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Thread: URA shoebox rule may dent prices, or will it?

  1. #1
    Join Date
    Oct 2011

    Default URA shoebox rule may dent prices, or will it?

    Published September 06, 2012


    URA shoebox rule may dent prices, or will it?

    Jury still out on govt move to manage surge in small units

    By Kalpana Rashiwala

    DEVELOPERS will, from Nov 4, have to abide by a new URA guideline on shoebox units, and some think that this could push down per square foot (psf) prices of new projects. But the opposite outcome could well be the case.

    On Tuesday, the Urban Redevelopment Authority said that a guideline to manage the proportion of shoebox apartments in new non-landed private housing projects applies only to areas outside the Central Area. This is because housing in such locations tends to cater mainly to larger households and families, whose needs would not be met by shoebox units.

    The guideline could have an impact on some developers' unit-size mix for projects but it is hard to conclude how it will affect their pricing strategy.

    Some would think that stipulating the maximum number of units in a project to try and manage the proportion of shoebox units could create downward pressure on the overall project's psf pricing. The phenomenon of minting shoebox units (unofficially defined as units below 500 sq ft) was part of a general trend of shrinking unit sizes across the board, resulting in compact two and three-bedders, that gained momentum during the Singapore property market's recovery after the global financial crisis. Developers began pushing out shoebox and compact units to keep absolute unit prices affordable to buyers, while achieving higher psf prices. This helps to lift the overall project's average price.

    Small units appeal to potential occupiers such as singles and young couples as well as investors seeking a safe haven for their savings amid the low interest rate environment, with prospects of beating inflation in the process.

    Developers started experimenting with shoebox units in city-fringe locations such as Rangoon Road, Alexandra Road and Telok Kurau, and then spread even to suburban areas. For sites bought at state tenders, developers started incorporating a range of unit sizes - from one to four-bedders with some compact two and three-bedders packed in.

    This is in contrast to pre-global crisis, when units in typical suburban projects would start from two-bedders and those too were more generously sized than what we see these days.

    Suburban condos are located in Outside Central Region, which now accounts for the chunk of developers' sales volume. The region made up 75.6 per cent of the 11,928 private homes (excluding executive condos) sold in first-half 2012. Given strong demand in this segment, record prices have been set at some suburban condo launches. This trend is being driven by strong HDB upgrader demand and liquidity - but also fuelled partly by developers' strategy of minting small units.

    URA said in its announcement this week that its guideline seeks to address projects which have a disproportionately high percentage of shoebox units.

    From Nov 4, the maximum number of residential units in non-landed private housing projects outside the Central Area (except for Telok Kurau, Kovan and Joo Chiat/Jalan Eunos estates which are covered under a separate guideline) will be based on an average unit size of 70 square metres (753.47 sq ft) gross floor area (GFA).

    Developers can still build some shoebox units, but in order to meet URA's cap on the number of units, they will have to build larger units as well. Assuming developers have to contain psf prices for bigger units (because of buyers' price sensitivity to the bigger lump sum price), the new guideline could produce downward pressure on the project's average psf price. As a result, the project's total sales proceeds would be lower. That's in theory.

    In reality, despite a few extreme cases of new projects where 50-80 per cent of units are up to 50 sq m (about 538 sq ft), in most instances, developers would still be able to keep their current unit-size mix and comply with the average unit size of 70 sq m GFA.

    Let's take the case of a high-profile suburban condo launch such as Watertown, which sold like hot cakes earlier this year, setting a record price for the Punggol area. In its first month of release (January), 770 units were sold at a median price of $1,169 psf. The median price rose to $1,341 psf the following month, with 182 units sold.

    Analysts have attributed the impressive take-up to the project's strong attractions - one of which is that it is part of a mixed development that will include a mall boasting a Shaw Theatres Imax cinema. The project will be next to My Waterway@Punggol and an MRT station.

    Also boosting Watertown's sales was the good number of small-format units, though none are below 500 sq ft. Watertown's 992 residential units are a whopping 45 per cent higher than the planners' estimate of 685 units for the site. Despite this, the average residential unit size works out to about 820 sq ft or (76 sq m) GFA. This clears the average unit size of 70 sq m under the new URA guideline. In short, Watertown's developers could stick to its formula even under the new guideline.

    Market watchers also point out that although some developers may have to distribute more of their GFA from one bedders to larger units, this need not necessarily go to spacious four-bedders or penthouses. Some of this could go to compact two and three-bedders which also sell at relatively high psf prices while keeping the lump sum price quantum affordable.

    "In such a scenario, we may not necessarily see a significant price moderation from a shift in unit-size mix to comply with URA's cap on the maximum number of units in a project," argues Ong Teck Hui, national director, research, Singapore, at Jones Lang LaSalle.

    Some developers and their marketing agents may also pitch shoebox units for their scarcity value with the onset of the new guidelines. "The reduced supply may result in their prices being raised due to keen demand for such units," Mr Ong says.

  2. #2
    Join Date
    Nov 2009


    Most Non-central launches will way exceed the 700sqft requirement. No there won't be any impact. Only areas impacted will be the shoebox paradise like Telok Kurau, Joo Chiat, Geylang, Balestier, Stevens etc.

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