The price of shoebox units are on the rise but concerns over affordability in this segment could see prices softening.
The Singapore Residential Price Index (SRPI) by the National University of Singapore (NUS), which tracks the price movement of new small apartments, rose 3.1% in August (month-on-month), after falling 0.5% in July.
The increase is more significant when compared to the overall SRPI which remained flat in August and July.
Small units are defined as being no bigger than 506sqft. The SRPI Small for small units was created in July. At the time, NUS' Institute of Real Estate Studies said that "this is important market information which will help us understand the price behaviour of different segments of the market."
The popularity of shoebox units is a relatively new trend that appears to be correlated with housing affordability.
Jones Lang LaSalle's head of research and consultancy Chua Yang Liang said that the increase in the SRPI Small was underpinned by the housing needs of young and small families. "Affordability is an issue," said Dr Chua.
Investors are also price sensitive, it seems. "You also can't discount the fact that some are buying for investment," Dr Chua added.
Because this segment of the market is tied to the quantum price of the property, prices are not likely to keep rising, because the units cannot feasibly get any smaller.
"There will be a point when prices cannot get higher," Dr Chua added.
Looking at the segmental index, the SRPI Central (central region), excluding small units, fell 0.7% while the SRPI Non-Central, excluding small units, rose 0.5%.
Giving insight on the overall property market, Nicholas Mak, head of SLP International Research, said: "The price range is reaching a plateau with no increase. The growth from sub-sectors like non-central and smaller units implied a stronger demand while the central district, suffering from three months of contraction, showed the opposite."
Mr Mak also added that due to the current economic slump, the market becomes very "uncertain" and there is a need for investors to be "selective".
Source: Channel News Asia