A property index that thinks out of the shoebox

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Published July 29, 2011

A property index that thinks out of the shoebox

New NUS index launched, first reading confirms shoebox units outperform in apartments market

By KALPANA RASHIWALA


(SINGAPORE) Finally, an index has been minted that monitors price changes for shoebox apartments. And it shows what market players have observed for some time now - that price increases of shoebox apartments have been outpacing gains in overall apartment prices since the property market recovery following the global financial crisis.

The indices, from NUS's Institute of Real Estate Studies (IRES), show that since the post-financial-crisis- low in March 2009, its sub-index for prices of completed non-landed private homes that are up to 47 square metres (506 square feet) has posted a compounded annual growth rate (CAGR) of 24 per cent. This is higher than the 19.6 per cent for non-landed private homes (excluding small units) in the Central region, which covers districts 1-4 and 9-11, and a rise of 21 per cent in the Non-Central region (again excluding small units).

Associate professor Lum Sau Kim of IRES said that the sub-index for shoebox units was produced as 'this is important market information which will help us understand the price behaviour of different segments of the market'.

Credo Real Estate executive director Ong Teck Hui said: 'It is certainly useful to track price trends of small apartments separately as their per square foot prices are vastly higher than usual size units and can distort the changes in price indices.'

IRES observed that unlike the pre-crisis run-up in private home prices where the price movement of small units tended to follow the movement of Central region properties, demand- led price inflation of small units now precedes the appreciation of prime units.

IRES, which has been releasing the Singapore Residential Price Index (SRPI) that tracks price changes in its basket of completed non-landed private residential properties since March last year, has now created a sub index, SRPI Small, to track the price movement of completed small apartments with a strata area of 47 sq m or less.

There is now an overall SRPI and three sub-indices - SRPI Small (for small units islandwide); and two other indices that exclude small units: SPRI Central for the Central region (Districts 1-4 and 9-11) and SRPI Non-Central, for all other locations.

The indices show that prior to the financial crisis, small units took their price cue from the SRPI Central region index, a proxy for prime properties. The SRPI Small index reached its pre-crisis peak in February 2008, later than the other three indices including SRPI Central, which peaked in December 2007. Between the pre-crisis low and pre-crisis peak, the compounded annual growth rate in the SRPI Central was 28.2 per cent, outpacing all the other indices, including SRPI Small, which posted a CAGR of 25.5 per cent.

Following the crisis, all the indices bottomed in March 2009, and from that point, the sub-index for small units has risen 62.2 per cent (till June 2011), reflecting a CAGR of 24 per cent. This is higher than the CAGR for the other indices, especially SRPI Central.

The current basket of properties for the indices was constituted in December 2009. It will next be revised at the end of this year. The base period for the indices is December 2001. Given that shoebox units came into focus in 2009 and that all the indices have a common post-crisis nadir, March 2009, IRES rebased its indices to that month to paint an even clearer picture. The finding: 'SRPI Small is the most volatile with substantial inflation around mid-2009 and more recently.'

Between January 2010 and May 2010, it climbed 11.1 per cent (or an average of 2.8 per cent per month) despite a temporary reversal in March 2010 after the introduction of cooling measures in February last year. Over the same period (January-May 2010), non-landed private residential properties (excluding small units) in the Central and Non-Central regions saw considerably lower capital gains of 5.4 per cent (or 1.4 per cent per month) and 6.2 per cent (1.5 per cent per month) respectively.

After the latest January 2011 property cooling measures, the prices for small units grew 6.9 per cent from March to May this year (averaging 3.4 per cent per month) - again faster than price gains of 3 per cent (or 1.5 per cent per month) for non-landed units in both the Central and Non-Central regions.

'Taken together, the macro-prudential measures to tighten private housing credit could have boosted demand and supported stronger price inflation for small units relative to larger units,' IRES said.

The current basket comprises 363 non-landed private residential projects completed between October 1998 and September 2009. The basket's composition is adjusted every two years. The new sub-index for small apartments is based on a basket of completed apartments, whereas most of the action in the shoebox apartment market has been at new property launches. However, Prof Lum says that 'prices for new launches of shoebox units will also have an impact on prices of completed small apartments in our basket'.

'Come December 2011 when we reconstitute our basket, we will have an opportunity to have a larger representation of completed shoebox units.'

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Published July 29, 2011

New shoebox price index seen boosting transparency

By KALPANA RASHIWALA


(SINGAPORE) Market watchers have generally welcomed the NUS's new price index for small apartments, saying it will enhance transparency on price trends in the different segments of the private residential market.

