SALES of 'shoebox' units went through the roof last year and are expected to stay robust this year, but some observers wonder if their prices are giving buyers a distorted view of the market.
Shoebox flats tend to have low overall values - often under $1 million - but high per square foot (psf) prices and those are what the market uses for valuing an area.
Some experts think that those psf prices could give sellers unrealistic expectations for their more regular-sized homes.
Such concerns were easily dismissed when the shoebox market was small but it is becoming a larger factor, as new figures show.
Sales of these flats - they are under 500 sq ft - have been steadily increasing since they hit the market in 2006 but the surge in the past year has been striking.
There were 1,436 caveats lodged for new shoebox units by mid-December last year compared with 725 in 2009 and only 274 in 2008, said property consultancy CB Richard Ellis (CBRE) yesterday.
They also comprise an increasing slice of the new non-landed private home market with caveats lodged - from 6 per cent in 2009 to 13 per cent last year.
That underlines the concern about the psychological effect on both buyers and sellers. Prices for shoebox units can be as much as 20 per cent more per sq ft than regular-sized homes in the same project.
This psf level could give buyers and sellers the wrong perception about benchmark prices.
Take The Scala near Lorong Chuan MRT station. It launched with average prices of $1,150 psf in July last year, but a shoebox flat of 474 sq ft went for $1,522 psf - or about $720,000 - in August.
The difference in price was about 32 per cent - and set a new benchmark in terms of price per square foot for the area.
Similarly, a 484 sq ft unit at the 99-year leasehold Optima@Tanah Merah sold for $1,280 psf, or $620,000, in September last year, also setting new benchmarks.
The price on a psf basis was 38 per cent more than the $930 psf average for three other flats sold in the same month.
Units at Optima went for an average of $810 psf when launched in August 2009.
A seller could come to the conclusion that if a flat at a project in the East Coast can fetch $1,600 psf, then his Newton condo, for example, should go for $2,500 psf.
The East Coat unit may be 400 sq ft while the Newton flat is 2,000 sq ft, yet the prices could contribute to an unbalanced picture of values in an area.
The Urban Redevelopment Authority (URA) index is based on the psf price and some experts suggest that increased 'shoebox' sales are behind the index's 17.6 per cent gain last year.
The median psf price for shoebox units with caveats lodged till Dec 21 rose 11 per cent last year, from $1,190 in 2009 to $1,321 psf, CBRE data showed.
However, a URA spokesman told The Straits Times that sales of small-sized units accounted for only a small proportion of sales over the last few quarters.
'The property price index is designed to provide the general public and industry players a broad indication of price trends in the private residential market,' the spokesman added.
While 'shoebox' sales made up 13 per cent of the new home sales market with caveats lodged, when resales and subsales were included, they comprised just 6 per cent or so, CBRE said.
The URA is monitoring the trends and volumes of such units and will consider making adjustments in its calculation of the index, if necessary.
Price perceptions or otherwise, experts say demand for such units will continue.
Cushman & Wakefield Singapore vice-chairman Donald Han said that the strong leasing market - rents were up 11 per cent in the first nine months of last year - will further support the small-flat market as many are for investment.
'One of the projects in Kembangan we marketed last year, which had a majority of shoebox units, was almost sold out in just two weekends... Most of the buyers also had HDB addresses,' added Mr Han.
The absolute value of such units is easier on the pocket, often with prices below the psychological $1 million mark.
Mr Chris Koh, director at Dennis Wee Group, is 'quite confident' that there will be more such units sold this year as developers are acutely aware that Singaporeans on a budget are keen on such homes.
But Orange Tee's head of research and consultancy, Mr Tan Kok Keong, believes home buyers will realise that the huge supply of larger, more livable homes expected onstream in the next few years will compete with shoebox homes and put their rents under pressure.
Soho 188 and Robertson Edge were among the first projects to offer flats of about 400 sq ft, in 2006. Sizes have been shrinking since, with Suites @ Guillemard selling units as small as 258 sq ft in 2009.