NUS small apartment sub-index leads price gains in March

Business Times: Tue, May 01

SHOEBOX apartments have been blazing the trail in terms of prices in the primary market, which comprises new developer launches. Now, they have done the same in the completed home market, according to the NUS Singapore Residential Price Index (SRPI), which shows that small apartments have posted the strongest price gains in March. The SRPI sub-index measuring prices of small apartments/condo units (up to 506 square feet) islandwide rose 2.8 per cent month on month in March, according to flash estimates released yesterday. This was higher than month-on-month gains of 0.8 per cent and 0.7 per cent respectively for the SRPI sub-indices for the Central Region and Non-Central Region, both of which exclude small units. The National University of Singapore's Institute of Real Estate Studies, which minted the SRPI series, defines Central Region as Districts 1-4 (which include the financial district and Sentosa Cove) and the traditional prime residential districts of 9, 10 and 11. SRPI tracks prices of completed private apartments and condos (excluding executive condos). The overall SRPI for March 2012 was up 0.8 per cent month on month. On a longer-term comparison too, the SRPI sub-index for small apartments has been the clear price outperformer. Its March 2012 flash-estimate value reflects a 10.5 per cent year-on-year appreciation, compared with an increase of 6.2 per cent for the Non-Central Region and a 0.9 per cent price dip for the Central Region sub-indices. The overall SRPI has increased 3.1 per cent year on year. From the post-global financial crisis property market low plumbed in March 2009, the SRPI for small apartments has risen 65.7 per cent, outpacing increases of 56 per cent for the Non-Central Region and 44 per cent for the Central Region. The overall SRPI rose 49.9 per cent over the same period. The Urban Redevelopment Authority has been putting the spotlight on small apartments which have been blamed by market watchers for keeping prices on the boil in the primary market. Developers have been incorporating smaller-sized units in their projects to cater to buyers who find the lumpsum investment quantum affordable - despite the higher per square foot price. URA said last Friday that 27 per cent of the 6,526 private homes excluding ECs that developers sold in the first quarter of 2012 comprised small units (of 50 square metres or below), up from 15 per cent in the preceding quarter and probably an all-time high. Units costing up to $750,000 made up 42 per cent of developers' first-quarter sales volume, up from a 25 per cent share in Q4 and the highest since the 52 per cent share in Q1 2009, when property buying fervour restarted after the global financial crisis. Reports have shown that the bulk of small apartment buyers have HDB addresses and are hence unlikely to be considering upgrading to a shoebox unit - suggesting some exuberance in investment demand for small units. A fortnight ago, URA also released data that shows the stock of small units on the island is set to increase from about 2,400 at end-2011 to 8,200 units by end-2015. These estimates are based on the pipeline supply of such units that have been sold by developers as at end-2011; so the actual shoebox stock in future years could be larger since URA's estimates do not include shoebox units that had yet to be sold as at end-2011. Credo Real Estate executive director Ong Teck Hui said: "My concern is whether there's a market big enough to find tenants to occupy all these units or whether there really is a trend that so many young people want to live in shoebox units. "If there's genuine demand and it's strong, there's a good chance that these shoebox apartments will be physically occupied. But if the demand for owner occupation and the leasing market for such units is lacking, it could be a big economic waste." While some analysts think that the government could be planning cooling measures aimed at shoebox units, Knight Frank chairman Tan Tiong Cheng does not think that this is likely as these apartments fulfil a need for young singles and couples seeking to live in a private home. "Besides those looking at small units for their own occupation, investors may be using the current low interest rate environment to lock in some exposure to the property market, in case prices become unaffordable. "Right now, the bulk of shoebox supply is not ready for physical occupation. So the acid test would come when more units are ready and the owner occupier will know whether it meets his or her needs and the investor, whether the rental for such units will continue to fetch a premium. Market watchers also point out that sales at several shoebox projects in the Geylang area have been slow. The research head of a property consultancy group, citing Singapore Real Estate Exchange data, said that in Q1 2012, shoebox units (up to 500 sq ft) fetched an average monthly rental of $6.51 per square foot, compared with $3.80 psf for 501-1,500 sq ft units. "Shoebox units are currently fetching gross yields of around 5 per cent or more, compared with around 3 per cent for the rest of the private housing market. As the supply of physically completed shoebox units increases, their rentals should fall to levels that will bring them in line with the rest of the market," he reckons. "Those picking up shoebox units with an intention of renting them out may be buying into a market where the preferences and budgets of the current profile of expats do not seem aligned with what shoebox apartments offer. If you're constrained by budget, you could rent a HDB room or flat. If you're with a family, a shoebox cannot accommodate your needs." Source: Business Times