In Hong Kong, demand for shoebox units has risen over the past few years. An increasing number of expatriate executives from multinational companies and young professionals, such as lawyers, bankers and accountants, are seeking homes near their place of work, as well as major retail and entertainment areas. They place more importance on the quality and location of the building than the size of the flat, and shoebox units, alongside serviced apartments, meet this demand profile.

Shoebox units in Hong Kong are also called ‘boutique luxury residences’ as many of the shoebox projects are located in traditional luxury residential areas such as Mid-Levels Central and Mid-Levels West. These areas are popular for their short commutes to Central – Hong Kong’s CBD – a journey of less than 30 minutes, making use of numerous public transport options, or even on foot. After work, shoebox residents can enjoy the nightlife and shopping in and around Central, ensuring that the concept is popular with young professionals who tend to work long hours.

Besides location, shoebox units in Hong Kong are defined as flats sized between 250 sq ft and 350 sq ft of saleable area, priced at over HK$20,000 (US$2,579.6) per sq ft of saleable area. The units are designed and laid-out to a high standard, aimed at capturing young urban professionals who can afford the high rents in return for convenience and a work/life balance. Currently, shoebox units can only be found on Hong Kong Island.

Other than strong demand, government policy has also acted as a catalyst for the growth of shoebox units. The HKSAR Government is actively promoting urban redevelopment; a number of residential buildings aged over 50 years old and with unused plot ratio have been redeveloped into new flats. However, these old buildings are usually single-block developments and hence the site area, as well as the maximum floor area per unit for the new developments is limited. For developers who prefer build-to-sell over build-to-let, they often opt to develop these old sites into shoebox units instead of serviced apartments.

Hong Kong developers have launched a few shoebox projects in Mid-Levels Central, Mid-Levels West and Wanchai, and have received positive responses. Aside from end users who work nearby, investors are also interested in this kind of property because of the relatively desirable rental yields of 3%, compared with other luxury residential properties in the same areas, which generate yields of less than 3%.

In addition to higher yields, shoebox units also have the potential for value appreciation, as most of them are located in prime residential areas where new supply is limited. As a result, international funds are now developing shoeboxes in Hong Kong, such as private equity fund Phoenix Property Investors developing and selling Gramercy, 38 Caine Road, Mid-Levels West, where 296-sq ft units are selling for HK$24,993 (US$3,223.6) to HK$27,703 (US$3,573.1) per sq ft net.

Since Q1/2008, there have been a total of 192 shoebox unit sales transactions, only six of which were secondary transactions. This illustrates the relative inactivity of the shoebox secondary market, as most buyers are end users and long-term investors.

Looking ahead, the popularity of shoebox units is set to rise, given the amount of supply from redevelopment in the old urban districts and growing demand for this type of living. We see this as a win-win situation for end users and society as a whole as it feeds demand and creates an incentive for investors and developers to redevelop old urban districts in Hong Kong.

Case study (Hong Kong)

SOHO 38

Facts

• Twenty-six-storey luxury residential tower completed in August 2008 by Kerry Properties.

• Seventy-five small units, including shoebox units (Unit B), and a penthouse.

• Located close to the Soho area of Hong Kong and is a five- minute walk from Central, the city’s financial centre.

• Convenient access to transportation and shops.

• All apartments are fully fitted with the best appliances, promoting digital living technology.

• Comprehensive concierge services tailored for business people (eg. flight and restaurant booking, dine-in room service and maid services).

• Equipped with a clubhouse located on the podium.

Findings

• The shoebox studio is designed to target young, single urban professionals with modern designs and advanced appliances.

• On average, shoebox units (Unit B) have a higher price per sq ft than larger unit types.

• Shoebox units have more potential buyers as the lump-sum price of the unit is lower.

Taken from
Spotlight: Shoebox units - Is smaller smart or is bigger better?