How Much Does The Unit Mix Matter When Buying A One-Bedder Condo?

In the Singapore property market, there are many persistent beliefs about shoebox (one-bedder) units, which are tough to prove. However, one thing is for sure – the demand is certainly there given it still is the cheapest entry into the private residential market.

When it comes to buying a shoebox unit (1-bedder), the unit mix of the development is often overlooked. But does it matter if most of the condo consists of shoeboxes and smaller units, or is it better to buy in a development with a wider variety of unit types? Could a balanced mix, from 1-bedders to 5-bedders, offer better long-term value? Here’s what we found out:

Why is the unit mix a concern to some buyers?

In general, a condo with a lot of small units is seen as a negative from an investment standpoint. Reasons range from it just being a rental project, to tougher sales pulling down the average price. 

The former is based on the assumption that an “all-small unit” condo will consist of mainly tenants, who come and go regularly; and that the owners are investors who have no qualms about an en-bloc sale. 

The latter is based on the belief that small units are tougher to sell/have weaker gains, so an “all-small unit” mix pulls down the price average. On the rental side, it may also spark a lot of competition; again on the assumption that most residents will be renters.

As such, some buyers of one-bedroom units, be they first-time investors or single homeowners, do care about the overall unit mix. Even though they’re buying small units themselves, many prefer a condo development with a balanced mix of small and family-sized units. 

This led us to check whether one-bedder performance really is better with a balanced unit mix, compared to projects with just small units.

The condo projects we’ve selected

For the following, we’ve separated condo projects into ones with overwhelmingly small units (over 90 per cent are one and two-bedders), and condo units that count as having a balanced mix (one or two-bedders account for no more than 60 per cent of the unit mix). 

From here, we first looked at the profitability of the one-bedders (below 500 sq. ft.), from January 2013 to the present.

(We chose January 2013 as that was when the Sellers Stamp Duty (SSD) was implemented. All the transactions have an equal footing, as none of them occurred before the added tax on sellers)

As a general conclusion, it seems better to buy a one-bedder in a condo with a balanced unit mix.

There’s a substantial difference in performance: the one-bedders in almost purely “small unit” condos saw average returns of 6.6 per cent. However, the one-bedders in condos with a balanced unit mix saw returns of 14.9 per cent. 

This was over an almost similar holding period (5.7 years versus six years).

But could this also be related to the total unit count (e.g., boutique condos with very few units, versus mass-market condos with lots of units?)

To check this out, we want to set up a comparison between condo projects that are boutique (less than 150 total units), and the larger mass market projects:

There’s a discrepancy here. Most of the “all-small unit” projects are boutique condos (79 are boutique, versus 11 mass-market projects). So let’s look at performance specific to just the boutique projects:

Even confined to boutique projects, we see the same overall result. 

On average, one-bedders in a condo with a balanced unit mix will outperform. Regardless of whether it’s a boutique or mass-market condo, there does seem to be justification for avoiding “all-small unit” mixes.

Next, we checked if the results would be the same for new-to-resale transactions, versus resale-to-resale transactions

We saw a big difference in returns between those who bought new, and those who bought as resale. 

To some degree, this may reflect developer pricing methods: in a project with a balanced unit mix, developers tend to price the one and two-bedders to move first. If nothing else, the combination of a lower quantum, plus early bird discounts, makes for impressive-looking launch figures. 

As such, those who bought new one-bedders in balanced projects have seen the best overall returns. Also note that 2013 was the last property market peak, which may also contribute to the good performance. 

For projects that are all-small units, however, there seems to be less difference whether they’re new-to-resale, or resale-to-resale. So if you’re going for a shoebox or a two-bedder, a new launch may be the better option – regardless of how the unit mix looks.

What about the issue of timing?

Could market conditions have affected the overall results? 2013 was, after all, a peak year. To get a sense of this, we first need to look at the transaction volumes based on the year:

Unfortunately, transaction volumes for both types of projects (balanced unit mixes and all-small units) are very low in certain years. Including these transactions could skew averages and distort the results – so we’ve excluded these as outliers when taking a second look at the data. 

Now here’s what we can see:

The results are still consistent. We can conclude that, for one-bedder units, average performance is much better if:

• You purchase it as a new launch 
• You purchase it in a project with a balanced unit mix, rather than one that’s just packed with other small units 
• The project has a higher unit count, as you can see from the higher average return for projects with 150 units or more

It seems that conventional wisdom from realtors and veteran investors has panned out here: the market does seem more reluctant about landlord-oriented, all-small unit condos. It may also be a good reason to overlook the lack of immediate rental income when you pick a new launch one-bedder.