1,390.

The appeal of shoebox units in this district can be attributed to the strong lifestyle offerings in this area, such as accessibility to East Coast Park and Changi Airport, favourite F&B haunts, and retail experiences.

On the other end of the spectrum, only 11 shoebox units were transacted in District 21, the lowest figure between August 2010 to August 2011 – average of only one shoebox unit transacted per month. District 21 covers the Clementi, Upper Bukit Timah and Hume Avenue area which comprises mostly private landed properties as well as HDB apartments. The average PSF price within this period stood at $1,598.

The case for small apartments – shoebox units and 3-room flats

Prices of a 3-room HDB flat remained steady at between $400 to $500 PSF, whereas prices of shoebox apartments seemed to loom above $1,000 psf – sometimes reaching close to $2,000 psf, and beyond.

“With the rising affluence of Singaporeans and new migrants, together with the increasing price of private properties, shoebox units present attractive investment opportunities for the local property investor – regardless of market uncertainties as a result of the European and US debt crises,” says Shaun Di Gregorio, iProperty Group CEO.

With new shoebox units to be released in the near future, property buyers with a penchant for the rudimentary nature of such units will see an extended selection of housing options that caters to their basic needs – accompanied with a host of amenities and proximity to lifestyle options that condominiums are offering.