Buyers of shoebox units may be hit with a double whammy, warns Savills

Here's how government's new move to curb shoebox apartment impacts the market.

The government has unveiled a new policy to curb the increasing number of shoebox apartment units. On 4 September 2012, the URA announced its guidelines on the maximum number of units that will be allowed for all new developments in the OCR. This is derived from a formula that is based on a prescribed average unit size of 70 sq m. In the more congested areas like Telok Kurau, Kovan, Joo Chiat and Jalan Eunos, the prescribed average unit size is 100 sq m.

Savills Consultancy & Research warns that the new policy will hit both developers and purchasers.

Here's from Savills:

Many welcomed the changes, as the supply of shoe box units – typically below 50 sq m – was expected to rise five-fold to 11,000 units by the end of 2015. The shoebox units have artificially pushed up the unit prices of new private apartments across the island in recent years. This would
have inevitably increased population densities in many residential areas, putting a strain on infrastructure.

Established developers who bought large sites through state tenders may be least affected, as most offer a wide range of unit sizes to cater to the different market needs.However, smaller developers seeking to maximise their returns and recoup land costs by building more shoebox units, may see their profits affected by this new regulation. Bids for smaller en-bloc sites may become more subdued as developers willnow have to factor-in lower per sq ft selling prices for the larger units.

Investors who bought shoebox units with the hope of earning handsome monthly rents of between S$2,000 and S$3,500 may find themselves in a bind as the completed supply of such homes is set to surge in three years’ time. The market may be hit with a double whammy as the government continues to tighten Foreign Employment Policies and some international buyers return to the US and Europe after their economies show an improvement.

Demand for shoebox apartments may also be retracted as the government is considering a move to allow singles to purchase built-to-order public housing flats directly from the Housing Development Board (HDB).