URA Guideline on Shoebox Units has Little Impact on Market

The Urban Redevelopment Authority (URA) on 4 September 2012 introduced a guideline on the maximum allowable number of dwelling units for non-landed residential developments outside the central area.

Maximum number of DUs per development	≤	MP Allowable GPR4 x Site Area
		______________________________
		70 sqm

With this guideline, URA hopes to moderate the number of shoebox units that are being built but still allows developers the flexibility to build small housing units to meet the diverse needs and lifestyles of the population.

While this will have an immediate impact on the number of shoebox units being built, the impact on the property market is limited.

Take a hypothetical example, a parcel of land with a gross floor area of 7,000 sq m or 75,347 sq ft. Before the revision, developers can choose to build all or majority shoebox units for the development. But developers are unlikely to do so as they run the risk of missing out on another segment of buyers. And should buying appetite for shoebox units turn negative, developers will be stuck with unsold inventory.

Say, the developer chooses to build 96 shoebox units and 20 3-bedroom/penthouse units (total 116 units of which shoebox units make up 82.8%). If the developer sells 100% of the development, the gross development proceeds would be around $96.6 million. The average selling price achieved is $1,424 psf.

After the revision, the maximum number of dwelling units the developer can build is capped at 100. By changing the configuration of units for sale, now the developer can choose not to build shoebox units. But the developer is still able to achieve gross development proceeds of $96.1 million, close to the $96.6 million had it offered only shoebox units and 3-bedroom/penthouse units. The average selling price is $1,417 psf, a negligible difference from the average selling price before the revision.

See table below.

Assume Gross Floor Area 7,000 sq m* Efficiency 90% Net Floor Area 6,300 sq m
Before Revision
Type of Unit	Shoebox Unit		3 Bedroom/Penthouse+		Total
Number of Units	96		20		116
Size (sq m)	49		80		54.3 (average)
Total Floor Area (sq m)	4,704		1,600		6,304
Estimated Selling Price (psf)	$1,500		$1,200		$1,424 (average)
Gross Development Proceeds	$75,950,078		$20,666,688		$96,616,766
After Revision
Type of Unit	1+1	2 Bedroom		Penthouse+	Total
Number of Units	62	30		8	100
Size (sq m)	53	76		92	63.0 (average)
Total Floor Area (sq m)	3,286	2,280		736	6,302
Estimated Selling Price (psf)	$1,500	$1,350		$1,250	$1,417 (average)
Gross Development Proceeds	$53,055,263	$33,131,284		$9,902,788	$96,089,335

* excludes 10% bonus GFA for balcony

+ excludes roof terrace

Conclusion

The example is hypothetical as it does not take into account the location, surrounding developments and concept of the development but it shows some possibilities a developer can consider. Thus the guideline has limited impact on the property market as developers can find innovative ways like selling more loft space, more private enclosed space or roof terrace to comply and yet maintain their profits. They could even have a concept/themed development to maintain or increase the selling price.

The cap on the number of dwelling units however will go a long way towards creating an environment conducive for couples to have children and allows the Government to manage the planning of infrastructure better. Now the number of dwelling units on a parcel of land can be known with 100% accuracy. This makes the planning for infrastructure more precise. It also sets in place the mechanism for the revision of the Master Plan in 2013.