The recent speech by Prime Minister Lee Hsien Loong during the National Day Rally, has generated plenty of murmuring in the property market, as expected. After all, such a major change in policy is more than a mere pebble in the Singapore property pond. The potential effects would be more akin to a splash than just ripples on the surface. He indicated that the government is considering allowing Singaporean singles to purchase flats directly from the Housing and Development Board (HDB).

One of these effects speculated upon involves shoebox apartments. Some have predicted that the value of units smaller than 500 square feet, also known as shoebox apartments, will drop should this policy change be adopted. The reasoning is that for singles who currently fancy shoebox apartments, the only alternative is the unappealing resale HDB flat market, and only for those over 35 years of age. With cash-over-valuation (COV) figures skyrocketing in the past year, such an alternative would certainly be unappealing for many singles. However, should they be given the opportunity purchase directly from HDB, and even perhaps before the age of 35, the price difference would be quite significant. Significant enough that most singles will opt for HDB flats in lieu of shoebox apartments.

We don’t quite agree with this assessment, however. While we agree that having a better and cheaper alternative will draw away many Singaporean singles from the shoebox market, we think that the bulk of this niche market will still be there. Many expatriate and non-Singaporean singles will still find that shoebox apartments are ideal for them. Also, the investor element will still be trying to cash in on the supposedly lucrative rental opportunities.

In fact, if prices start falling due to the outflux of Singaporean singles toward HDB flats, it is exactly these investors who will flood in to fill the vaccum, create demand and prop up the price. As long as there is a supply of unsavvy and inexperienced liquidity looking to invest in real estate, the prices of such shoebox units cannot fall far, if at all.

It is only when such investors start realising the fallacies of shoebox investment that prices will truly start falling to reasonable levels. And that should have nothing to do with a speech from the Prime Minister.

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