DTZ South East Asia chief operating officer Ong Choon Fah said: 'The indices will highlight the role of shoebox units in price increases and hopefully help consumers make better decisions.'

Agreeing, Credo Real Estate executive director Ong Teck Hui said: 'Shoebox units are becoming more popular, as seen in the increase in their transaction volumes in recent years. NUS's sub-index for small apartments will be of interest to policy makers as well as buyers and investors who would get a better feel of how this market segment is performing.'

Mr Ong suggests that what would be even more helpful is if the small apartment index is further split by location, perhaps into central region and suburban markets, as the small units have so far been a feature of inner-city living but haven't quite gained the same prominence in the suburbs.

Urban Redevelopment Authority currently releases a quarterly private home price index. Asked if it would produce a sub-index for shoebox units, its spokesperson said: 'There is no need at this moment for URA to publish a price sub-index specifically for shoebox units', given the detailed information on individual private housing units sold that is already available to the public on its website. But URA will continue to monitor the property market closely 'and if necessary, we may consider releasing such an index in the future', the spokesperson added.

The information on private housing units sold, including small-size units, that's available on URA's website includes the price, location and size (ie, floor area) of the individual units transacted. Members of the public can refer to this information - which is updated twice a week - to help them make better informed purchase decisions, the spokesperson said.

Market watchers say a key factor that has driven developers to build more shoebox units, especially after the 2008/2009 global financial crisis, is the need to keep the lumpsum investment affordable to tap a larger pool of investors. Using this strategy of packing a bigger number of smallish units into a project, developers have been able to achieve higher average per square foot pricing on their projects.

Knight Frank's analysis of caveats lodged for non-landed private homes shows that apartments upto 47 sq metres (506 sq ft) - the standard used by NUS to define shoebox units - accounted for 10.4 per cent of total caveats lodged for private apartments so far this year. That's markedly higher than the 3.5 per cent share for the whole of 2009 and 6.6 per cent for full-year 2010.

Apartments up to 47 sq metres have been transacted at a median price of $1,482 psf so far this year, while the overall median price of non-landed private homes that have changed hands over the same period is $1,074 psf.

Says Credo's Mr Ong: 'A lot of people are buying shoebox units because they are a more bite-sized investment. However, whether these apartments can fetch the yields some of these buyers expect remains to be seen, especially in suburban locations.'

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Jul 29, 2011

Shoebox units a cause of more volatile home prices: Study

By Esther Teo, Property Reporter


SHOEBOX apartments have made overall home prices here more volatile, with sharper price gains than larger homes. This is a key finding in an analysis by the National University of Singapore (NUS) real estate department.

An index tracking per sq ft prices of these tiny units of about 500 sq ft or less has rocketed up 62 per cent since March 2009, its post-crisis low. This outpaced the 51 per cent rise for the overall Singapore Residential Price Index (SRPI) over the same period.

More recently, NUS data found that from March to May, small unit prices rose 7 per cent. This is again higher than the 3 per cent gain by non-landed homes in central and non-central areas, excluding shoebox homes.

This is the first time the NUS SRPI - which tracks a basket of completed non-landed projects - has extracted small homes in its analysis of resale prices.

Associate Professor Lum Sau Kim of NUS's Institute of Real Estate Studies and Department of Real Estate, who leads the group that compiles the index, said that the quicker psf price gains for small homes would have pushed the overall index up marginally. Although shoebox units make up a seemingly insignificant 0.4 per cent of the number of units in the index's basket, 5 per cent of the basket's residential projects have shoebox units.

'The pricing of these small units exerts a two-way ongoing influence on the entire market,' Prof Lum said. She also observed that while shoebox prices had tracked the price movement of homes in the central area previously, price gains for the shoebox segment were now leading price gains of central units.

Experts say shoebox prices have outpaced other segments as buyers focus on the overall price rather than the psf price, allowing developers to raise prices more easily.

SLP International research head Nicholas Mak cautioned that buying shoebox units is a riskier investment as a quicker price gain during a property boom could mean a quicker price drop should the market turn.

'The cooling measures, such as preventing private home owners from buying HDB flats and tighter financing rules, have also increased demand as investors now turn to shoebox units, usually with a smaller quantum of less than $1 million.'

When asked about the possibility of publishing a separate index for small homes, an Urban Redevelopment Authority (URA) spokesman said transactions of shoebox units in both the primary and secondary market accounted for only 8 per cent of all sale transactions in the year's first half.

'Given the detailed information on individual private housing units sold that is already available to the public on URA's website, there is no need at this moment for URA to publish a price sub-index specifically for shoebox units,' he said, but added that the URA would not rule such an index out in the future.