Demand declined in Q4 to a three-year low.
Savills' December 2012 Residential Sales Briefing reported:
Shoebox demand has finally seen a decline this year. With a strata area of less than 500 sq ft, shoebox units were highly sought-after for their affordable price quantum and attractive rental potential. The proportion of these shoebox units to total new condo sales has fallen from a three-year peak of 21% in Q3/2011 to a low of 7% in Q4 this year. This is also below the three-year average of 14%.
In fact, a decline has been observed since Q2 and Q3, where the proportion of new shoebox home sales fell from 20% in Q1 to 14% in Q2 and then to 13% in Q3. For units in the range of 500 sq ft to 750 sq ft, sales similarly fell from 32% in Q1 to 22% in Q2 and 17% in Q3. The downtrend could be due to lesser shoebox units being built. There has also been an increase in demand for larger-sized units in tandem with the growth in wealth here.
As expected, the government rolled out a slew of new policies to curb the increasing demand for shoebox apartments. The policies were put in place as a result of island-wide prices artificially being pushed up by these smaller units and more strain being placed on infrastructure from an increased population density in many residential areas. The URA now requires developers to build homes with a prescribed average unit size of 70 sq m, or 100 sq m in more congested areas like Telok Kurau, Kovan, Joo Chiat and Jalan Eunos. As such, more developers have increased the sizes of small-format units such that the proportion of homes sized between 500 sq ft and 750 sq ft (approximately 70 sq m) rose five percentage points in Q4 this year.
The new measures will curb the growing number of shoebox units, which could in turn heighten median prices of these small-format homes. Island-wide, prices of shoebox condos sized below 500 sq ft have already risen for three consecutive quarters, to a high of S$1,474 per sq ft in Q4. This translates to increases of 6% quarter-on-quarter (QoQ) and 10% YoY. Condos sized between 500 sq ft and 750 sq ft also saw two consecutive quarterly rises before slipping marginally by 1% to S$1,343 per sq ft in Q4/2012 from the recent increase in supply.
More From Singapore Business Review