Are the days of the shoebox unit numbered?

When I first raised my concerns about the proliferation of shoebox homes with a Ministry of National Development official in an informal meeting early last year, he wanted justifications for action and a size definition of what constituted a shoebox unit.

Today, I am not sure if the official has finally got “satisfactory answers” to his questions but recent events hint that the days of the shoebox unit may be numbered.

In its latest release of quarterly real estate data, the Urban Redevelopment Authority (URA) – for the first time in a very long while – included its own analysis of private apartments sold by size and price categories.

The URA figures show that 27 per cent of the 6,526 units sold by developers in the first quarter, including 68 completed units, comprised small units of 50 sq m or below, up sharply from 15 per cent in the previous quarter.

Units costing up to S$750,000 made up 42 per cent of developers’ Q1 sales, up from 25 per cent in Q4 and the highest since the 52 per cent registered in Q1 2009, when property buying fervour recovered after the global financial crisis.

Earlier news reports have shown that the bulk of small apartment buyers have HDB addresses. The evidence becomes even more damning after the National University of Singapore released its flash estimates of its Singapore Residential Price Index (SRPI) for March early this week.

The sub-index for completed apartments of about 500 sq ft and smaller led the rebound in resale prices by 2.8 per cent. In February, prices of shoebox apartments had fallen by 0.8 per cent. Prices of apartments in Central region also rose by 0.8 per cent in March, which was a rebound from the 2-per-cent decline in February. Prices of homes In Non-Central region climbed 0.7 per cent against a 1.2-per-cent decline for the previous month.

Most analysts will agree that the resale market has generally underperformed the market for new units sold at project launches. It is reasonable, then, to expect that the price performance of new units is likely to be the same or better.

In the March data, all the sub-indices of the SRPI point in the same direction – in this case, all rises – something that has not happened for some time. This consistency indicates that buying confidence has returned to the market and that’s usually the prelude for a price increase. And it looks very likely that small apartments or shoebox units will lead the charge.

Finally, in what must be the clearest hint yet, National Development Minister Khaw Boon Wan said on Wednesday the Government was keeping an eye on the proliferation of ‘shoebox’ units of 500 sq ft or less offered by private developers. If the proportion of such units becomes too high in the market, ‘we may have to step in’, he warned.

It has been more than a year since shoebox apartments began making the headlines. There have been numerous arguments against them as well as industry analyses providing ample evidence that such units have been leading the price charge as well as the robust sales.

Yet despite warnings that the rental yield for such units may not be as rosy in the future as they are today or that the market is already oversupplied with such units, the market continues to snap them up, simply because they are affordable.

But I can understand these buyers. Even Marc Faber, the famed “Dr Doom”, when he was in town recently, said: “One is better off holding shares and properties than government bonds or cash” even as he predicted that global markets are ripe for a deep correction over the next six months. Presumably he feels, like most buyers today, that property tends to hold its value better than other assets in a correction.

Dr Faber foresees a 20 per cent correction in global markets. Will property prices be hit? For sure, the same factors that will lead to a sharp correction in global stock markets will also affect property – more in some markets and less in others. How will Singapore fare?

By Colin Tan – head of research and consultancy at Chesterton Suntec International.

Source : Today – 4 May 2012

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