Shoebox apartments: Good for developers & retailers?

The following article appeared in last Friday's edition of the TODAY paper:

'Shoebox' trend a boon for developers and retailers
By: Tan Chin Keong

One quirk of the current recovery in Singapore's residential property market is the rising popularity of small-sized apartments, better known as "shoebox" units.

Since early 2009, when the current home market up-cycle began, private property developers have sold a number of projects consisting mainly of "shoebox" units. These include The Alexis, which kicked off the "shoebox" trend and Suites@Guillemard, which probably holds the smallest apartment at 258sqft.

In fact, the percentage of non-landed private residential units with floor space of less than 650sqft (our definition of a "shoebox" unit) sold by private property developers has risen from 12% in 2009 to 38% year-to-date in 2011.

We also notice a downsizing trend in public housing over the last few years. Based on data from the annual reports of the Housing and Development Board, the percentage of smaller flats (four-room and below) sold by the board went up from 46% in the fiscal year ending March 2005 to 67% in the year ending March 2008. This ratio further rose to 83% in the year ending March 2010.

However, this trend is also driven by the rising popularity of four-room flats versus five-room and executive flats. But it has to be noted that with floor space of around 970sqft, four-room flats are not really that small.

So it can be seen that the downsizing trend is more pronounced in the private property market. While shoebox units help keep private homes within the reach of many by keeping the total purchase quantum affordable, it has also allowed developers to raise their projects' prices on a per-square-foot basis and is likely one of the drivers of the currently high prices.

One unintended consequence of this trend may be to increase the propensity of "shoebox" unit residents to shop and raise their retail spending. This is because many of the units come with small or no kitchens and there may be no room for a proper dining area. Thus, residents are likely to dine out more often and engage in more post-meal shopping.

In addition, residents of these units may feel a greater urge to go outdoors to avoid being cooped up in their homes for extended periods. Indeed, this is one of the reasons often given by my Hong Kong friends when I ask them about their love for shopping.

Due to their generally smaller homes, Hong Kong residents feel the need to stay outdoors and engage in shopping more frequently. This could be one of the drivers behind Hong Kong's higher retail sales of around US$5,900 (S$7,180) per capita last year versus Singapore's US$4,900. However, with the burgeoning shoebox trend, it may not be very long before Singaporeans catch up with their Hong Kong counterparts when it comes to shopping.

So, in addition to the private property developers, retailers could end up as beneficiaries of this trend. However, before some of our female (and also male) readers try to use this to justify shopping for more shoes, do keep in mind that your "shoebox" unit may not have any space for bigger shoe racks.

Tan Chin Keong is an analyst at UBS Wealth Management Research.

The wife and I always believe in the notion that "a man's (woman's) home is his (her) castle" - a place where we will always enjoy returning to after a long day at work. So it is rather sad to think that one has to "escape" to the streets/malls in order to avoid feeling claustrophobic in his/her tiny apartment...








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