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City&Country: Offshore-- The new concept of ‘small’

Small is beautiful” seems to be the new mantra for the property sector. Until the property crash in 2008, brought on by the collapse of  Lehman Brothers, luxury apartments with sky garages and yacht berths as well as multimillion-dollar penthouses of 10,000 sq ft were in fashion. But, with rising land prices and building costs, small might be back in vogue again.

It’s not only the typical condominium apartments that are shrinking into Mickey Mouse units. Even penthouses are being downsized. Take Mr and Mrs Lim and their two young children, who moved into their new home a fortnight ago. They purchased their duplex penthouse in the 33-unit The Montage in Telok Kurau three years ago. A 3+1 bedroom unit of 1,733 sq ft sounded sizeable, but when they got the key to their new apartment, “it wasn’t at all what we expected”, says Mr Lim.

The king-sized bed they had pre-ordered had to be returned and exchanged for a queen-sized one, “otherwise, there would be no space to walk”, says Mr Lim. As for the children’s bedrooms, they built a platform bed mounted onto the bay window as that was the only way to fit a single bed in. The study room couldn’t fit a desk, so Mrs Lim moved the piano in instead. The bomb shelter has since been turned into a store room. “When you have two children, you need more space because they have so many toys,” says Mrs Lim. The planter box was used as a concealed storage space for gardening tools. There are three terraces in the apartment, and a reflective pool, which the Lims are thinking of removing.

“We’ve had to be very creative in our planning and use of space,” adds Mrs Lim. The family has got used to their new home, and the convenience of the location in terms of its proximity to the children’s school, as well as amenities like eateries and shops, has more than made up for the lack of space.

The really small ones
Some of the new launches being rolled out are boutique developments featuring shoebox apartments that require even more creative use of space. The latest is The [email protected], a 48-unit boutique condo on Pegu Road off Balestier Road. There are 16 two-bedroom apartments of 538 sq ft each, which is just slightly larger than the size of a two-room HDB flat of 45 sq m (484 sq ft). The 2+1 bedroom penthouses with viewing decks are 990 sq ft — slightly larger than a four-room HDB flat, which is typically 90 sq m (969 sq ft), according to the HDB website. There are also one-bedroom and one+1 bedroom units of 495 and 549 sq ft, respectively. According to a property agent, such projects appeal to investors because of the low quantum price and potentially high rental yield. The units will also appeal to young, single expatriates or couples. One-bedroom apartments in the Balestier area are fetching rentals of S$3,000 (RM7,303) a month, he adds. The indicative price of The [email protected] is in the range of S$1,200 psf.

In late September, Oxley Land rolled out the 72-unit [email protected] The studio units there measure 258 sq ft, which is smaller than a typical HDB studio apartment of 377 sq ft. To date, all but one of the units have been sold, at an average price of S$1,300 psf.

“I would imagine it would be a bit tough to live in apartments of such sizes,” reckons Joseph Tan, executive director of residential project marketing at CB Richard Ellis (CBRE).

Nevertheless, according to CBRE Research, the small-format unit has become a significant trend, and the number of transactions of units of 500 sq ft or below year-to-date is 616, which is more than double that in 2008. In 2007, there were 275 such transactions, and in 2006, 171.

Who do you call?
It looks like the services of interior designers will increasingly be sought by homeowners looking to creatively maximise the use of space in their new homes. “It’s just like the apartments in Hong Kong, where the moment you open the door, you see the kitchen and the bathroom on one side,” says Joanne Lee, senior design consultant with I-Bridge Design.

“It’s not just the boutique developments,” she notes. “If you look at most of the new condos today, even the three- and four-bedroom apartments have small bedrooms, and you need to customise your beds in order to fit them in.” The greatest demand, says Lee, is for carpentry work, especially for those moving from HDB flats or older but larger private condos. “The built-in wardrobes provided are generally insufficient, and storage space is an issue for most people,” she says.  

Affordability the main driver in uncertain times
It all boils down to affordability. One could say the new generation of downsized apartments is a product of high land prices, especially for sites purchased in the en-bloc sales of two years ago and, more recently, in the tender of government-land sites, which saw active bidding.

“Demand for shoebox apartments will [be sustainable] as long as the location and pricing are right,” argues Lim Yew Soon, managing director of niche developer EL Development, the property-development arm of privately held construction firm Evan Lim & Co. “The potential rental yield and low-quantum outlay will be attractive to first-time homeowners or investors with shallow pockets.”

EL Development’s 72-unit Illuminaire on Devonshire, located in prime District 9, was sold out in a first weekend preview in early April at an average price of S$1,700 psf. Its one-bedroom apartments were 441 or 463 sq ft and priced under S$800,000, while its two-bedroom apartments were 635 or 721 sq ft and sold for under S$1.25 million.

