Of late, home buyers (and even some investors) have gone in a different direction from developers. While we’re seeing smaller, lower-quantum units in new launches (such as The M and Midtown Bay), buyers are actually showing a stronger preference toward bigger units. This applies to public housing as well. For example, between Q3 2020 to Q1 2021, the sale of 3-room or smaller flats jumped 18 per cent, whereas the sales of 4-room or larger flats rose 34 per cent.
In this article, I’ll look at the growth of this trend, and how it can affect your property purchasing decision.
Are bigger homes really in vogue again?
I checked on the trend by looking at all the sales of small condo units (one and two-bedders) over the past year, compared larger units (three-bedders and above). Here’s what’s happened so far:
If we look at the transaction volume of one and two-bedder units, we can see they are mostly flat. There were 839 transactions of these units for Q2 2021, and 835 transactions the same time last year.
Now however, take a look at transaction volumes for three-bedders or larger:
Q2 saw 972 transactions of three-bedders or larger, as compared to just 738 transactions the same time last year.
Next, let’s take a look at resale flats:
The transaction volume of 3-room flats has decreased over the past year; there were only 468 transactions in Q2 2021, versus 734 in the same time last year. This is a decrease of about 36 per cent.
4-room and 5-room flats have also seen a decrease in transaction volumes, but to a much lesser extent than 3-room counterparts:
Q2 saw 1,669 transactions of 4-room and 5-room flats; down from 1,815 transactions in the same time last year. This is a decrease of about 8.7 per cent.
I also took a look at landed homes, which are the largest residential properties:
The results were even more dramatic, with 296 transactions in Q2. This is up from a mere 109 transactions in the same time last year.
Overall, we can see a clear trend toward larger homes
Right now, marketing appeal – from new launch units – has been directed at small but low quantum units. Projects such as Irwell Residences, Uptown @ Farrer, The M, and so forth offer highly competitive prices given their prime locations; but this comes with a slight trade-off in living space.
However, this sort of marketing may be reading buyer demand wrongly. It seems Singaporeans are angling for more space; and this may explain resale flat prices reaching eight-year highs, even in 2020.
(Resale flats are often chosen by buyers who value space. They are, of course, larger than condo units of comparable price; and older resale flats tend to be bigger than current BTO flats).
What’s driving the purchase of larger homes?
To me, the key driver is the surge of buyers who are upgrading from HDB flats. This has become one of the largest buyer demographics, since around 2019.
About 50,000 flats will reach their Minimum Occupancy Period (MOP) between 2020 and 2021; and many of these flat owners have asset progression in mind. They will often seek to upgrade to a private property, or to a larger flat.
One of the main concerns of HDB upgraders is size. This buyer group consists mainly of family units, often around four or five persons at least. Now the average two-bedder condo unit is about 700 sq. ft.; and a 4-room flat is about 970 sq. ft. by comparison.
You can probably see that these HDB upgraders will have little or no interest in one and two-bedder units, which are too small for them. Coupled with being one of the biggest buyer groups, it helps to explain the recent trend toward bigger condo units.
Covid-19 has caused many lifestyle changes, one of which is the new Work From Home (WFH) culture.
If you have multiple family members on this arrangement, you may already understand how frustrating a small space is: everyone needs to have their private area for conference calls, or quiet places to do their work. This can be almost impossible in a two-bedder condo or 3-room flat, where household activities create noise and distraction.
As such, young executives – with both the need and the budget – are helping to drive up the sale of bigger units.
Another consideration is the worry of future lockdowns, Circuit Breakers, etc. For those who live in small homes, like shoebox apartments, such events could have been quite scarring –more than a month inside a 500 sq. ft. unit feels claustrophobic, no matter how clever the layout.
I do think the pandemic has greatly improved the appreciation for larger living space, even among young couples.
Larger units are, of course, more expensive. Couple this with the fact that home prices have been climbing across the board.
The average price of a new launch condo today is $1.68 million, as opposed to $1.4 million in 2014. The average price of a resale flat is now about $495,800, as opposed to about $438,400 five years ago. Landed home prices have climbed from about $4.3 million, to an average of $4.96 million island wide.
It’s understandable that buyers see these rising prices, and worry about whether they can still afford larger family homes later. As such, any are willing to stretch their budgets a little more, and purchase a three-bedder or larger unit, while it’s still within their means.
Many people have talked about restrictions on the number of shoebox units; but fewer discuss just how many are on the market. Did you know that back in 2012, shoebox units (500 sq. ft. or under) were so uncommon, there were only 2,500 in Singapore?
If you’ve been in the property market since then, you may remember some buyers criticizing these, saying no one would want units that small.
By Q1 2018, shoebox units had grown to number around 28,000 units, accounting for 8.7 per cent of the housing stock. I have yet to see the numbers for 2021, but rest assured the number is much higher. So while URA has stepped in to lower the number of these units, there are still a lot of them out on the market.
This is a serious concern for investors. If you buy a shoebox unit, your benefit is mainly high rental yield – but resale gains are much trickier, given the number of alternatives available.
As such, investors have become a bit more wary about purchasing small units (although the low quantum means they’re often the first to sell at launches, thus giving the impression of continued high demand).
These make up vital factors to consider, when buying your property
It’s not inherently a bad thing to get a small unit; sometimes affordability, or even investment strategies like seeking cashflow positive properties, make small units a viable buy. For home owners, small units are also great for retirees, the low cost allowing you a more generous retirement budget.
However, you do need to consider that smaller units are getting a bit tougher to sell. No amount of persuasion will convince a five-person family to try and squeeze into your 600 sq. ft. unit, however central the location; and again, these families are the main buyers for the foreseeable future.
For first-time home buyers, there’s also the issue of settling down. If you start by buying a shoebox unit, what happens if you decide to get married or start a family a few years later? You may incur a financial loss from having to sell and upgrade on short notice.
So I encourage you to look beyond the lower price tag, and consider your property purchase with long term issues in mind.
Do drop me a message if you’re uncertain, and I can help you work out a buying strategy; whether your goal is home ownership or property wealth progression. You can also follow me on RonChongProperty.sg, for more details and updates on the Singapore property market.