‘Shoebox’ apartments: Know what you’re buying

In the early 1990s, I lived in a bedsit – 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. Bathrooms and toilets were in the common area.

As a poor student struggling with a British pound almost three times the Singapore dollar at the time, that was the best I could afford. I could also save some money by walking to college, even in the wet, slushy and grey winter days.

This little hole exists in the prime postal district of SW7 London: 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.

Having lived in a tiny space for about nine months during my first year in London, I am curious about the recent fascination with “Mickey Mouse” or “shoebox” apartments in Singapore.

The low price quantum, ie 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 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 they are buying into.

Let’s take an analogy from the car market. We do not see strong take-up rates for Chery QQs and Perodua Kancils despite the very low entry price of about $48,000 per 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: 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 mock-up cars that have doors removed to create a sense of space, nor full-length mirrors on the insides to make the interiors look bigger.

“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, 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 prices of five-room HDB flats.

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-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 mock-up apartment units or show units. Investors buy off-the-plan simply by considering the materials used, 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, have interior designs and modifications that make them appear larger than they should be, for example, with the use of mirror walls.

As investors walk through 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 living room and 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),

– Although not shown here, there will be a bifold door in this location in the actual unit etc.

I am concerned that many have recently invested in a relatively new product that 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, 2,000 shoebox units were sold.

When they are completed next year 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.

By Ku Swee Yong, founder of real estate agency International Property Advisor (IPA).

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