Many shoebox units are coming up in projects being built on plots of 20,000 sq ft or less in the 'Rest of Central Region', in places such as Geylang, Guillemard and Telok Kurau, where they are being touted for their high rental yield potential.

'From a developer's viewpoint, smaller units are more saleable and from a buyer's perspective, easier to buy, whether for speculation or investment, because of the relatively affordable lumpsum investment,' says Knight Frank managing director (residential services) Peter Ow.

Developers also achieve higher psf prices for these tiny units, he added.

For precisely this reason, however, a seasoned developer was critical of shoebox units, saying: 'They have distorted the market by creating the impression of runaway prices at four-digit psf average prices. This in turn fuelled demand for HDB resale flats, which in comparison represent better value for money.'

For instance, Casa Aerata's freehold apartment units of 45 sq m at Geylang Lorong 26 were sold at between $459,600 and $474,200 in June, according to caveats data. Nearby at Jalan Tiga, transactions of HDB resale flats of 110 sq m (with 99-year lease terms starting from 2005) were completed in July at $680,000-683,000, said ERA Asia Pacific associate director Eugene Lim.

The trend of small apartments comes in waves, but the current wave - which began with the release of The Alexis near Queenstown MRT Station in February 2009 - has seen unit sizes sink to new lows.

Apart from shoebox developments, where most units are 500 sq ft or smaller, unit sizes in regular projects have also shrunk over the years.

'About five years ago, studio units were about 500 sq ft; now it's common to find 350-400 sq ft units. Two-bedders used to be around 900-1,000 sq ft; now they could be 700-800 sq ft,' said the developer who declined to be named.

While this trend is not expected to fizzle out anytime soon, developers may move away from the shoebox model when more of these projects are completed, and if these tiny units do not quite achieve their touted high gross rental yields of 8-10 per cent, says Mr Ow.

Agreeing, the developer said: 'It may not be so easy to resell these units when they are completed as buyers can actually see how tiny the apartments are. I think this phase of exuberance in owning tiny apartments will fade when they're ready for occupation. When more shoebox apartments are completed, the supply will be saturated vis-a-vis the demand.'

This article was first published in The Business Times.