Source: First published in TODAY on 26 November 2010 and subsequently published in the book Real Estate Riches written by Mr Ku Swee Yong.
This article is split into two parts. Full text of the first part is as follows:
I lived in a bedsit — in the early 1990s, in the UK. It was a bedroom, sitting room and kitchen rolled into one. About 120 sq ft worth of space containing just seven items: a single bed, a two-door wardrobe, a table measuring 1m by 0.5m, a chair, an electric hob with two hotplates, a three-foot-tall refrigerator and a sink with some counter-top space that supported the cooker hob. The bathroom and toilet were in the common area.
This little hole stood in the prime postal district of SW7London — South Kensington and Knightsbridge. The street address: Emperor’s Gate, off Cromwell Road. A mini slum within a prestigious neighbourhood of luxury Victorian-era homes. As a poor student struggling with a British pound almost three times the Singapore dollar, that was the best I could afford. I saved some money by walking to college, even in the wet, slushy and grey winter days.
Having lived in a tiny space for about nine months during my first year in London, I am curious about the recent fascination Singaporeans have with the 350 sq ft apartments labelled as ‘Mickey Mouse’ units. Compared to these ‘shoebox’ units, I would label my London bedsit a ‘Mud Wasp’ unit.
The low-price quantum — that is, affordability — is often quoted as a reason for the strong take-up of such apartments. In my view, that is only half correct because investors seem to be willing to bear with the much-higher-than-average price-per-sq-ft for these apartments.
I believe that the other half of the equation is this: investors simply do not know what products they are buying into. Let’s take an analogy from the car market. We do not see strong takeup rates for buying Chery QQs and Perodua Kancils despite the very low entry price of about $48,000 a car. In fact, I see many more Toyota Corolla Altis, at $85,000 each, on the roads.
Why is the easy affordability of a Chery QQ not creating a flood of demand for such cars? The reason is this: buyers can test-drive the cars, sit inside an actual car, drive it around and feel the comfort and the space. Buyers are not sitting in mockup cars that have doors removed to create a sense of space, nor full length mirrors on the insides to make the interiors look bigger.
What You See Is Not What You Get
’Shoebox’ apartments are selling well because few investors know what these units look like physically. Few of us have friends and relatives who live in such units. Fewer have lived in apartments of less than 500 sq ft.
Of the roughly 2,800 apartments below 500 sq ft that were sold by developers in the last 10 years, only about 1,000 have been completed and are available for us to physically experience the size and space. About 50 per cent of these developers’ units were purchased by investors with HDB addresses — not surprising, considering the prices of these units are usually lower than the prices of five-room HDB flats.
The showflats of residential projects that have a mix of large and small units do not feature the shoebox units as these generally sell out fastest, at the highest price per square foot (psf) levels and to investors who have relatively little experience with apartments of such sizes.
Residential projects consisting solely of shoebox units may be launched with simple sales galleries, that is, without mockup apartment units or show units. Investors buy off-the-plan simply by considering the materials used, the drawings, and again, the low absolute dollar value of the units.
However, there are a handful of projects that do feature full-sized shoebox units in the showflats. These show units, while true to the floor plans in terms of size, come with interior designs and modifications that make them appear larger than they should be, such as the use of mirror walls.
As investors walk through the showflat with responsible sales agents, they might hear one or more of the following:
- the actual unit will not have such a high ceiling as you see here;
- this living room has been extended into the balcony;
- the actual unit will come with a solid wall between the living room and the bedroom instead of this glass wall that you see here;
- there should be a side wall for the apartment here (pointing to the floor with a line that demarcates the perimeter of the actual unit); and
- although not shown here, there will be a bi-fold door in this location in the actual unit, etc.
I am concerned that many have recently invested in a relatively new product which may not find widespread acceptance when completed.
Fewer than 1,000 shoebox units were sold by developers from 2001 to 2008. But in the last 24 months (2009 and 2010), 2,000 shoebox units were sold. When they are completed in 2011 and beyond, market acceptance of this category of residential product will be tested in terms of tenant quality and profile, rental yields, maintenance of the estate, as well as returns on investments, among others.
Continue to part two of the article.