Banner year for small units in 2012

2013 mar 1

Banner year for small units in 2012

Transactions of small office, shop, and industrial units shone but more muted growth for shoebox apartments, reports ELAINE CHOW

2012 was the year when we saw a buying frenzy for small strata units across the property sectors, much of which was supply-led. Developers have been launching more mixed developments with small units in recent years. They have also come up with many creative designs and lifestyle concepts in an attempt to differentiate their projects from the competition. Given the low interest rate and high liquidity environment, these small units with their relatively affordable absolute price quantum were met with robust demand from both end-users and investors.
There is no official definition of small units. For the purpose of this article HSR Property Consultants has made the following assumptions:

Offices: Units with strata area of 100 sqm (1,076 sq ft) or less.
Shops: Units with strata area of 15 sqm (161 sq ft) or less, excluding pushcarts and kiosk space within malls.
Residential: Apartments and condominium units with strata area of 46.8 sqm (504 sq ft) or less.
Industrial: Warehouse and factory units with strata area of 150 sqm (1,615 sq ft) or less.

Office

The small office unit segment turned in a spectacular performance in 2012 with a 525 per cent year-on-year (y-o-y) increase in new sales. PS100, Paya Lebar Square, and Centropod@Changi led to the spike in new sales in the first quarter of 2012. The momentum was carried on by the launch of other projects such as Eon Shenton and Oxley Towers in Q2 2012. Paya Lebar Square saw the most transactions in 2012 - 295 new sales and two subsales - totalling $328.5 million.
Notably, PS100 sold all 100 of its small office units with a kitchenette and en-suite bathroom in the first weekend, at an average price of $3,000 per square foot (psf). On the whole, the transaction quantum for small office units totalled $0.89 billion last year, up 188.4 per cent from $0.31 billion in 2011. Sales of small office units were driven by demand from both occupiers and investors.

Office rents rose 1.4 per cent last year after appreciating 13.8 per cent in 2011. It was therefore prudent for end-users to invest in office units, given the low interest rate environment, to ensure some control on the cost of their premises and security of their space.

The introduction of the additional buyer's stamp duty (ABSD) on residential property purchases in December 2011 combined with the hype created by launches and fast sales of affordable small strata office units with lifestyle themes also channelled investors' interest to this segment. Savvy investors such as a Guthrie and Sun Venture joint venture bought 66 units in Burlington Square in May 2012 for $89.3 million ($1,318 psf) and resold some of these units in H2 2012 after asset enhancement works.

Moving into 2013, we expect heightened interest in strata offices, as more investors channel their attention to property sectors not affected by the latest property cooling measures which took effect on Jan 12. Far East Organization has started sales at its SBF Center at Robinson Road.

Shops

We saw the return of subsale transactions for small retail units last year. While there were two units sold before completion in 2011, this rose to 20 units in 2012, reflecting a hefty 900 per cent increase. Interestingly, all subsale shop units last year were freehold. Oxley Towers, within the city, saw the subsale of five shop units during April to August 2012 at prices ranging from $4,394 psf to $8,627 psf. In the suburban area, Centropod@Changi and Thomson V Two saw the subsales of three small shop units each.

In all (across primary and secondary markets), some $109.6 million of small strata shop units were transacted in 2012, up from the $40.5 million in 2011 and $20 million in 2010. This was in line with the increase in transaction volume. There were 202 small retail units sold in 2012, up 132 per cent from the 87 units in 2011.

Demand for small retail units seemed to be supply-led as 89.4 per cent of the transactional activities for small retail units occurred in H1 2012, which coincided with the launch of developments such as The Promenade@Pelikat, Centropod@Changi, Millage@Changi, and Oxley Towers.

This trend seemed to have continued into January 2013, with 114 out of 115 units at Alexandra Central sold within its first week of launch. Approximately 20 per cent of the retail units within the mixed development are small strata shops. Buyers comprised potential end-users, speculators, as well as investors seeking to park their money in the commercial property segment, which has not yet been affected by the latest cooling measures that took effect on Jan 12 this year. Developers continued to exhibit strong appetite and confidence in mixed-development projects particularly those with a retail component, judging from recent robust land bids at a state tender for a plot in Yishun Ring Road.

Residential

Of all the property sectors, the residential sector saw the highest volume of transactions as well as total sales quantum last year. But the numbers also reveal that the market for small residential units stabilised somewhat last year.

The 2,740 transactions of small apartments and condos in 2012 reflect a 7.9 per cent increase from the 2,540 deals in 2011 - a smaller rise compared with the 25.1 per cent y-o-y improvement in sales volume in 2011.

On the same note, the total dollar transaction quantum totalled $1.69 billion in 2012, reflecting a y-o-y increase of just 1.6 per cent, compared with the 33.2 per cent y-o-y jump in 2011. Undoubtedly, the various rounds of government interventions had a stabilising effect on the residential market last year.

The series of cooling measures that impacted small residential units in 2012 included the imposition of ABSD in December 2011 and the introduction of a tighter loan- to-value (LTV) ratio as well as a cap on the tenure of housing mortgages in October last year. These were widely noted to be a pre-emptive response to an environment of increasing liquidity in view of QE3. Bearing in mind that 60 per cent of the buyers of small residential units in 2012 had HDB addresses, these policies were also put in place to ensure prudent lending and that buyers do not overcommit.

