Unlike stocks or other investment tools, real estate is not homogenous and every property has different attributes, even ones located right beside each other. This makes choosing an investment property an arduous task for first-timers.
To make things simpler, we have laid out 5 simple fundamentals you can check when deciding on an investment property in Singapore.
Let’s dive straight in. The first and arguably most important in Singapore is connectivity.
Singapore is small, only around 730km², roughly 170 times smaller than New York City. You can travel from one end to the other in less than an hour. So, most would think location doesn’t quite matter.
Despite that, based on data and trends, we see many buyers paying more to stay closer to a major train (MRT) station. Let’s look at two leasehold condo projects with the same attributes. Both launched in District 19 in 2012, with around 600 units each. The first, Parc Centros is a four-min walk away from Punggol MRT, while River Isles is 3 bus stops away.
2021 sales data showed that Parc Centros averaged $1,200psf while River Isles averaged $1,000psf. That is a $200,000 difference for a 1,000sqft 3-bedder.
2. Growth Hotspot
The second point is attributed to Singapore’s strength and commitment in efficiently planning and improving her urban infrastructure fastidiously. The Urban Redevelopment Authority (URA) is the national urban planning authority of Singapore and spearheads the Masterplan that’s designed to guide the nation’s urban development over the next 50 years. Looking at the Masterplan, you can have a clear indication of what lies ahead for your neighbourhood. The areas with new economic opportunities and housing options are termed as “growth hotspots”. Property prices also have a strong correlation with these hotspots. For example, District 19 expects a Digital village with new businesses and an education institution, in what’s coined as Punggol Digital District, together with the repurposing of the Paya Lebar air base for more community and living spaces. You can take River Isles as an example again. Compare it to Palm Isles in Changi. Both leasehold projects launched in 2011 to 2012. Over the last 10 years, River Isles owners saw a growth of over 30% in prices, whereas Palm Isles saw a growth of around 16%. If you chose to purchase a property in Punggol instead of Changi during that time, you would likely have made a better profit.
Regardless, both projects made decent profits right? This is likely because both of them are good sized projects, with about 400 to 600 units each. That brings us to our 3rd point – Project size. When you buy a property, this is something not to be missed. Smaller projects tend to provide more privacy, but lack transactions to push up your prices. As you know, buyers and even bank Valuers rely heavily on past transactions to decide what to offer as a fair value. Imagine staying in a smaller project and the last transaction was in 2020 before the market picked up. It would be hard to justify to your buyers why your unit deserves a higher price. Take the example of Urban Residences and The Minton which are located across from each other in the Serangoon area. Both completed in 2014, Urban residences has 47 units whereas Minton has over 1,000 units. Since 2011, Minton owners saw an average of 27% increase in price, while Urban Residence owners saw an increase of 16%. That’s despite Urban Residences being Freehold and Minton being leasehold. But let’s keep freehold vs leasehold for another day cos’ frankly both have their own strength and weaknesses.
Our fourth point is Rentability or how easily you can rent out the unit. This is a key point for most investors, as you want to know that should the market stagnate, you can still rent out to get some returns. Generally units with strong rental demand tend to depend on factors such as connectivity, amenities and catchment. Tenants prefer units nearer to MRT, have better facilities or amenities in the area. You can also look for projects that have a natural catchment, such as schools, business parks, and more. Picking the right unit for the right area is also important. For example, a 1-bedroom nearer to The Central area might be easier to rent out compared to one further away. This is as singles or couples prefer to be closer to town or the CBD. We would say, understanding your tenant pool preference is also important, if you’re looking to rent to Japanese families, you should look for a 2 – 3 bedroom unit near Japanese schools and vice versa.
Similarly, you also have to know who you can sell to when you decide to sell. This is our last point – Exit Strategy. As the name suggests, it’s important to plan your exit. Yes, we would say majority of resale condo buyers tend to be upgraders who have met their MOP and are supported by CPF savings and profits from their HDB sale proceeds. The probability of these upgraders shifting within the same estate is very high as they might have already set roots. Like family in the area, kids studying in nearby schools and so on. By looking at the HDBs that are about to MOP in the vicinity, you can estimate the demand for the property you are considering. Another thing you can look at are popular or established schools within the area. Upgraders also look at moving to places that are near their preferred schools for their kids. Based on past ten year data, we see higher property price increases in estates with a larger MOP pool and those located near good schools. Not only is it easier to sell, but with higher demand, you might see better capital appreciation. so that sums up our 5 fundamentals. To recap, they are one connectivity, two growth hotspot, three project size, four rentability and five exit strategy. We have to say, these are not the only factors you should look at. There are other points to consider, such as entry price, unit facing, layout, and more.
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