News: Demand for shoebox apartments drop amid recession

Sep 29, 2020

New shoebox apartment unit sales saw a 12.1% drop compared to last year amid a weaker supply, rising unemployment and wage cut issues. 

New sales for shoebox apartments witnessed a drop in demand in the primary market amid a weaker supply, rising unemployment and wage cut issues, reported The Business Times (BT).

Data from property consultancy firm OrangeTee & Tie showed that the number of shoebox units sold, defined as units that are 506 sq ft and below, declined to 12.1% during the first eight months of 2020 from 16.9% over the same period last year, said the BT report.

The secondary market, on the other hand, posted an increase in demand for small units as the proportion of small, resale private homes climbed to 6.8% from 6.2% previously.

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Taken together, however, the proportion of shoebox homes within the primary and secondary markets as a proportion of the total number of non-landed private homes transacted, excluding executive condominiums (ECs), still eased to 10% in January to August 2020 from 12% in January to August 2019, noted the BT report.

In absolute figures, the primary market saw 710 small units sold in January to August 2020, down 25.6% year-on-year, while the resale market posted 272 transactions for small units, also down 11.1%, calculated PropNex. Sales declined in Q2 due to the circuit breaker, which forced developers to push back launches and close their sales galleries.

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“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,” said Ong Teck Hui, Senior Director of Research and Consultancy at JLL Singapore as quoted by BT.

Rental demand for shoebox units has also been affected by the recession, said the BT report.

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This comes as the wage cuts or retrenchments made by some companies, on the back of recession, affected expatriate tenants.

Ong expects the residential leasing market to remain challenging until 2023, given that completed supply will be high from 2021 to 2023 – standing at an annual average of around 14,700 units.

By 2024, completed supply is expected to decline to 6,700 units.

Nicholas Mak, Head of Research and Consultancy at ERA Realty, expects the softer leasing market for small apartments to reduce the appeal for such properties since most buyers of shoebox units tend to be investors.

Analysts also pointed to the slimmer pickings, as developers made fewer project launches during the first eight months of 2020, as another reason for the weaker demand for smaller apartments.

Mak revealed that developers launched 18 residential projects, offering a total of 4,189 units in January to August 2020, way lower compared to the 40 residential projects with a total of 11,540 units launched over the same period last year.

Wong Siew Ying, Head of Research and Content at PropNex, believes the Urban Redevelopment Authority’s revised guidelines on unit sizes, which stipulated bigger minimum average size for new private residential units in projects outside the central area, may have also crimped the supply of shoebox units.

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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg

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