Lim intends to stick to his strategy of keeping units small to be affordable. Recently, he purchased a three-storey walk-up apartment at 2-8 Stevens Close in a private treaty for S$30.8 million, which works out to S$911 psf for the 2,243.3 sq ft site with a plot ratio of 1.4. The developer intends to redevelop the site into two blocks of five-storey apartments totalling 40 units. “We will have to build small apartments,” says Lim. “However, we plan to have more efficient space utilisation rather than cutting down the number of bedrooms.”

According to CBRE Research in a report last Thursday, from January to September 2009, 12,828 new homes were sold in the private residential market. This runs contrary to the prevailing weak economic conditions, and the expectation is that the total number of new home sales will be similar to the volume seen in 2007, which was the most recent peak in the property cycle. “However, the bullish run in the new home market in 2009 differs from that of 2007 and should not be mistaken as being the same,” says Li Hiaw Ho, executive director of CBRE Research. “The current good performance of 2009, a recession year no less, does not show the same characteristics as those of the previous residential boom of 2007.”

In terms of total transaction value in dollar terms, the previous residential property bull run in 2007 accounted for S$23.04 billion, based on caveats for the whole year. In comparison, the total value of new home sales from January to part of October 2009 was S$11.2 billion, which is about half the value of 2007’s record.

Li attributes this to several factors. He says in 2007, it was the luxury segment that was driving the market, with many large units, especially penthouses, achieving record prices. Hence, the overall quantum prices achieved were higher. This year, the demand has so far been predominantly for units in mass-market projects, priced to attract HDB upgraders. “In addition, the proliferation of small-format homes of less than 500 sq ft also led to relatively lower price quantums, compared with those in 2007,” adds Li.

Another difference between 2007 and 2009 is the number of foreign buyers in the private-housing sector. In 2007, 1,736 foreigners bought units in the primary market, while the total in 2009 to date is 651, which is about one-third that recorded in 2007. Local residents have dominated the primary market so far this year, says Li.

Mass-market condos above S$1,000 psf ‘a growing trend’
Mainstream developers have shied away from  the Mickey Mouse apartments. While there are small apartments in the suburban condos to meet affordability and cater to smaller families — for instance, at City Developments’ Hundred Trees in West Coast, there are some one-bedroom apartments of 485 sq ft and two-bedroom apartments of 690 to 786 sq ft — by and large, most developers still build family-sized units, observes CBRE’s Tan. To date, of the 396 units in Hundred Trees, 370 have been sold at prices averaging S$941 psf. The remaining units are largely three- and four-bedroom types.

Even at the 712-unit Caspian in Lakeshore Drive, there are studio apartments of 398 sq ft. And, at GuocoLand’s Elliot at East Coast, which was launched in September and priced at an average of S$950 psf, of the 119 units, four are one-bedroom apartments of 500 sq ft each and 12 are two-bedroom units of around 980 sq ft. The project also has 40 three-bedroom apartments from 1,300 sq ft and another 40 four-bedroom apartments with an area of 1,700 sq ft. As at end-September, 76 units were sold.

Even the developers of high-end Lincoln Suites, officially launched on the weekend of Oct 31 to Nov 1, reconfigured the unit sizes to make them affordable. Of the 175 units in the development, 44 are studios ranging from 463 to 484 sq ft, and 22 are one-bedroom apartments of 527 and 538 sq ft. As at last Friday, 51% of 56 units released in the first phase were sold, mainly studio, one- and two-bedroom apartments.

Addressing the recent concern over shoebox apartments, Quek Kon Hui, executive director of Hong Leong Holdings, in a recent statement, says, “Hong Leong Holdings is about giving value to our buyers without compromising on the functionality of living spaces.”

In the most recent government land tender, Hong Leong outbid 14 others to win the Serangoon Avenue 3 government-land parcel with a bid of S$221 million. The coveted site is located next to Lorong Chuan MRT station. The developer intends to build 400 units on the site with a total gross floor area of 418,257 sq ft. The bid of S$221 million works out to S$529 psf per plot ratio (ppr), and translates into a breakeven price of S$900 to S$950 psf, estimates Li. Hong Leong is planning to launch the project in 1H2009.

According to CBRE’s Tan, in the pipeline for launch next year is MCL Land’s 99-year leasehold condo on the site in Yishun Avenue 1 and 2, which the developer won with a bid of S$213 million in March 2008.
There’s also UOL Group’s Dakota Crescent project, the site for which it bid S$329 million in September.
UOL is likely to build 500 to 600 units, with at least half being two-bedroom apartments. Market expectation is that they will be priced from S$1,000 psf.

“Given the prices paid by developers for the recent government-land sales, one can only expect more suburban condos to be priced above S$1,000 psf,” says Phylicia Ang, director of residential marketing at Savills Singapore. “This time around, it’s a bottom-up recovery, unlike in 2007, when the recovery was driven by the luxury segment,” she notes. As such, the pricing of new 99-year leasehold suburban condos will set the tone for mid-tier projects, she adds. And, if demand for small apartments continues to rise, mainstream developers may have no choice but to adopt the new concept of small.

Cecilia Chow is City and Country editor at The Edge Singapore

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 782, Nov 23 – 29, 2009.

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