Is it critical for government to get serious on curbing shoebox units?

Here’s why government’s concerns over mushrooming shoebox units might be overstated.

Shoebox units rising by a staggering 27% of total sales in 1Q12 from 15% in 4Q12 has prompted National Development Minister Khaw Boon Wan to raise alarm bells and comment that the government will monitor these developments closely and will not hesitate to take appropriate action.

Ascendant Assets director Getty Goh said that government eventually stepping in to control the shoebox market will not come as a surprise as it has always been very proactive in managing the Singapore property market.

Goh for example cited that , on 23 Nov 2011, the URA released a development control circular on the maximum allowable number of dwelling units for non-landed developments in residential areas zoned for GPR 1.4.

Accordingly to this circular, the government worked out a formula to limit the number of dwelling units for non-landed developments. Based on the formula, the benchmark for the smallest unit was set at 70sqm (753sqft). So if the permissible GFA (Master Plan Allowable GPR x Site Area) for a particular site was 700sqm (7532sqft), the maximum number of dwelling units the project could have was 10.

“Without such controls, developers could potentially squeeze more units onto the size by shrinking the size of each apartment. Some developers prefer shoebox units as shoebox units are typically easier to sell due to the lower price quantum. To illustrate, an apartment that has a unit price of $1,900psf could still cost less than $500,000 if it has an area of 263sqft. Incidentally, the smallest unit ever transacted was only about 258sqft (24sqm) at Suites @ Guillemard and it was sold for less than $400,000 when it was first launched,” he said.

“Hence, limiting the shoebox supply via development control could be seen as the government's way of controlling the shoebox market without direct market intervention," he added.

Other experts interviewed by Singapore Business Review however noted that while the popularity of shoebox units have indeed became more evident in the recent months, the trend is not actually alarming so far. One even said that the government should actually be even more supportive on this kind of property while another said that curbing volumes of shoebox units would do little in cutting private home prices.

Here are the views:

Eric Tng, Senior District Director, ECG Property

There are some sobering news for prospective buyers which may make them think twice before committing to buy. This is already evident from latest statistics: Prices of completed small units (<50 sqm) fell 1.4% From the previous month according to NUS's SRPI. Take up rate of new shoebox units fell to 19% of all sales compared to 27% in the previous quarter.

Dr Chua, YangLiang, Head of Research, Jones Lang LaSalle, South East Asia.

The rise of shoe boxes should be viewed in perspective.

Median household income, according to Singstat, increased from $4,363 in 2001 to $6,307 in 2011 equivalent to 45% over a ten year period i.e. CAGR 3.8% per year.

URA Property Price Index (all properties excluding EC) on the other hand has increased from 117.2 in 4Q01 to 206.2 by 4Q11 equivalent to 5.8% (CAGR) increase per year. In other words, we are looking at a gap of 2% (CAGR) per year with median household income lagging.

With population growing at 2.3% (CAGR) between 2001 and 2011 (i.e. 4.14 mil to 5.18 mil) and a relatively fixed land mass, housing density and average size of housing unit must therefore change.

Smaller sized housing unit is merely a response to this changing demographic and wider market conditions.

Based on caveats lodged (URA Realis assessed on Aug 7, 2012), median new housing prices have risen 113% in Singapore (from 2001 to 2011) and correspondingly, median unit sizes have shrunk across the island at some 28%. Smaller sized units play a role in mitigating the rise in home prices by capping its growth by limiting the total quantum cost of such starter homes - of course at the expense of the living space.

The rise of shoeboxes (defined as housing units that are less than 50sqm) is but only another private housing form. While some would argue that shoeboxes dilute family values/life, discourages the formation of family let alone support the Asian extended family concept, it is only a private response to these market conditions. This condition of smaller housing units in the downtown is not unique to Singapore but occurs in many other cities as well.

It is the effect of continual urbanisation with competing uses driving land values up. The situation is exacerbated by Singapore’s increasing connectivity to the global business network, brining not only people but funds into the city.

Smaller housing form, in my opinion, is just as important as any other housing type. Given its size, it lowers the barrier of entry for the younger generation by keeping home prices affordable, providing the opportunity to build up housing assets early and consequently facilitating housing mobility among these younger generations who may not have the luxury of wealthy parents handling their initial down payment.

To remain attractive, Singapore must continue to support the growth of such alternative homes both for locals and new immigrants as an avenue for them to get onto the housing bandwagon. However if the concern is over the quality of living space, perhaps the state could steer the market by providing guidelines on a minimum housing size/usable space per person or limiting the quantum of such small units in each new project to only strategic locations where market natural demand is likely to be high.

Ooi Yi Tung, Director, Square Foot Research

Any implementation of cooling measures that target the shoebox segment specifically will be tricky for two reasons. (1) Because of the "point" definition of shoebox units. If MND limits the proportion of <=50sqm in a project, developers will build units that are 51sqm, just enough to get around it. (2) By limiting the supply of shoebox units when demand for them is high, it may drive prices further up.

An effective way is to impose a limit on the number of units that can be built as part of the land sale condition in GLS. This way, if developers build a lot of shoebox units, the remaining space has to be allocated to bigger units, which are harder to sell. So naturally it drives developers to build average-sized units. However this will not impact private land sales. 

Nicholas Mak, Head of Research, SLP International

Although there is no official definition of shoebox apartments, some media reports and studies defined shoebox apartments as non-landed private housing units with floor area that is not larger than 47 sqm (square metre), while other studies refer to residential units that are 50 sqm or smaller.

As there is no restriction on the size of the condominium and apartment, unit size can be freely determined by developer base on the market demand. Although the price quantum of a shoebox apartment is lower than that of a family size unit, its price on a per square foot basis is usually higher.

This version of tiny housing type in Singapore has attracted some criticism from the locals for its uncomfortable size. Mr Liew Mun Leong, the CEO of CapitaLand, one of the biggest developers in Singapore, had described shoebox apartment as “almost inhuman”.

The number of transactions of small units increased sharply from 465 transactions in 2009 to 3,204 deals in 2011. In the first 5 months of this year, 1,351 transactions of small units were recorded.

Small units are usually located in the city area or in the CBD, But since 2010, some developers have developed small units in some of their projects in the suburban areas. These small units were popular with retail investors as their prices are usually below SGD700,000 each.

But in the past one month, demand for small units in the suburbs had dropped as an increasing number of investors are getting wary that there could be a growing glut of such small units and the government could clamp down on the demand or supply of such units.