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New Restrictions on Shoebox Flats: How Will They Affect You?

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Ryan Ong

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When I heard the government was going to control shoebox flats, I snorted. I thought: “Control them how? With strongly worded letters? Spit-balls? Rude gestures?” As it turns out, Mr. Khaw isn’t the sort to be punked. The government has flexed its muscle, and new restrictions are coming into play. In this article, I look at what they’ve done; and how it may affect you:

 

What’s a Shoebox Apartment?

We’ve discussed this in another article. But a quick recap: Shoebox units are apartments up to 500 square feet, or about 46.4 square metres.

Shoeboxes cost up to 20% more per square foot, when compared to regular apartments. Nonetheless, they’re attractive to small time property investors.

Because shoeboxes are small, their quantum (overall price) is low. A shoebox is affordable even to investors who lack capital. Also, shoeboxes can be the only affordable way to own property in the central region. Buyers can count on rental income from expatriates, who are overpaid enough to prefer those areas.

 

So What’s the Problem?

 

Traffic jam at Geylang
Good news! You all rented in the same block!

 

It didn’t take long before Singaporeans caught on: Shoeboxes were an easy meal ticket. The units in the central region sold out faster than wart cream in a Geylang pharmacy.

Developers then started building shoeboxes outside the central region. Some developers launched projects that were 80% shoeboxes, which created infrastructure problems: When too many people are crammed into a  single block, the immediate area sees congested roads and parking disputes.

Shoeboxes also waste Singapore’s land space. Proper apartments are cut up and sacrificed to make more shoeboxes, so developers can charge more per square foot. If allowed to continue, smaller apartments might replace proper sized units as the norm.

Hence, the government is implementing new restrictions.

 

The New Restrictions

 

Pipes at a construction site
Well, it’s too small to be a janitor’s closet or to breed chinchillas. So I guess we have a new shoebox.

 

Starting from 4th November 2012:

…non-landed private residential developments outside the central area will have to adhere to a formula which stipulates that the average size of homes in a particular development will need to be at least 70 sq m.” – Today Online

Note the term average. This restriction doesn’t set a minimum size on apartments; it just ensures shoeboxes constitute the minority of apartments in a condo’s unit mix.

The developer can divide the total ground space any way they like, so long as the average (most common) apartment size ends up being 70 square meters.

In areas such as Kovan and Joo Chiat, the requirement is more stringent: The average size needs to be 100 square meters. URA will vary the requirements as needed. These restrictions impact you by:

  • Enforcing a Family Friendly Housing Market
  • Helping Landlords who Currently Own Shoeboxes
  • Possible Cost Increase for Non-Central Shoeboxes

 

1. Enforcing a Family Friendly Housing Market

 

Red Panda
We think it’s Singaporean. It won’t breed in captivity either.

 

70 square meters is about the size of a three room HDB flat. To most Singaporeans, this is the minimum requirement for a family.

The government wants you shopping for diapers and baby food by your mid-30’s. And this move proves how serious they are. By restricting the number of shoeboxes, they’re indirectly encouraging you to raise a family. Josephus Yap, who recently changed his mind about buying a shoebox, says it’s about parents as well:

I suspect other motivesIf you live in a shoebox, you cannot live with your parents, correct? I think that, because the CPF of the older generation is running dry, the government is getting worried. They would rather Singaporeans move into larger units, so later there is no excuse not to take in their parents.

Anyway, my own decision was influenced by my parents’ dwindling CPF. I think a time may come when they need to move in with my family.”

At any rate, we’ll be avoiding a Hong Kong situation, and thank God for that. Have you seen the apartments there? If you so much as stretch when getting out of bed, you’ll put a fist through a wall. We’re not about to accept that as a norm here.

 

2. Helping Landlords Who Currently Own Shoeboxes

 

Signing tenancy agreements
And our rental unit in Lim Chu Kang is so convenient (Assuming you have a tent and compass)!

 

The oversupply of shoeboxes was a worry to some landlords. 11,000 units in 2015 is a lot of alternatives. Tenants are going to be spoiled for choice, and landlords may be locked in a price war.

I spoke to a neighbour, who owns a shoebox in the central region. He only wants to be known as Arvind:

I think the central region is not affected by oversupply, because the location means it is always in demand. But in the non-central regions, it is a different matter.

There are already alternatives; rented flats, regular condo units, and so forth. As it is, a shoebox unit in a non-central area will generate much lower yields than a shoebox in the central region. Imagine if, on top of that, more and more shoeboxes appeared nearby, and all the landlords are forced to moderate prices to compete.

This is why shoeboxes outside the central region were never a good investment to begin with. But I think if not for these restrictions, these landlords will suffer even more. If I were them I would breathe a sigh of relief; these restrictions are lessening the future competition.”

 

3. Possible Cost Increase for Non-Central Shoeboxes

 

Chair in a room
No, no, this is much better than a three room HDB.

 

Will the new restriction drive shoebox prices upward? The investors I spoke to were divided on this. Arvind feels that:

The immediate impact is limited. OCR (Outside Central Region – Ed.) shoebox units have been falling in desirability*. I think that investors now realize the returns are not that great. So even if these units become more scarce, I don’t foresee a huge difference in their price tag.

*Arvind refers to the fall in shoebox sales between April and June. Shoebox sales constituted 27% of property sales in the first quarter of 2012, but only 19% between April and June. Follow us on Facebook, if you want alerts on such news.

Property investor Charlie Sng feels differently. He thinks that there will always be demand for shoeboxes, as there are always small-time investors looking for a toehold in Singapore’s property market. He says that:

Shoeboxes have a very low quantum, and for someone making their first property investment, this is an affordable option. And with the economy contracting, investors might favour it as a cautious investment. So there is demand. And I think with the new restrictions, the price will eventually increase.”

So, still eager to get a shoebox? Or are you rethinking your investment?

Whatever your decision, be sure to source for the best home loan. Just because shoebox quantums are low doesn’t mean you should skip the research. Check loan comparison sites like SmartLoans.sg, before getting financing.

Image Credits:
richardwitt74vetaturfumare, Nicolas Lannuzel, Benson Kua, ifindkarma, kstepanoff

How will the new restriction affect you? Comment and let us know!

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.