URA New Ruling For Bigger Shoebox Units But Resulted In Smaller Developers' Margins
 
14
shares

URA New Ruling For Bigger Shoebox Units But Resulted In Smaller Developers' Margins

14
shares

For Property Investing, the Seedly team worked closely with EdgeProp, who is an expert in the field, to curate unbiased, non-sponsored content to add value back to our readers.

Disclaimer: This is not a sponsored post. Opinions expressed in the article should not be taken as investment advice. Please do your own due diligence.

If you have any questions, feel free to discuss them with Seedly Community here.


Future homeowners can look forward to more liveable space, but developers’ margins could be squeezed as bigger square footage means lower psf price.

Having lived in a 377 sq ft shoebox apartment on Upper East Coast Road for 24 months, Ms Simon knows what it feels like to live in a cramped space. “I had to rent a self-storage space for my spare shoes and clothes, as there wasn’t enough wardrobe space,” she says. “I felt claustrophobic in the bedroom because I had to walk sideways to get my clothes from the wardrobe.”

Simon is relieved that she was just a tenant, and is now looking forward to moving into the newly renovated 980 sq ft, four-room HDB flat in Toa Payoh that she owns.

Having experienced living in a shoebox apartment for two years, Simon says the recent URA ruling on average unit size is timely. “It’s a good thing, as that space isn’t liveable,” she notes.

From Jan 17, 2019, the average size of new private apartments outside the Central Area has to be 85 sq m, up from 70 sq m before. (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)

Upsizing units

The upsizing of units was announced on Oct 17 by URA through three circulars on building guidelines for non-landed residential developments. From Jan 17, 2019, the average size of new private apartments outside the Central Area has to be 85 sq m, up from 70 sq m before.

Nine areas in Singapore — up from four currently — will be subject to a more stringent requirement of an average unit size of 100 sq m. These nine areas are Marine Parade, Joo Chiat-Mountbatten, Telok Kurau-Jalan Eunos, Balestier, Stevens Road-Chancery, Pasir Panjang, Kovan-How Sun area, Shelford and Loyang.

With effect from Jan 17, 2019, the bonus gross floor area (GFA) cap for outdoor spaces — such as balconies, private enclosed spaces and private roof terraces —in private non-landed projects will be reduced from 10% to 7%. The total balcony area for each unit will be capped at 15% of the net internal area.

A new scheme that will take effect immediately will offer a bonus of up to 1% GFA to encourage developers to provide residents with more indoor recreational spaces such as gyms or function rooms.

Chart 1:

Credit: Colliers International Research

Safeguarding liveability

“This latest URA circular addresses the problem of rising psf prices and shrinking apartment sizes,” says Nicholas Mak, executive director of ZACD Group.

“On the whole, it will benefit consumers, as it means developers will have to build more family-friendly units outside the Central Area. With up to 50,000 residential units in the pipeline, the authorities do not want too many shoebox apartments because it could lead to problems down the road.”

The likely effect of increasing the floor area of units will mean the average psf selling price of residential projects will be lowered as developers try to maintain affordability in terms of the absolute price of the unit, says Ong Teck Hui, JLL national director of research and consultancy. He expects lower psf selling prices to contribute to a moderation in overall prices.

The increase in floor area of units will mean more comfortable and livable homes. Fewer units per project will translate into lower density in housing estates, and thus, an improvement in the living environment, notes Ong.

The increase in floor area of units will mean apartments will mean apartments will not be as densely built as they are now, for instance in the Telok Kurau area (Photo Credit: EdgeProp Singapore)

In the near term, the revised guidelines should not affect developers that have bought land and obtained both the pre-application traffic feasibility study (PAFS) from the Land Transport Authority and planning approvals from URA, says Tricia Song, Colliers International director and head of research for Singapore. “Thus, the supply that is scheduled through 2023 — assuming five years of construction — should be unaffected by the new circulars.”

From 2023, there is likely to be a readjustment of unit sizes in line with changing economics and demographics, adds Song.

“Together, a greater choice of unit sizes, an optimal balcony size, more indoor recreational spaces and less traffic congestion within an estate should lead to a more sustainable property market,” she points out.

A 20% reduction in the number of units, says Deutsche Bank

The revised average unit sizes translate into a 20% reduction in the number of units, and together with the restrictions on the spread of units and usage of balconies, is likely to discourage developers from participating in government land sale or collective sale tenders, says Deutsche Bank Research in an Oct 18 report. “While we could see a decline in land prices in the near term, a lack of supply in the future might be an unintended consequence, in our view.”

Given that the revised development guidelines will only be implemented three months from now, developers with existing land parcels are likely to bring forward their planning process. Developers that have purchased land through en bloc deals this year could face some challenges in obtaining planning permits, adds Deutsche Bank.

