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Thread: Mickey Mouse Magic

  1. #1
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    Default Mickey Mouse Magic

    Saw this interesting article in Today - comments?

    "The term "shoebox" apartment is generally defined as a studio or a one-bedroom apartment that has less than 500 sq ft of strata area. The area includes, say, about 15 per cent allocated to balconies, planters, bay windows, aircon ledges and, in some cases, even bomb shelters. Therefore a 380-sq-ft one-bedroom unit might have a real usable space of about 330 sq ft in the living/dining room, kitchen and bedroom.

    How do the economics stack up?


    Per-square-foot prices and rentals generally go up when the sizes of the apartments go down. So in several recent launches, the one-bedroom units fetched, for example, $1,200 psf, while the three-bedroom units transacted at below $1,000 psf - a 20 per cent premium that arises because the smaller unit with a lower selling price quantum has a wider reach.


    As for rentals, let's take a hypothetical example, say, in River Valley. A one-bedroom, 550-sq-ft unit may lease for $3,800 a month, a 900-sq-ft two-bedroom unit for $5,500, while a 1,200-sq-ft three-bedroom unit, $6,500. The rentals per square foot increase as the sizes of the apartments drop (see Table 1). However, up to a point, the equation fails to apply. In this example, a 350 sq ft studio unit in River Valley may, for example, be able to fetch about $2,800 per month of rental. However, that is near the limit of how high rentals can go for shoebox units. This unit is similar in size as the deluxe hotel rooms in River Valley area.


    If we tried to push rentals beyond $3,000 per month (ie above $100 per day), it may be more economical for the tenant to take a long-term let with a hotel around River Valley, given the more flexible lease terms that include daily housekeeping, electricity, fully furnished/equipped rooms and probably complimentary laundry. He would also save on rental whenever he travels out of Singapore.


    As for costs, if every single apartment in a development were shoebox sized units, their share values would be five for every apartment. The maintenance fees and sinking funds for the common areas and shared services would be equally borne by all the owners of the development.


    However, if a project has some shoebox units mixed with larger sized two- to four-bedroom units, then the shoebox units will contribute proportionately higher maintenance fees and sinking funds.


    Under current share value allocation rules - apartments of less than 50 sq m are allotted share value of five, larger apartments up to 100 sq m are allotted six and so on, increasing by one share for every additional 50 sq m of strata area.


    The yields - net of maintenance fees and sinking funds - become narrower between shoebox units and their larger sized cousins. Should the economy weaken and vacancies run high, and normal two-bedrooms are available for rent at $3,000 to $4,000 per month, how would shoebox units stand up to price competition?


    I wonder what new social challenges may prevail in the future for the developments that contain a wide mix of units. In developments where the $600,000 shoebox or one-bedroom units were bought by investors and $2 million four-bedroom units purchased by owner-occupiers, will the low-budget tenants from the shoebox units make good neighbours for the rest?


    Will there be poor cousins in a rich compound just like I was a poor student living in a 120-sq-ft bedsit within the posh Kensington neighbourhood? In such a mixed development, will investor-landlords be willing to contribute that little extra to maintenance and sinking funds as compared to house-proud owner-occupiers? We'll have to observe as such heterogeneous projects, most still under construction today, become mature and fully occupied estates over the next five to 10 years.


    From the list of about 130 projects that have shoebox units (see Table 2), it is interesting to note that the most common name used is "suites". This is merely terminology and not to be confused with hotel suites (which are generally bigger than shoebox units) nor with several luxury projects that do not have shoebox units, such as Marina Bay Suites, Paterson Suites and Nathan Suites.


    In land scarce Singapore, space is a real luxury. While trying to improve the quality of life, we also need to maximise the use of every square foot of land. HDB blocks have risen up to 50 storeys. Shrinking apartment sizes is another way to satisfy the demand from more, and smaller, households. The proliferation of shoebox apartments should be an expected consequence of the steadily rising population density. Cramped spaces, anyone?




    The writer is the founder of real estate agency International Property Advisor, which provides services to high-net-worth individuals."

  2. #2
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    Interesting point about strata share value:-

    MM of 50sqm : 5 share for say 700k

    Unit of 100sqm : 6 share for say 1.2mil

    When the development goes enbloc. the proceeds are divided based on share value right?

    When compared to the 100sqm unit, the MM's will get 16% less of the proceeds despite the 40% lower price.

    If that's the case, I think it's a good trade off for paying a disportionate portion of the maintenance fees.

    Can the experts verify the above?

  3. #3
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    Quote Originally Posted by sh
    Interesting point about strata share value:-

    MM of 50sqm : 5 share for say 700k

    Unit of 100sqm : 6 share for say 1.2mil

    When the development goes enbloc. the proceeds are divided based on share value right?

    When compared to the 100sqm unit, the MM's will get 16% less of the proceeds despite the 40% lower price.

    If that's the case, I think it's a good trade off for paying a disportionate portion of the maintenance fees.

    Can the experts verify the above?
    From http://www.redas.com/html/ePropFAQs/en-bloc.html#Q13

    Q13: What are the methods used to distribute sale proceeds? The common methods used are:
    a)
    Share value: the apportionment for each unit is proportionate to a unit's share value in relation to the total share value for the whole apartment
    b) Average of the strata floor area and share value - the apportionment is according to the unit's strata floor area in relation to the total strata floor area. The figures derived from the share value method and floor area method are then averaged by taking 50% of each method
    c)
    General valuation - a value is estimated for a typical unit of each type. This valuation is on an individual market basis, ignoring collective sale potential, floor level, facing etc.. The valuation of each typical type of unit would vary according to the floor area of each unit on the basis that the larger the unit, the lower the value per square foot. The apportionment for each unit would then be in proportion to that unit's value in relation to the total value for the whole development
    d) The combination of general valuation and share value method - a value is estimated for a typical unit of each type as in (c), and the total value is computed. This total value is then deducted from the sale price, and the balance is distributed to each unit according to that unit's share value as a proportion of the total share value for the development

  4. #4
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    Quote Originally Posted by hopeful
    From http://www.redas.com/html/ePropFAQs/en-bloc.html#Q13

    Q13: What are the methods used to distribute sale proceeds? The common methods used are:
    a)
    Share value: the apportionment for each unit is proportionate to a unit's share value in relation to the total share value for the whole apartment
    b) Average of the strata floor area and share value - the apportionment is according to the unit's strata floor area in relation to the total strata floor area. The figures derived from the share value method and floor area method are then averaged by taking 50% of each method
    c)
    General valuation - a value is estimated for a typical unit of each type. This valuation is on an individual market basis, ignoring collective sale potential, floor level, facing etc.. The valuation of each typical type of unit would vary according to the floor area of each unit on the basis that the larger the unit, the lower the value per square foot. The apportionment for each unit would then be in proportion to that unit's value in relation to the total value for the whole development
    d) The combination of general valuation and share value method - a value is estimated for a typical unit of each type as in (c), and the total value is computed. This total value is then deducted from the sale price, and the balance is distributed to each unit according to that unit's share value as a proportion of the total share value for the development
    hmmm.... thanks for the clarification.

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