Shoe Box Units: An Option For Our Urban Youth?

Shoe Box Units: An Option For Our Urban Youth?

Many Malaysian youths lament that the stringent requirements for a home loan have broken their home ownership dreams. The banks’ firm hand is not without reason – Malaysia’s ratio of household debt to gross domestic product at 89.1% in 2015 is worrying. Thus, banks should not be blamed for being cautious – credit availability should only be provided to those who will not find difficulty in servicing their debt, or the rakyat will struggle even more financially down the road.

According to a report by Khazanah Research Institute, prices of homes should be three times the annual household median income. Considering a young working professional who earns RM7,000, this means that the price tag should be RM252,000 (RM7,000x12monthsx3). With escalating land costs, it is not shocking news that most homes in urban areas, especially within Klang Valley are well above RM300,000.

Evolving Market and Needs

Khazanah’s report also revealed that even middle-income earners, i.e. those earning between RM8,000 to RM12,000 are applying for government scheme homes. With first-time homebuyers struggling to purchase homes that are within their income bracket, there is the call to focus on supply first and then look into finance.

Some developers have taken up the baton to cater to the home ownership aspirations for this group of people; namely young professionals and childless couples – by building smaller units or shoebox apartments which can be 530 sq ft and below. It is basic economics; when cost/price is the main concern, one way to keep properties affordable is to cut back on space – hence, the emergence of smaller units.

As smaller sizes reduce quantums, the shoebox route could provide Gen Ys with lower barriers to entry, besides increasing their chances of qualifying for a home loan. Building smaller units is also a way to leverage on the stamp duty exemption for first-time homebuyers who purchase homes costing below RM300,000.

 

Warrick Singh, Director at Asian Land Realty Sdn Bhd notes that shrinking homes are the new norm in the city – developers have even gone a step further by incorporating the entire slew of residential (Soho/SoVo), commercial, retail and condotels under one roof. Such developments are usually along the MRT/LRT lines and close to commercial activity, which means minimal travelling fuss.

One such example is a mixed development project in Jalan Ampang – which will see one phase offering SoHos in the 430-650 sq ft range with tentative prices starting from RM299,000. The developer is banking on the project’s strategic location; with KLCC located 5 minutes away and an LRT station 900 metres down the road, Gen Y purchasers will see their ‘connectivity’ and ‘conveniences’ boxes checked.

Small is the New Normal

It cannot be ignored that shoe box units give reason to worry over the sustainability issue – what happens when Gen Ys decide to start a family? Three’s a crowd for a 500 sq ft space; raising a child will prove difficult.

However, Warrick notes that the current generation has skewed away from the typical progression of landing a job, buying a car and finally owning your own home. Their concerns now gravitate more towards convenience and a sense of connection, hence the white picket fence mentality has taken a backseat. Some Gen Ys are willing to forgo the fulfilment of owning their own landed property to enjoy being in the vicinity of friends and colleagues, having the conveniences of the city at large and avoiding the long frustrating hours of commute to work.

In many land-locked cities including Singapore and Hong Kong, pint-sized units are now the new normal. Escalating land prices, as well as costs of living, have forced millennials in major cities to compromise space and familial pursuits for the sake of location and convenience. We might balk at the idea of purchasing a RM7 million townhouse measuring 527 sq ft or forking out RM1.72 million for a 152 sq ft apartment. But these are actual scenarios in London and Hong Kong, respectively.

Although prices of properties in Klang Valley have not spiralled to similar points, there is no denying that our income growth has failed to catch up with property prices.

Bank Negara Malaysia’s 2015 Annual Report highlighted that between 2009 and 2014, average house prices in Malaysia rose by 7.9% in Compound Annual Growth Rate (CAGR) terms; exceeding the growth in average household income of 7.3% over the same period. This contrasts sharply with the period of 2004-2007 when incomes were rising more than the growth of house prices, the latter at 3.2% compared with the former’s 2.5%.

Warrick believes that Malaysian millennials living in urban areas will have to adjust accordingly to the current conditions. Gen Y couples tend to have smaller families anyway and shoe box units will be the trend moving forward in urban areas, regardless whether they plan to have children or not.

With many urban millennials having very few alternatives to park their money in, they must try to make the best of the situation and pick shoebox units with well-conceived designs and situated near MRT/LRT stations. Purchasers should carry out their due diligence and select practical layouts that maximise the limited space, have expansive high ceilings and quality finishing.

Is it Sustainable?

Gregory Low, Head of Business Development, CORE Home Management Sdn Bhd believes that shoe box units will be the new darling for developers in urban areas, especially in central business districts throughout Klang Valley.

Nevertheless, he brings up a point – will smaller units help rejuvenate the property market or is it merely a short-term solution that will create further problems down the road?

As with the case of Singapore; which saw a proliferation in supply when the shoe box craze hit the island republic in 2009-2010. Supply hit a record high in 2010 at 1,999 units and 1,867 in 2011. The oversupply was mainly due to the initial popularity among investors, who saw the rental potential in shoe box units, thus creating a domino effect for developers to build more units. Also, certain developers prefer to build shoe box units as they can fetch higher prices on a square-foot basis compared with larger units.

Scarily enough, data from Singapore’s Urban Redevelopment Authority (URA) showed that even though the number of sales was declining in the period of Q12012 – Q32013, the median price per sq ft for shoe box units continue to climb from $1,200 to $1,600 per sq ft!

Walk the Talk

This is a classic example of prices being pushed up artificially due to lack of control over purchasers, who ultimately cause an influx in supply. A considerable amount of these ‘hotcakes’ real estate is being bought by investors that do not live in their invested properties.

According to a Singaporean real estate consultant, excessive ‘small-format’ flats can be detrimental to a neighbourhood – in an oversupply situation, their high per-square-foot prices will skew the picture. Even worse, as prices go up, most of the renters who could then afford these units are expatriates and not our local youth.

Conclusion

As a hard working Gen Y residing in the city, I welcome the idea of affordable shoe box units that are close to public transportation. Being a professional who is not looking to start a family anytime soon, I love the idea of saving as much as I can in terms of valuable time and commute cost besides the privacy it affords me as an individual in my own space.

I can safely say that I speak for many – developers should walk the talk. If they are claiming to build shoe box units to help the local urban millennials, controls must be put in place to ensure that only those who fit the criteria can purchase said units, instead of selling the bulk of them to investors looking to make a quick buck.

Another option is to offer these units for rent to local millennials; similar to the government’s initiative recently announced in Budget 2017 – where 10,000 houses to be built in urban areas will be for rented out at below market rate values to eligible youths with permanent jobs. The government, in turn, should offer financial incentives to developers who provide such an option for Malaysian youth. After all, this effort aligns with the government’s agenda to help house the nation.

I dread the day where we will end up in our Hong Kong or British counterparts’ shoes – paying millions of Ringgit for a pint-sized unit is unthinkable. Maybe, it is high time that the government and developers should look at working together to help house our urban youth. Only then can we mitigate or avoid further escalation of property prices down the road.

 

 

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