Published September 13, 2010

[B][SIZE="5"]Shoe-box units shrink median price of developers' sales[/SIZE][/B]

[B]Rise in caveats of small units also keeping prices above $1,000 psf[/B]


(SINGAPORE) Small is not only the new popular as far as private apartments go; it's also what has skewed per square foot (psf) prices skywards in recent years.

The median price quantum of private homes sold by developers has fallen from about $1.4 million in April this year to $1.2 million in May and June and $1.1 million in July - but median psf prices have hovered above $1,000 psf for most months this year.

At the same time, the median unit size of new homes sold has shrunk to below 110 square metres (1,184 sq ft) since April this year - after staying at or above this size for most of the preceding 12 months, according to CB Richard Ellis' analysis of caveats of developer sales since January 2007 based on URA Realis data captured as at Aug 25.

CBRE executive director Li Hiaw Ho said that the figures could be due to an increasing number of caveats lodged for 'small-format' or 'shoebox' apartments from projects such as Siglap V, Parc Elegance, Suites @ Katong, Parc Somme, Centra Studios, La Brisa and Casa Aerata, all of which have been selling very well since April this year.

'These units were transacted at between $900 psf and $1,350 psf but their absolute price quantum ranged from $350,000 to $700,000, which made them affordable,' said Mr Li.

Some developers are drawn to building shoebox apartments - which are typically 500 sq ft or smaller - as these small units can often push up their average per square foot prices past the $1,000 psf mark. At the same time, the lumpsum investment - typically well below $1 million - looks affordable and therefore appeals to a wider pool of investors and speculators.

CBRE studied the monthly median absolute price quantum, median psf prices and median unit sizes of private homes sold by developers since January 2007. It found that the median price was at its highest in October 2007 - during the previous property boom - at $2.47 million. In that same month, the median unit size was 159 sq m or 1,711 sq ft, reflecting the popularity of large units at the time, with the median psf price at $916 psf.

In contrast, even as the average size of new apartments sold has since shrunk, the median psf price for most months this year has been above $1,000 psf. For instance, in April, it was $1,245 psf and in May, $1,128 psf.

Many shoebox units are coming up in projects being built on plots of 20,000 sq ft or less in the 'Rest of Central Region', in places such as Geylang, Guillemard and Telok Kurau, where they are being touted for their high rental yield potential.

'From a developer's viewpoint, smaller units are more saleable and from a buyer's perspective, easier to buy, whether for speculation or investment, because of the relatively affordable lumpsum investment,' says Knight Frank managing director (residential services) Peter Ow.

Developers also achieve higher psf prices for these tiny units, he added.

For precisely this reason, however, a seasoned developer was critical of shoebox units, saying: 'They have distorted the market by creating the impression of runaway prices at four-digit psf average prices. This in turn fuelled demand for HDB resale flats, which in comparison represent better value for money.'

For instance, Casa Aerata's freehold apartment units of 45 sq m at Geylang Lorong 26 were sold at between $459,600 and $474,200 in June, according to caveats data. Nearby at Jalan Tiga, transactions of HDB resale flats of 110 sq m (with 99-year lease terms starting from 2005) were completed in July at $680,000-683,000, said ERA Asia Pacific associate director Eugene Lim.

The trend of small apartments comes in waves, but the current wave - which began with the release of The Alexis near Queenstown MRT Station in February 2009 - has seen unit sizes sink to new lows.

Apart from shoebox developments, where most units are 500 sq ft or smaller, unit sizes in regular projects have also shrunk over the years.

'About five years ago, studio units were about 500 sq ft; now it's common to find 350-400 sq ft units. Two-bedders used to be around 900-1,000 sq ft; now they could be 700-800 sq ft,' said the developer who declined to be named.

While this trend is not expected to fizzle out anytime soon, developers may move away from the shoebox model when more of these projects are completed, and if these tiny units do not quite achieve their touted high gross rental yields of 8-10 per cent, says Mr Ow.

Agreeing, the developer said: 'It may not be so easy to resell these units when they are completed as buyers can actually see how tiny the apartments are. I think this phase of exuberance in owning tiny apartments will fade when they're ready for occupation. When more shoebox apartments are completed, the supply will be saturated vis-a-vis the demand.'