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12-07-13, 14:19
http://www.businesstimes.com.sg/archive/thursday/specials/property/compact-units-turning-point-roxys-history-20130711
Published July 11, 2013
Compact units a turning point in Roxy's history
Smaller units mean higher profit margins as well as lower risks due to faster sales
By Kalpana Rashiwala
http://www.businesstimes.com.sg/archive/thursday/sites/businesstimes.com.sg/files/imagecache/image_300x200/BT_20130711_KRSHOE11_658778.jpg
Living by the kitchen: The living room and kitchen of a unit in Natura@Hillview. The three-bedroom apartment is all of 635 sq ft in size, slightly bigger than five HDB carpark spaces and smaller than a squash court. - FILE PHOTO
ENTERING the shoebox or compact-apartment market was a turning point in Roxy-Pacific's history.
Teo Hong Lim, the group's executive chairman, traces the origins of the entry to the time of the global financial crisis.
"After Lehman's collapse, I realised that some of our projects were not selling as fast as my competitors'," he says.
The competition was moving the same unit types, for example three-bedroom apartments, at lower absolute prices than Roxy's projects. "I realised that while the master bedroom, bedroom 2 and bedroom 3 in our units were designed for queen-sized beds, some of my competitors could accommodate only a single-sized bed for bedrooms 2 and 3."
By minting smaller units, the competition could keep the absolute pricing attractive while achieving a higher per square foot price. Such a strategy also squeezed out a higher profit margin compared with Roxy's projects with "normal"-sized units at the time.
But it wasn't just about the money. Post-Lehman, an additional concern was whether buyers could afford the normal-sized units because financing was also a challenge. "So I told my team we have to move to the compact units concept. That was a turning point."
With compact units, not only are profit margins higher but risks are also lower due to faster sales, explains Mr Teo.
He acknowledges that the quality of life probably has to be adjusted with compact units. In part, it is about pushing the design element. "In the past, two-bedders may have an enclosed kitchen and two toilets. But now, a lot of two-bedders have one toilet with dual access, from the master bedroom and the living room. The enclosed kitchen has been replaced by an open kitchen."
Guidelines and the planning approval process by the Urban Redevelopment Authority (URA) ensure that compact units are still liveable. "For a residential unit to be approved, you need to show where the living area, bedroom, bathroom, kitchen are, no matter how small the unit is. So all the 'internal organs' have to be there. Or else you can't get it approved."
Effective Nov 4 last year, the URA has capped the maximum number of homes for non-landed residential projects outside the Central Area based on an average unit size of 70 square metres (753.5 sq ft) gross floor area. This year, the URA rolled out a minimum average unit size for retail space of 50 sq m (538.2 sq ft) net floor area.
Asked how these changes will affect Roxy's strategy of developing compact apartments and retail units, Mr Teo points out that all developers are in the same boat. "It is how the developer interprets the guidelines to its success. That's very important."
For example, in a condo development, after carving out a certain proportion of two-bedders, a developer can incorporate some compact three-bedders and four-bedder dual-key units. "So instead of doing a three-bedroom apartment for a 1,200-sq-ft space, we could accommodate four bedrooms in a dual-key unit occupying 1,200-1,300 sq ft."
"It's about creating value, trying to see what kind of new products will appeal to buyers. Demand patterns are not static."
There is a need to analyse different micro-markets for a more meaningful understanding of demand-supply dynamics. "Some may argue that shoebox or compact units are oversupplied but there may be locations where there may not be many shoebox units and they could sell very well in such areas," argues Mr Teo.
A case in point is Natura@Hillview, Roxy's joint-venture project with Macly Group, which made the headlines last year with a compact three-bedroom unit of just 635 sq ft. While doing research on the Hillview location, Mr Teo observed that much of the completed stock is freehold, priced around $800 per square foot (psf) and with unit sizes such as 800-900 sq ft for two-bedders.
"A lot of people told me I could not do compact units in the Hillview area, but we did it and eventually sold at above $1,000 psf on average. If we had done the same type of unit sizes as the old stock, there would be an oversupply. But we chose to do a different kind of product."
Ultimately, compact units cater to home buyers' budgets, argues Mr Teo. "We can do luxurious, spacious units. But the buyers may come in to the showflats and say: 'Wow! I love it but I cannot afford it.' Then we are not doing a business."
