A penchant for shoebox housing

by Ong Kah Seng 05:54 AM Dec 17, 2010

Gone are the days where size matters for home seekers. Smaller apartments are making their presence. In the public housing sector, 3-room and studio flats have been re-introduced in new Build-to-Order HDB projects, while new private residential offerings seem to be increasingly smaller, yet popular.

Colloquially referred to as "Mickey Mouse" or "shoebox" apartments, there has been an increased demand for such residential units. The year 2007 saw a spike in sales of units smaller than 500 sq ft, from an almost inexistence to 325 units.

The story continued from there, to 883 transactions last year. While it can be argued that last year was a recession year and therefore small apartments found favour among financially cautious buyers, the heightened interest in shoebox units this year seems to confirm the growing penchant for smaller apartments. This year, a total of 1,421 such units have so far been transacted.



Why the popularity?

To examine why shoebox units have become popular, one must look at the private residential sector in the form of sales activity, pricing trends and product offerings in recent times.

The private residential sector has created various market participants who entered and exited at the right time to achieve tidy profits, reflecting success stories from property transactions. This spurred many other aspiring private home buyers to quickly proceed with a purchase.

However, while one recognises the opportunity from property investments, there are often limitations in one's financing capabilities. Gaining entry into the property game is but a dream unless one has accumulated sufficient funds to make a purchase.

Shoebox apartments are hence a feasible option for interested participants who find it increasingly difficult to own a sizeable piece of private property as prices have continued to escalate. For one, the upfront capital and overall cost of shoebox apartments are smaller and more affordable.

For another, the cost of a shoebox apartment will at most be comparable to that of a larger HDB flat. For a private residential property owner, there is more flexibility in home ownership and re-selling his unit.

Developers who saw this trend were quick in pushing out such projects amid the scarcity. The response has been encouraging and the resale demand for such properties has further reflected the overwhelming interest.



Understanding Challenges

Potential buyers of shoebox apartments need to know that the tenant base for such housing is more restricted than ordinary apartments. Prospective tenants are likely to have significant budget constraints and are often either local professionals or junior expatriates on partial housing allowances.

Some of these tenants may also prefer an HDB flat as it is more spacious for a rent that is lower than that of a shoebox apartment. Companies are unlikely to accommodate upper-middle and senior expatriates in shoebox apartments, who have specific housing requirements. A shoebox apartment will not reflect well on the company, which may in turn affect career and relocation decisions.

Also, living in a shoebox apartment may not be entirely cost effective. Some occupiers may find that there are limited activities within the confined space and prefer hanging out, incurring more entertainment expenses. The real costs of living may be higher than expected.



Relevance for shoebox apartments

Although there are challenges in investments, it does not necessarily reduce the appeal of shoebox apartments. As home buyers are becoming cautious and refraining from buying apartments beyond their reach, shoebox apartments can be smaller, realistic purchases that minimise liquidity risks. Buyers are also able to channel the rest of their funds to other areas, such as travel or enrichment programmes.

There is a potential for shoebox apartments to become more popular among homebuyers. Small sized apartments are common in major cities in the world where properties are costly.

With Singaporeans increasingly exposed to overseas city living, many may become more open to living in confined premises so long as there is privacy and an opportunity to host small gatherings.

The success of the new developments can also potentially create a structural shift in housing preferences and living patterns.

Perhaps a key merit of shoebox apartments for investors is that the tenant does not have to share an apartment with others, including strangers and acquaintances. This minimises friction arising from different lifestyles among occupiers.

Shoebox apartments are also effective solutions to singles who may find regular size housing beyond their means. A single can only buy an HDB resale flat if he or she is at least 35 years old.

Shoebox apartments offer privacy for singles who are not only financially independent but are long psychologically ready for independent living.

A shoebox apartment, in this case, will be bought for owner occupation rather than for pure investment.

Consider the option carefully

The fact is that hardly any property can offer the perfect fit. A cost-effective property usually cannot provide the maximum benefit from both investment potential and capital appreciation standpoints. What is essential for a buyer is to be clear about the motivation in the property purchase - is it for investment or owner occupation?

When prudence is exercised in the home-buying decision, a shoebox apartment can be a worthwhile purchase, offering the opportunity to enjoy privacy and a potential for capital appreciation in sync with the sustained economic recovery.



The writer is senior manager, Research at Cushman & Wakefield.

Source: www.todayonlin.com