Good riddance to Hong Kong-style housing in Singapore

Crammed, limited space, Hong Kong-style housing has often been masqueraded and marketed as ‘maximising use of space’, but with its latest policy moves, the Singapore Government has indicated that it is not in favour of too many of these shoe-box units being developed here.

I have been a strong advocate of setting a minimum size of condo units, in which any condo units built should not be smaller than the stipulated size. With a minimum size (i.e. no smaller than a certain size), the dignity of Singapore living will be ensured and the run away land price will be controlled.

No matter how creative you use the space, you cannot have a bed room that is convertible to a toilet that is convertible to a kitchen that is again convertible to a study, etc. Creative use of space is the devil in the disguise of maximising use of space.

Hong Kong-style housing
image credit: PXHere

Good riddance to Hong Kong-style housing in Singapore.

Shoebox units are are properties that don’t exceed 500 square feet. In theory, they’re good places for single expatriates to rent . In reality, I think they’re just a plot by psychiatrists to drum up business for claustrophobia treatment. Some of these units, such as The Ebony (Lorong Marican) and Royce Residences (Geylang), are in the range of 300 to 400 square feet.

Apart from being tiny, the other distinguishing trait of a shoebox is a stupidly high price per square foot. For example, City Suites at Balestier road has shoeboxes that range between $1,600 to $1,700 per square foot. 26 Newton has units that go for upward of $2,500 per square foot; at around 474 square feet, you can end up paying $1.2 million for a property that’s smaller than a 3-room flat.

Hong Kong-style housing is good for Singapore banks as ever smaller housing means rising land prices and that means safer asset values for the banks that lend out home loans and hence greater safety for the value of their secured lending for the Singapore’s banking industry.

Banks need to lend safely. The premise of lending safely is that the base stability of the asset quality or secured assets quality. Since there is a limit to how high prices can be for houses, developers that build ever smaller houses will ensure that the unit price (per square feet prices) will rise. With more and more smaller units being built and sold at ever higher prices, this serves to make the surrounding bigger units prices to hold up better. And with ever stronger land price (on a per square feet basis), bank’s are essentially printing money as any default of payments is immediately backed by very strong prices as banks will not lose money.

Bloomberg observed in a recent article that Singapore’s decision to move further away from Hong Kong-style housing is largely a plus for home buyers, but could be detrimental to developers who now have to grapple with a cap on the number of units allowed in any one project.

Although I’m very happy with a limit on smaller units, I feel that this is not enough, I want to see a minimum size for condos that are built, not a blended average minimum size. Too many smaller units will lead to huge over-supply and a degradation of Singapore’s liveability.

Singapore is fast becoming a speculative society where land and land related activities make up a bigger part of the economy, and Hong Kong-style housing will only further contribute to this trend.

This is unhealthy for Singapore’s long term survival. We need a more liveable and affordable Singapore so that younger Singaporeans do not have to worry about housing and can innovate and be creative so as to create industries of tomorrow. A more liveable Singapore with bigger spaces will also indirectly benefit birth rates, however little. This is one reason why I am one of the few proponents of a minimum size for condominium units – to avoid land price speculation.

Hong Kong-style housing only serves to make money for developers – as developers can sell the property once they obtain the permit for sale and money will start to come in. This allows too much leverage and hence if developers feel that the cycle is approaching a positive cycle, they will bid very high and pass on the cost to buyers and potentially make explosive profits.

I suggest that a more stable market can emerge if developers can only start selling units if they reach 30 per cent completion. This will then reduce the time-frame developers have for selling the units and hence will price it more for sale. With this, developers will bid responsibly and price attractively. But I doubt the Singapore government will want to do that, as this will reduce the land selling price.

By: Paul Ho / Chief Mortgage Consultant, iCompareLoan

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Written by Ravi Chandran

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