However, Singapore-listed property giant City Developments Ltd says the revised URA guidelines “do not impact our four recently acquired sites — Amber Park, West Coast Vale, Handy Road and Sumang Walk Executive Condominium site — as Planning Permissions (PPs) have been obtained for them”. CDL adds that its joint-venture project with Capita- Land at Sengkang Central, which was awarded in mid-August 2018, is at “an advanced planning stage” and will be on track to obtain PP by Jan 17 next year.

One of the nine areas where apartments and condominiums have to be an average of 100 sq m is Balestier area (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)

A decline in land prices by 20% to 40%, says DBS

The combination of this latest URA ruling with the additional buyer’s stamp duty (ABSD) charges that developers have to pay will push them to be more cautious in future land tenders and to recalibrate their bids, says DBS Group Research in an Oct 18 report.

“This will potentially bring about the cooling in land prices for upcoming government land sales or future en blocs,” says the DBS report. “This is the final nail in the coffin for the en bloc market.”

Based on the assumption that developers aim to keep absolute prices at an average of $1.5 million per unit with a 10% profit margin, the revised guidelines could see a drop of 20% to 40% in land prices with the revised 85 sq m/100 sq m rule, cautions DBS.

The latest URA ruling to cool land bid prices for future en bloc and government land sales (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)

Holding back

The immediate impact could be that demand will contract. “Homebuyers are likely to hold back purchases to 2019 if they can, as most are likely to adopt a wait-and-see attitude in order to ascertain the impact on developers’ bids for upcoming land sites posts new measures,” says DBS. “Annual transaction volumes are likely to fall back to 7,500 to 8,500 units, which we estimate to be supported by home formation.”

This was evident on the weekend of Oct 20 and 21, which saw the previews of CDL’s Whistler Grand on West Coast Vale, Oxley Holdings’ Kent Ridge Hill Residences on South Buona Vista Road and III Cuscaden on Cuscaden Walk by a consortium led by Sustained Land.

However, ZACD’s Mak says the subdued turnout is more likely the result of the property cooling measures in July than the recent URA circular on the resizing of units.

With seven projects launched in September showing mixed take-up rates in the 10% to 38% range, Credit Suisse analysts expect developers to push ahead with launch plans over the next two months. Projects to note include the 1,399-unit Parc Esta and the 2,225-unit Treasure at Tampines.

Crowd at Kent Ridge Hill Residences – on the first preview weekend (Photo Credit: Timothy Tay)

Still a market for compact apartments in Central area

According to Song, the average unit size in many new developments was already bigger than the old requirement of 70 sq m, in view of the PAFS requirements and market trends. “In fact, the new guidelines serve to provide greater certainty to the boundaries of areas subject to the circulars and benchmark sizes.”

The restrictions to average unit size of 85 and 100 sq m do not apply to the Central Area, which URA defines as 11 planning areas such as Outram, Newton, River Valley, Singapore River, Marina South and Marina East, Rochor, Orchard and Downtown Core. “As we move closer to the city, we don’t mind living in an apartment the size of a hotel room for the convenience of being close to the MRT station, Orchard Road or the CBD,” says Dominic Lee, PropNex head of the luxury team. “Most people who want to live in the city centre do not want to drive.”

Thus, in the prime districts of Orchard Road and the financial district, there is still a market for compact one- and two-bedroom apartments, says Lee.

In the Central Area, there’s still a market for compact one- and two-bedroom apartments given the convenience of city living and proximity to the financial district or Orchard Road (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)

However, those who opt to move further out into the suburbs do so because they want more space, he adds. “That’s why we need more family-friendly units in the suburban areas.”

Moderation in home prices

In the suburbs, beyond the property cooling measures, what is affecting demand is weak HDB resale prices. This has dampened demand from HDB upgraders. In the first nine months of 2018, the HDB resale price index contracted 0.8%, says Mak.

“Although the government has announced programmes such as the Home Improvement Programme 2 (HIP2) and Voluntary Early Redevelopment Scheme, the details of VERS are still unavailable and it will not be implemented for another 20 years,” adds Mak. “As a result, the uncertainty about the values of ageing HDB flats continues to linger.” He therefore expects the HDB resale price index for 2018 to see a 1% to 2% y-o-y drop.

As for the private property sector, Colliers’ Song is maintaining her forecast of an 8% y-o-y increase for prices in 2018. She, however, expects private home prices to flatten in 4Q2018 and price growth to moderate to 3% in 2019.

Credit: Colliers International, Singapore Research, URA

Seedly Contributor: EdgeProp

EdgeProp is a Singapore-based property portal that aims to help users make better property decisions by providing all the latest property news and views, listings, data and analyses.

Read other articles by EdgeProp:

Follow our Seedly communities, be active, and win a 3D2N All-Expense-Paid Trip to Bali for 2!

About Guest Contributor
You can contribute your thoughts like Guest Contributor here.

Still have more questions after reading the article? Fret not, ask our community here!

Stay updated with the latest finance tips!
Receive bite-sized finance on Telegram here.

What's Popular

    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles
Comments
14
shares

What's Popular

    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles
    • Loading articles

Still have more questions after reading the article? Fret not, ask our community here!