Published July 11, 2013
Compact units a turning point in Roxy's history
Smaller units mean higher profit margins as well as lower risks due to faster sales
By Kalpana Rashiwala
http://www.businesstimes.com.sg/archive/thursday/sites/businesstimes.com.sg/files/imagecache/image_300x200/BT_20130711_KRSHOE11_658778.jpg
Living by the kitchen: The living room and kitchen of a unit in Natura@Hillview. The three-bedroom apartment is all of 635 sq ft in size, slightly bigger than five HDB carpark spaces and smaller than a squash court. - FILE PHOTO
ENTERING the shoebox or compact-apartment market was a turning point in Roxy-Pacific's history.
Teo Hong Lim, the group's executive chairman, traces the origins of the entry to the time of the global financial crisis.
"After Lehman's collapse, I realised that some of our projects were not selling as fast as my competitors'," he says.
The competition was moving the same unit types, for example three-bedroom apartments, at lower absolute prices than Roxy's projects. "I realised that while the master bedroom, bedroom 2 and bedroom 3 in our units were designed for queen-sized beds, some of my competitors could accommodate only a single-sized bed for bedrooms 2 and 3."
By minting smaller units, the competition could keep the absolute pricing attractive while achieving a higher per square foot price. Such a strategy also squeezed out a higher profit margin compared with Roxy's projects with "normal"-sized units at the time.
But it wasn't just about the money. Post-Lehman, an additional concern was whether buyers could afford the normal-sized units because financing was also a challenge. "So I told my team we have to move to the compact units concept. That was a turning point."
With compact units, not only are profit margins higher but risks are also lower due to faster sales, explains Mr Teo.
He acknowledges that the quality of life probably has to be adjusted with compact units. In part, it is about pushing the design element. "In the past, two-bedders may have an enclosed kitchen and two toilets. But now, a lot of two-bedders have one toilet with dual access, from the master bedroom and the living room. The enclosed kitchen has been replaced by an open kitchen."
Guidelines and the planning approval process by the Urban Redevelopment Authority (URA) ensure that compact units are still liveable. "For a residential unit to be approved, you need to show where the living area, bedroom, bathroom, kitchen are, no matter how small the unit is. So all the 'internal organs' have to be there. Or else you can't get it approved."
Effective Nov 4 last year, the URA has capped the maximum number of homes for non-landed residential projects outside the Central Area based on an average unit size of 70 square metres (753.5 sq ft) gross floor area. This year, the URA rolled out a minimum average unit size for retail space of 50 sq m (538.2 sq ft) net floor area.
Asked how these changes will affect Roxy's strategy of developing compact apartments and retail units, Mr Teo points out that all developers are in the same boat. "It is how the developer interprets the guidelines to its success. That's very important."
For example, in a condo development, after carving out a certain proportion of two-bedders, a developer can incorporate some compact three-bedders and four-bedder dual-key units. "So instead of doing a three-bedroom apartment for a 1,200-sq-ft space, we could accommodate four bedrooms in a dual-key unit occupying 1,200-1,300 sq ft."
"It's about creating value, trying to see what kind of new products will appeal to buyers. Demand patterns are not static."
There is a need to analyse different micro-markets for a more meaningful understanding of demand-supply dynamics. "Some may argue that shoebox or compact units are oversupplied but there may be locations where there may not be many shoebox units and they could sell very well in such areas," argues Mr Teo.
A case in point is Natura@Hillview, Roxy's joint-venture project with Macly Group, which made the headlines last year with a compact three-bedroom unit of just 635 sq ft. While doing research on the Hillview location, Mr Teo observed that much of the completed stock is freehold, priced around $800 per square foot (psf) and with unit sizes such as 800-900 sq ft for two-bedders.
"A lot of people told me I could not do compact units in the Hillview area, but we did it and eventually sold at above $1,000 psf on average. If we had done the same type of unit sizes as the old stock, there would be an oversupply. But we chose to do a different kind of product."
Ultimately, compact units cater to home buyers' budgets, argues Mr Teo. "We can do luxurious, spacious units. But the buyers may come in to the showflats and say: 'Wow! I love it but I cannot afford it.' Then we are not doing a business."