Planning policies were also implemented to limit the maximum number of shoebox units in non-landed private residential developments Outside the Central Area and in specific areas like Kovan, Joo Chiat and Eunos to maintain the quality of the residential neighbourhood and to avoid overburdening existing infrastructure. Policies aside, other factors - such as rising accommodation costs, the practical issues of living in a small home, a shrinking pool of tenants in view of a policy of tightening the foreign labour force, as well as an imminent increase in the completion of shoebox apartments - may also have led to greater caution in the purchase of shoebox apartments from both owner-occupiers and investors.

For instance, within the city, The Clift saw median prices of apartments less than 504 sq ft rise from $1,964 psf in 2010 to $2,302 psf in 2012. Over at the city fringe, the median price of small apartments at the Alexis was $1,130 psf when it was launched in 2009. As at December 2012, the median price of subsale units in the project had risen to $1,993 psf, reflecting an annual price appreciation of between 12 per cent and 17 per cent during 2010- 2012. In the suburbs, Eastwood Regency (in district 16) saw the resale of a 409-sq-ft unit at $1,565 psf in January 2013. The unit was first bought in March 2010 for $1,247 psf.

In absolute price terms, the highest transacted price for a shoebox apartment last year was $1.43 million for a 484-sq-ft studio apartment at Lincoln Suites in Novena while the lowest was $398,000 per unit for 20 units of 431-sq-ft each at Parc Rosewood in Woodlands. Given the attractive absolute price-point, it was not surprising that Parc Rosewood came out tops in terms of number of small units sold in 2012, with 263 small units transacted in the district 25 condo last year. The 689-unit project, which was launched in January last year, was fully sold by end- October.

The most popular district for transactions of small apartments last year was district 14, with 627 deals, followed by district 19, with 591 deals. This was followed by 333 units in district 12, 263 units in district 25, and 191 units in district 15. Within the city, in districts 1, 2 and 3, a total of 89 units changed hands; while the traditional prime districts 9, 10 and 11 saw 139 transactions in 2012.

The bulk, or 93 per cent, of the small apartments transacted in 2012 had sizes ranging from 398 sq ft to 495 sq ft. The smallest unit sold last year was a 258-sq-ft unit at Suites @ Guillemard which changed hands in the subsale market at $495,000 ($1,919 psf) in June 2012. It was previously transacted at $386,000 ($1,496 psf) in November 2009.

For an idea of the liveable space within such a small apartment, one could compare that against a hotel room at the Fairmont Singapore which is about 415 sq ft. No doubt, there is less surface area to clean. Claustrophobia aside, the resident would likely have to grapple with other functional issues such as storage space and finding furniture that fits.

According to the Urban Redevelopment Authority (URA), the stock of completed shoebox apartments will increase more than four-fold from about 2,400 units as at the end of 2011 to about 11,000 units by the end of 2015. La Fiesta and Q Bay, launched in January 2013, were well-received projects with some small units. Other residential projects with one- to two-bedders that could potentially be rolled out in Q1 include Urban Vista next to Tanah Merah MRT station, Trillinq at Clementi, and the freehold Spottiswoode Suites in district 2.

The residential sector has gone through seven rounds of cooling measures in the past three years. While there could be a period when buyers and investors take cognisance of the latest January 2013 measures, given the prevailing low interest rate environment, it will not be long before buyers return to the residential market for good investment opportunities and their housing needs.

Industrial

The industrial sector is second to the residential segment in terms of small unit sales volume and quantum. The buying euphoria for small strata industrial units began three years ago with a 271 per cent y-o-y spike in caveats lodged in 2010. Buying interest was sustained with another 4 per cent increase in 2011.

Following the imposition of ABSD on residential properties effective Dec 8, 2011, there was heightened interest as investors in the residential sector diverted their attention to industrial properties. This led to an 81 per cent y-o-y jump in caveats lodged in 2012, taking the total sales quantum for small strata industrial units past the $1 billion mark to $1.2 billion.

For investors, the appeal of these industrial units lies in their lower absolute quantum and relatively higher yields of 5 to 7 per cent compared with residential yields of 2 to 4 per cent. For the industrialists, the attraction is the wide choice of products that caters to their needs.

These range from ramp-up industrial properties to high-tech space in clean, office-like settings to industrial developments that offer lifestyle features such as gyms and swimming pools. Against a backdrop of rising industrial rents, in excess of 20 per cent per annum in 2010 and 2011, some industrialists also felt that it was a sound business decision to buy their own premises rather than be subjected to further rental hikes.

But there was another demand factor in this equation. While new sales rose 4.4 per cent and 80.8 per cent in 2011 and 2012 respectively, subsale numbers saw even more spectacular increases of 208.3 per cent and 113.5 per cent respectively in these two years. The rampant speculative activity in this sector was finally brought to the attention of the government, which had traditionally maintained its pulse on it and was quick to react in the residential sector.

A seller's stamp duty (SSD) on industrial properties to discourage short-term speculative activity was introduced last month. This would be imposed at a tiered rate on industrial properties and land bought on or after Jan 12, 2013, but held for less than three years.

It is still early days and we would need to monitor further for any conclusive trend arising from the latest measure. Thus far, URA's Realis data showed that there were 14 small unit transactions in January. Of these, one was a subsale and two were resale cases, done post- Jan 12. The subsale unit at Harvest in the Woodlands area was previously bought in February 2011 for $273,888 and sold on Jan 15, 2013 for $428,000.

The latest Q4 URA stats revealed that the All-Industrial price index rose 25.8 per cent in 2012, similar to the more than 20 per cent y-o-y increases seen since 2010. However, there was a surprising 0.7 per cent dip in the price index in the final quarter of 2012. Should prices continue to soften, this could spell good news for many industrialists who remain worried over rising business costs amid a slower economic growth environment.

The writer is associate director (research) at HSR Property Consultants.