Kaeden Ong

Dual-key units: The opportunities

Posted by Kaeden Ong on 22nd May 2014 in Blog

As Singapore’s residential landscape evolves along with changing demographics and preferences in livable spaces, innovative layout designs have been created, such as ‘dual-key units’.

Knight Frank Singapore’s research department have produced an in-depth research report that discusses unlocking the potential of duel-key units. A dual-key unit refers to an apartment unit which comprises two sub-units, but sharing a common main entrance. In some configurations, both units may be self-sufficient with separate facilities, whereas in other dual-key unit layouts, it may require the sharing of some facilities such as the kitchen.

The original intention was to accommodate the needs of multi-generational households, allowing three generations to live together while offering privacy for all. Based on the Census of Population 2010 by the Singapore Department of Statistics, 12 percent of households living under the same roof comprise two or more family nuclei (i.e. two or more married couples) or three or more generations living in non-landed properties (public and private). These facts point to a sizable target market for such dual-key concepts.

The first form of dual-key housing units was introduced in 1986 by the Housing and Development Board (HDB) as part of the government’s intention to promote multi-generational families living under one roof. Such units then were typically four- or five-room concepts, but configured as a main flat plus a studio unit, with a wall and a connecting door separating them. Such dual-key HDB units were later phased out due to its low demand shortly after their introduction.

The pioneer dual-key units in a private development were first introduced in 2009 by local developer Frasers Centrepoint in their 712-unit condominium Caspian. The project included a small number of 15 dual-key units, possibly due to the private residential market being untested for such a concept at that time. Since then, more dual-key concepts have been introduced as developers of private condominiums and Executive Condominiums (ECs) increasingly incorporate such unit types. Some of the first few ECs launched with dual-key features include the Esparina Residences and Flamingo Valley. In recent years, it has been observed that an increasing number of projects have included dual-key units.

Out of the 74 private residential and EC ‘large-scale developments’ (i.e. those with 400 units and above) that were launched between 2011 and the first two months of 2014, there are 35 private residential and EC developments with dual-key units. There are 1,976 dual-key units in total of which 931 units are in private condominium projects, and 1,045 units in EC developments.

Rising presence of private non-landed developments with dual-key units

The number of new large-scale private development launches with dual-key units has increased from three developments in 2011 to eight in 2013, translating to 53 percent proportion of large-scale private residential developments. The number of EC projects with dual-key units remained constant at about four to five developments per year over the same period.

In addition, the proportion of dual-key units out of the total number of units in these large-scale private developments has also increased over the years. In 2011, developers dedicated an average 3.4 percent of the total units to dual-key formats. By 2013 the average proportion was 7.5 percent.

As a result the total number of dual-key units in the market has risen significantly over the three-year period. With a total of 330 newly-launched dual-key units in 2011, the number has risen by approximately 1.5 times to 840 units in 2013. This increase is mostly contributed by large-scale private residential developments, as the EC sector experienced a gradual decline in the number of newly-launched dual-key units.

Developers of private non-landed projects are recognizing the potential of the dual-key segment and are capitalising on buyers’ preference for such living concept. In particular, many investors have taken interest in dual-key concept since the introduction of the 7 percent Additional Buyer’s Stamp Duty (ABSD) on second-time local homebuyers in January 2013, as dual-key units allow the ‘dual possibility’ of living in your own home while collecting rental income from the leasing of the other sub-unit. As buyers are effectively buying only one unit, ABSD is avoided for first-time local homebuyers.

Popular sizes and configurations of dual-key units

The most common strata size ranges for dual-key units are 880 to 1,160 sq ft and 1,370 to 1,550 sq ft, with approximately 40 percent and 32 percent of all units surveyed falling within this range respectively.

