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Shoebox Units Bring Down Value of Non-landed Homes in 2011, Strong Sales to Continue


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by Ernie B. Calucag

The proliferation of those tiny homes known as shoebox apartments has added a new dimension into the Singapore residential property market: it made value of new non-landed homes cheaper.

In a report, property consultancy firm CBRE said Thursday that the total value of new non-landed homes decreased 22 per cent in 2011 to S$16.568 billion from S$21.173 billion in 2010.

This is based on the 13,611 caveats lodged for new non-landed homes last year against the 13,933 caveats lodged in 2010.

“The drop in the total value of transactions has been driven by the robust sale of small format apartments across the island. As recent as 2008, ‘shoebox’ units (apartments that are 500 square feet or smaller) were mostly found in city-fringe locations. Today, such units are also found in suburban condominium projects built on sites acquired from the government land sites,” said CBRE.

Shoebox flats now account for more than a quarter of private home sales, a big jump from about 15 per cent late last year. Latest figures from the Urban Redevelopment Authority show that 1,764 shoebox units were sold in the first quarter this year, representing about 27 per cent of the 6,526 private home sales.

As recently as the fourth quarter of 2011, shoebox flats accounted for slightly over 15 per cent of the total new sales.

The strong sales of shoebox units have also made new units released for sale smaller. According to CBRE, the median size of new units has been shrinking from 1,249 sf in 3Q2009 to 721 sf in 1Q2012.

And as it gets smaller, it gets cheaper too. CBRE noted that the overall median price of new apartments has fallen below the S$1 millionth-mark to only S$797,000 in the first quarter this year from S$1.06 million a unit in 3Q2009.

Li Hiaw Ho, Executive Director at CBRE Research, explained however that the declining median price does not imply a fall in homebuyers’ affordability.

“It just means that the property measures are working because home buyers are lowering their risk by investing smaller sums. The industry has come to realise that the playing field has changed and is still changing. By offering more units that cost less than S$1.0 million, developers have now been able to attract not only families but also single professionals, empty-nesters and retirees into the market,” he said.

New Wave of Investors Coming In

 

Up to 2006 and 2007, the price range of suburban or mass-market housing was S$600-S$800 per square foot (psf), city-fringe housing was S$900-S$1,100 psf, prime housing was S$1,500 psf onward while luxury homes were above S$2,000 psf.

Since the global financial crisis in 2008, some developers started offering shoebox units in mid-sized prime and city-fringe locations to offset the high unit rate and contain the total price quantum.

The strategy seems to have worked; major suburban condominiums began to feature a higher percentage of shoebox units. Before long, developers also offered compact two-, three- and four-bedroom units to cap the price quantum.

“The global financial crisis has eroded investors’ confidence in financial products significantly so that they now see real estate as a safer alternative. The supply of compact units has ushered in a new group of small-time retail investors who could park their modest savings in properties costing less than S$800,000. Buying new properties that are under construction facilitates cash flow as they are not required to pay the full sum upfront,” CBRE’s Li said.

Medium- to long-term players have also come into the mix, particularly since the time the government introduced a slew of property measures to stamp out speculation.

“(These investors) may either offload their properties if there is a small capital appreciation upon their completion, or hold them for rental income,” he said.

But as for the rental market, these investors may have to wait until 2013 when the bulk of these shoebox units will be ready and put up for rent.