Home prices go up, but sizes go down

Straits Times: Sat, Feb 11

THE prices keep going up but the median size of private homes has been rapidly shrinking as home buyers try to stretch their dollar further. Developers are driving the trend as they downsize homes to keep them affordable even though the prices per sq ft (psf) have been increasing. The shrinkage has been marked with the median size of all new homes sold last year falling to 904 sq ft - 26 per cent less than the median 1,216 sq ft just two years ago, according to an analysis by consultancy CBRE of caveats lodged. Experts add that a typical three-bedroom unit has been whittled down from about 1,100 sq ft to 1,300 sq ft five years ago to about 1,000 sq ft. Shoebox apartments of 500 sq ft and less are also likely to have brought the median home size down as they have been gaining in popularity in recent years. They usually go for under $1 million and attract mostly investors. Sales of such units have shot up from 300 in 2008 to 1,900 in 2010, or from 6 per cent to 12 per cent of developers' sales over the same period. Mr Colin Tan, research head at Chesterton Suntec International, said it is 'alarming' to note that half of all new homes sold last year were 904 sq ft or smaller. 'Unless all of these units are popular due to lifestyle changes...the data reflects how much damage has been inflicted on our physical real estate by high property prices,' he added. 'I expect average sizes of sold units to continue getting progressively smaller as long as market price levels remain high.' Big units are also likely to command a premium in the longer term as there will be fewer of them, Mr Tan noted. Mr Ong Teck Hui, head of research and consultancy at Credo Real Estate, said there has been a definite trend towards smaller units, especially in recent years. In 2005, units up to 1,076 sq ft comprised 35 per cent of new private home sales, but last year that figure jumped to 65 per cent. Affordability is a major factor in the shrinking of floor areas, he said, with home prices surging 74 per cent from 2005 to last year. 'Back in 2005, one could buy a new 1,100 sq ft to 1,200 sq ft three-bedroom suburban condo for $500 psf to $600 psf. Today's rate for a comparable unit would generally be upwards of $900 psf, making bigger floor areas less affordable than before,' Mr Ong noted. Mr Tan Kok Keong, OrangeTee's head of research and consultancy, said lifestyle changes, like more singles choosing to live on their own, could have led to smaller homes. 'But the trend of shrinking homes might be reversed if property prices fall, allowing developers to build larger homes instead while keeping overall prices steady,' he added. He noted that the median of 904 sq ft is just slightly smaller than a four-bedroom Housing Board (HDB) flat, which is usually 90 sq m to 95 sq m - or between 969 sq ft and 1,023 sq ft. Private home sizes cannot keep getting smaller as there is a limit to how much home buyers, such as HDB upgraders, might be willing to trade size for private condo amenities, he said. Home values have been generally rising on the back of the property market's recovery from the global financial crisis in 2009. Median prices reached $1,194 psf in 2010 before dipping slightly to $1,125 psf last year, possibly due to an increased number of suburban homes sold compared with those sold in 2010. But while the number of new homes sales in 2010 and last year exceeded the number in the previous record year of 2007, they were well below the total transaction value of $24.5 billion in 2007. Experts say this is because 2007 was a year when the high-end and luxury market peaked and thousands of expensive homes in districts 9, 10 and 11 were snapped up. On the other hand, it was the mass-market segment, with typically lower quantums, that powered the property market in the past two years. IMPACT OF HIGH PRICES 'Unless all of these units are popular due to lifestyle changes... the data reflects how much damage has been inflicted on our physical real estate by high property prices.' Mr Colin Tan, research head at Chesterton Suntec International, who finds it 'alarming' that half of all new homes sold last year were 904 sq ft or smaller Source: The Straits Times