Sales of so-called shoebox units in Singapore are declining, and questions remain as to how popular smaller-sized units will be in future years.
According to official government data analysed by PropertyGuru, there were 2,057 units measuring below 500 sq ft in size sold during 2013. This compares with 3,021 units sold in 2012 – a decline of almost 32 percent year-on-year.
Yet despite declining sales the average price per sq ft rose last year. For units measuring between 400 and 500 sq ft the average price was S$1,523 per sq ft. Just a year earlier the average price for the same-sized properties was S$1,379 per sq ft.
So with overall transactions declining throughout the market, should we be reading too much into the data regarding the declining number of shoebox sales?
Ong Teck Hui, National Director of Research and Consultancy for Jones Lang LaSalle, said that based on caveats lodged, shoebox units accounted for 9.4 percent of non-landed private homes transacted in 2012 and 10.2 percent in 2013.
“Since that proportion has remained about the same in the two years, the decline in shoebox unit transactions in 2013 can be said to be in line with the slowing in the residential market generally.
“Like the rest of the residential market, sales of shoebox units have also been affected by the measures imposed in January last year as well as the Total Debt Servicing Ratio (TDSR) framework which came into effect in June.”
Ong suggested another factor that could have moderated the availability and sales of shoebox units are URA’s guidelines on moderating shoebox developments outside the central area (September 2012) as well as controls to limit the maximum number of units in developments within GPR 1.4 residential estates, including places such as Telok Kurau, Joo Chiat and Kovan.
“By stipulating an average unit size as a guideline, it will be difficult for a residential project to be skewed towards too many shoebox units, hence limiting their numbers in a development.”
Alan Cheong, Head of Research for Savills, also alluded to government limits which have likely impacted the sector.
He said: “The implantation of the 70 sqm average size ruling for non-landed property developments for most areas in Singapore came into force on November 4, 2012, and because of the time lag between planning and launch, this would mean that most new projects launched in 2013 were caught by this ruling.
“Most of the completed shoeboxes last year were purchased about two to three years ago when prices were still relatively low, and rental yields for the buyers would have been attractive – like in excess of 6 percent gross – so attractive that it would have deterred them from selling as there are hardly any investment alternatives if they were to sell.”
Lee Lay Keng, Head of Singapore and Southeast Asia research for DTZ, added: “Based on the numbers provided, the sales of shoebox units actually fell by a smaller extent compared to a 40 percent year-on-year decline in total private home transactions in the primary and secondary markets.”
Mohd Ismail, Chief Executive Officer of PropNex, said: “Considering that the overall volume of transaction of new launches and secondary market have both declined by about 30 percent (comparing 2012 and 2013), it is not surprising that the drop in shoebox transactions is in tandem with the current market slowdown.
“Some likely reasons for the decline in shoebox transactions are stricter foreign pass issuance due to the more stringent foreign worker policy. The TDSR framework has also likely side-lined investment demand, especially for the second property onwards as loan applications are more stringent. The increased Additional Buyer’s Stamp Duty (ABSD) has also significantly increased transaction costs for private residential properties and could have adversely impacted some cash-constrained investors.”
Looking to the future of shoebox units, Getty Goh, Director of Ascendant Assets, said: “I expect developers to continue launching smaller-sized units, as they are very easy to sell due to the comparatively lower price quantum because of the small areas.
“Conversely, there is a limit to the number of shoebox units each development can have, which acts as a cap to the number of new shoebox units introduced to the market each year.
“When we put these two considerations together, I reckon that the number of shoebox transactions for 2014 would remain steady at between 2,000 and 3,000 units.”
DTZ’s Lee said: “With the higher ABSD and increased difficulty in obtaining a property loan under the TDSR framework, potential buyers would be shifting their budgets down, so this could support some demand for shoebox and small units. However, sales volume will still be limited by the number of new launches.”
Savills’ Cheong noted: “Unless the planning regime changes to allow even more shoeboxes to be permitted in a development, then we may have well seen the best of days in terms of shoebox sales behind us.”
PropNex’ Ismail predicted the number of profitable resale deals of shoeboxes is expected to come down this year due to the stricter lending and reselling conditions imposed by the most recent round of cooling measures.
He said: “The measures included a hefty sellers’ stamp duty if a property is sold within four years of purchase, and tighter financing rules. In terms of absolute quantum, people can still afford it and they can also rent it out to foreigners, and as such, I foresee shoebox demand to maintain at current level, or may even increase, driven by a combination of population growth, capital inflows, and the low interest rate environment.”
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