The most common configurations for dual-key unit supply in recent years are three-bedroom and four-bedroom units. Looking at the large-scale developments with dual-key units launched last year, about 75 percent of the total stock comprised three-bedroom and four-bedroom configurations. Based on the units surveyed by Knight Frank, three-bedroom units are typically made up of a two-bedroom main apartment plus a one-bedroom adjoining sub-unit similar to a studio apartment, with unit sizes ranging from 890 to 1,460 sq ft. Four-bedroom units are typically found in a three-bedroom plus a one-room ‘studio’ format, with unit sizes ranging from 1,110 to 2,120 sq ft.

For private non-landed residential developments launched from 2011 to the first two months of 2014, an overwhelming 92 percent lie in the Outside Central Region (OCR), while the remaining 8 percent are located in Rest of Central Area (RCR). None of the large-scale private developments surveyed are in the Core Central Region (CCR). The typical middle-income families who are more likely to favour dual-key units are only able to afford private homes in the suburban areas, rather than in the RCR or CCR.

Approximately 81 percent of the dual-key units are situated in the North East and East regions. This could imply new opportunities for developers to include more dual-key units for developments in the West region, to cater to the growing resident population as more regional and sub-regional centres are established in this region over the next five years.

Profile of dual-key homebuyers

According to Knight Frank’s observations, the age profile of dual-key unit purchasers are mainly in their late 20s to mid-30s, with many being mid-career individuals looking to set up their family. One of the key appeals of dual-key living is the convenience it offers to young families who desire to live in close proximity to their parents. These young families tend to be dual-income families who may rely on their parents to take care of their children. Having a dual-key unit allows these families to better achieve this objective.

Continued popularity of dual-key units amid higher supply and price quantum sensitivity

Dual-key units were met with an overwhelming response from buyers in 2011, selling out quickly in many projects and attaining a 100 percent take-up rate island-wide. In 2012, take-up rates remained strong at 84 percent despite a significant increase in the supply of such units.

They also reached an all-time high average price premium of 16 percent over similar-sized non-dual key units within the same development. Looking beyond the dual-key feature, such price premium could be attributed to factors such as introducing prime-facing dual-key units, more functional layouts and closer proximity of the units to immediate amenities.

However, demand for this segment softened in 2013. Along with maximum price premium having fallen to 12 percent, average take-up rates of dual-key units also fell to 58 percent last year. The average take-up rates were weighed down by some developments with low take-up rates for the entire project in general. Notably, the dual-key units in these projects also tended to be larger, comprising mainly four-bedroom units with sizes of around 1,510 sq ft to 1,620 sq ft. The lower take-up was also due in part to the property cooling measures and the Total Debt Servicing Ratio (TDSR) framework, which have weakened the overall demand for private residential properties. A similar declining trend has also been observed for the EC market over the same period, albeit at a much slower pace.

With price sensitivity remaining high amongst potential homebuyers, pricing dual-key units too high relative to non-dual key units could impact on its attractiveness to potential homebuyers.

Dual-key units: a continuing value proposition for developers and buyers?

In the first two months of 2014, four of the newly-launched developments include dual-key units, indicating developers’ continued interest to roll out this concept. In a price-quantum-sensitive market, larger units in a development tend to sell at a slower pace. The dual-key concept is one strategy adopted by developers to move the sales of these larger units. Other strategies employed include locating larger units at more prime-facing locations.

With dual-key units largely appealing to the middle-income homebuyers and HDB upgraders amidst the current quieter market, developers are likely to exercise discretion in designing unit sizes. The space planning of dual-key units would be important, to create more efficient and effective design layouts. For example, units having too big a common corridor between the units / foyer would reduce the size of the usable space and may be less attractive to buyers looking to maximize their dollar value.

With most private residential projects with dual-key concepts currently located in the OCR, it remains to be seen whether developers would introduce the dual-key concept in the prime residential districts. With market conditions yet to recover from recent low sales volume, developers will be constantly re-thinking and re-strategizing their product offerings to capture demand. With the potential pool of yield-seeking investors and families seeking to house multi generations under one roof, demand for dual-key units is likely to be sustained going forward. Rolling out a dual-key concept that is strategically aligned with the target market segment and changing living preferences would enhance its appeal to a wider group of homebuyers for a sustained period of time.

Credits: Property Guru

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