You are here

Shoebox apartment market down on recession shakeout

Usual buyers of such small, private homes facing issues of unemployment, wage cuts even as market is seeing fewer choices amid weaker supply

rk_apartment_280920.jpg
The number of shoebox units sold as a proportion of non-landed private homes transacted shrank to 12.1 per cent in Jan-Aug 2020.

Singapore

DEMAND for shoebox units in the primary market fell in the first eight months of 2020 from a year ago as pain from unemployment and wage cuts for the usual buyers of such small, private homes came up against fewer choices amid weaker supply.

The recession has also hit rental demand for such units, given the economic impact felt by expatriate tenants.

The number of shoebox units - defined as 506 square feet and below - sold as a proportion of the total number of non-landed private homes transacted shrank from 16.9 per cent in Jan-Aug 2019 to 12.1 per cent in Jan-Aug 2020, according to data requested from real estate consultancy OrangeTee & Tie.

Demand for small units ticked up year-on-year in the secondary market, as the proportion rose from 6.2 per cent to 6.8 per cent for small, resale private homes.

Your feedback is important to us

Tell us what you think. Email us at btuserfeedback@sph.com.sg

Still, taken together, the proportion of small homes in the primary and secondary markets as a proportion of all non-landed private homes transacted (excluding executive condominiums, or ECs) eased from 12 per cent in Jan-Aug 2019 to 10 per cent in Jan-Aug 2020.

In absolute figures, a total of 710 small units were sold in the primary market for January to August 2020 - sliding 25.6 per cent year-on-year - while 272 units were transacted in the resale market, down 11.1 per cent, PropNex calculated.

But this came as sales took a hit in the second quarter due to the circuit breaker period, which forced developers to push back launches and shutter sales galleries.

Commenting on the decline in the proportion of new shoebox units bought this year, senior director (research & consultancy) at JLL Singapore, Ong Teck Hui, said: "As prices have not changed much, it is likely that the recession, rising unemployment and wage cuts have adversely affected demand from some buyers within this category."

Meanwhile, with economic headwinds prompting some companies to cut salaries and trim their headcount, the rental market could take a hit in the near term, which in turn may affect leasing demand for shoebox units.

"With the deep recession this year, some companies have already reduced costs through wage cuts or retrenchments, which have also affected expatriate tenants," said Mr Ong. "Hence, rental demand for shoebox units has been impacted as well."

He added that the residential leasing market may remain tough until 2023, since completed supply will be elevated from 2021 to 2023, averaging some 14,700 units per year.

In comparison, completed supply will fall to 6,700 units in 2024.

Nicholas Mak, head of research and consultancy at ERA Realty, said that as most buyers of small apartments tend to be investors, the current softer leasing market would reduce the appeal of such assets.

Christine Sun, head of research & consultancy at OrangeTee & Tie, expects that budget conscious tenants will help bolster rental demand for small apartments against the backdrop of the deteriorating economy. But she cautioned that very small units in the 300-400 sq foot range generally have a harder time securing tenants, which was the case even before the pandemic hit.

Analysts said small units in well-located projects will remain attractive to selected buyers, such as singles and young couples, given their relative affordability.

Wong Siew Ying, head of research and content at PropNex, noted that the number of transactions for shoebox units in the primary market has picked up again recently, with 138 small units sold by developers in August, up 55 per cent from July.

For those who are buying new small units, they are paying higher prices on average as well, she said.

In August this year, the average unit price stood at S$1,960 per square foot (psf). It was S$1,919 psf in July 2020 and S$1,779 psf in August 2019. For the first eight months of 2020, the average transacted price of small units was S$2,003 psf - 10.6 per cent higher than the S$1,810 psf over the same period in 2019.

Even though interest rates have been slashed, prospective buyers of small units are unlikely to be looking at larger units as affordability remains a key criteria for them, analysts said.

"The property market curbs such as the Additional Buyer's Stamp Duty, the Total Debt Servicing Ratio framework as well as the weaker economy and job market would also limit the purchasing budgets of some buyers," said Mr Mak.

In the resale market, the proportion of small units purchased in the first eight months of 2020 edged up 0.6 percentage point year-on-year to 6.8 per cent, data from OrangeTee & Tie showed.

Ms Sun said this could be due to affordability as older units are usually lower in price than new ones. "Some buyers may not mind buying a resale home for their location, layout, furnishings or other positive attributes."

When asked if working-from-home (WFH) could be shifting buyer preferences from smaller units to bigger ones, JLL Singapore's Mr Ong said it is unclear for now whether WFH will remain a widespread trend post-pandemic as some workers find themselves more productive in the office. Other benefits from being physically in the office include resolving work issues more easily and building rapport among colleagues.

Other reasons for the weaker demand could include slimmer pickings, given the reduced supply launched by developers in the first eight months of this year, analysts said.

Mr Mak said developers launched 18 residential projects with a total of 4,189 units. The number of projects launched over January to August last year was more than double at 40 with a total of 11,540 units.

Revised guidelines by the Urban Redevelopment Authority (URA), which stipulated a larger minimum average size for new private flats in projects outside the central area, could have played a part.

The introduction of new rules on unit sizes by the URA in January 2019 has probably crimped the supply of smaller apartments, said PropNex's Ms Wong.

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes