Developers May Need To Rethink Pricing Amidst New Shoebox Rule

New URA rules have slashed the maximum number of units that can be built outside the central areas.

The Singapore government’s new policy on apartment sizes may come as good news to home buyers, but not to home builders who may now need a pricing rethink which could dent their profitability, reported Bloomberg.

This comes as the new guidelines on unit sizes effectively slashed the maximum number of apartment units in a project by 18 percent as the government raised the average unit size to 85 sq m from the existing 70 sq m.

To come into effect by early-2019, the changes will only apply to residential developments outside the central areas, said the Urban Redevelopment Authority.

The new rule follows recent property cooling measures introduced by the government in July, which sees developers shelling out almost 9.0 percent more for land acquisitions.

“The July curbs put the handbrake on en bloc transactions,” said ZACD Group research head Nicholas Mak.

Coupled with the fact that they now have to build bigger apartments, developers may be forced to reduce selling prices to move units, noted Mak.

United First Partners head of Asian research Justin Tang said Singapore developers will ultimately end up building fewer, bigger units.

“This could make a calibration of price on a per square foot basis necessary, which will eat into margins.”

Meanwhile, projects launched this year will not be affected by the new guidelines on unit size as they have already been approved by the government. Nonetheless, home buyers looking to acquire condominiums in 2019 may want to look out for good deals, said Mak.

Analysts at UBS Group AG expect home prices to drop by up to 2.0 percent by 2019 and another similar drop by 2020.