Property investment in Singapore is popular. It is so popular that 20,000 people own 3 to 10 private residential properties in Singapore.
The same article also mentioned that 59,000 people owned 2 properties in Singapore.
And 381,000 people own a private residential property.
Some of the benefits of private property investment.
- Passive income when it is rented out
- Cash-out financing
- Hedge against inflation
- Capital appreciation
Capital Appreciation Is Like Being Paid To Stay In Your Property
Here I include a unit at Costa Del Sol which enjoyed a gross capital gain of close to $500K over a 9-year period.
If I were to round it up to 10 years – it was an average gain of $50K per year. This is equivalent to someone’s yearly salary.
Imagine being paid to stay within your own residential home!
Here is another development within the East area.
This unit in Bedok Residences was sold at $155K gain in 6 years.
This meant an average gain of $2.1K per month.
Capital appreciation is a lucrative goal.
You need not worry about tenants, you get good returns and you only need to buy just 1 property.
Of course this is not possible for all property developments.
But is there a way to identify a quality property that is poised for capital appreciation?
Unfortunately, I don’t have the ability to predict the future.
However, there are a few specific criteria that you can refer to narrow down your choices for property that has the best potential for solid capital appreciation.
Let’s explore them:
#1: Growth Story
A growth story usually means there is some upcoming infrastructure that can impact the future property prices.
You should probably ask questions like:
- Any infrastructure growth?
- Is there new MRT stations coming?
- Is the area a designated growth area in the URA Masterplan?
Created by the Urban Redevelopment Authority (URA), the Master Plan is the “statutory land use plan which guides Singapore’s development in the medium term over the next 10 to 15 years”.
It is reviewed every five years and translates the broad long-term strategies of the Concept Plan into detailed plans to guide the development of land and property.
This means that property buyers can look at the Master Plan for an indication of future developments that may impact property value and quality of living.
Here is the URA Draft Masterplan 2019: https://www.ura.gov.sg/Corporate/Planning/Draft-Master-Plan-19
It is actually a very good resource and with trained eyes – you can foresee the upside potential in the future.
Let’s take a look at one example: the Great Southern Waterfront City.
If you been monitoring the news, you will have read about the government planning to:
- relocate all moving container ports to Tuas
- redevelop the area for tourism, commercial and residential purposes
Those areas (coloured in yellow) – these are wildcards as their uses have not been determined yet.
Other attributes you might want to look out for in the nearby vicinity:
- Any future Amenities like Shopping Mall, Market, Hawker Centres, Supermarket
- Future Recreational Parks
- Any existing or future MRT Stations that is within a walkable distance from the development (not more than 500m)
- Any international schools or reputable local primary schools nearby
- Any existing or future Business Parks , hospitals and Educational Institutions like Primary Schools, Universities nearby
#2: Transaction Volumes
Transaction volumes is one of the criteria that you should look out for when it comes to property investment.
It determines how easy it is to sell the property in the future .
Transaction volumes can affect the valuation of the property.
You might want to invest in a property that has consistent transaction volumes every month.
Consistent transaction volumes indicates this is a property investment that we can easily exit out.
Below is an example of a development that has very thin and limited transaction volumes.
More units transacted monthly might indicate a fair market value of the property as compared to a low volume transacted development.
From my understanding, even financial institutions and valuation departments are using recent transactions as one of the deciding factors to determine the value of the property.
If you are considering new condominium launches, then you might want to find out the transacted volumes of neighbourhood developments in the nearby vicinity.
This will give you an idea on the demand and how easy it is to sell in the future.
Identifying a property with a good rental yield is not easy as you think.
The first step is to do some research on the rental yield of nearby developments and compare it to the particular property you wish to invest in.
Here are some examples of healthy rental yields:
When you do your research on rental volume, the numbers can tell you whether is that development a popular tenant catchment area.
It also tells you a story.
For Caspian: The total number of units is 712 while the rental transactions for the past six months is 59 units.
For Lakefront Residences: The total number of units is 692 while the the rental transactions for the past six months is 98 units.
As mentioned in previous article, identifying good catchment of tenants is also equally important: Your Condo Property Investment – The Importance of Identifying the Correct Tenant Mix
#4: Your Entry Price
Unfortunately, it is not so easy to determine a “best entry price” as units today are sold mainly based on quantum and not per square feet prices anymore.
For example, J-Gateway was sold at the highest price possible back in 2013 – its entry prices were $13XX PSF.
It was considered very expensive then because people used to comparing based on psf price and not the absolute quantum.
Now in 2018, units have been sold at prices as high as $17XX PSF. It resulted in huge capital gains of those who bought it at those “peak prices” in 2013.
There is a tendency to look for undervalued properties amongst property investors.
But be careful!
Properties that might seem to be “undervalued” might also mean the prices are on the way down and might never recover.
Hence I always remind my clients to look for properties that are priced at the FAIR MARKET VALUE.
Here are some ways to identify:
- Check on PropertyGuru or 99.co to find out the asking prices of the nearby developments.
- Then make a comparison with the latest transacted prices at the URA website here: https://www.ura.gov.sg/realEstateIIWeb/transaction/search.action
- Enquire the asking prices on the available units with bankers. Check if it matches the valuation.
- Seek a second opinion if you have a realtor on hand. With his/her agent tools and experience , he/she should be able to provide more insights on the developments.
For New Launches
If you planning to invest in a new launch property, do take note that developers will always price it higher as compared to its resale neighbourhood developments.
Even though the overall sizes had dropped however it remain affordable overall even though the new apartment sizes are smaller than the ones 10 years ago.
Study them by looking out for news related to the new development:
- Government Land Sales
- Developments that are going for en-bloc
- Analysts that mention about launching price and break-even price in that development that you wish to invest
- Any “growth story” in the vicinity
- Check if these factors justifies the launch price
For example, based on the en-bloc news on PSF Per Plot Ratio prices – you can easily estimate an indicative price that development will be launching in the future.
The above is my client’s unit which he bought a new launch unit through me in 2010 and later was sold in 2018.
During the entire 8-year period he held on to the condo, it was rented out.
So he made both:
- Capital Gains
- Rental Returns
In this case, your tenant is indirectly paying for most or full of your mortgage loan if you choose to lease out.
Property investment is not for everyone. It might be popular but it not suitable for some people.
Being in the industry for more than 13 years, I can safely say that the majority of those people who bought PRIVATE properties in the past 10 years ago have made money.
Some made significant gains when they exited these recent 1-2 years thanks to the bullish market in 2018.
The cooling measures implemented in July 2018 have dampened the market sentiment.
But this is the point where opportunities exist – developers are under pressure to sell to avoid the ABSD and QC penalties imposed on them.
The key question is: Are you ready to take advantage of these opportunities when they come around?
Do you know clearly what are your options available and financial requirements?
This is where I offer a Complimentary financial analysis and recommend you solutions to obtain higher financing and lower tax costs.
During this session, I will calculate and simulate for you various situations that can help you build wealth faster and prepare for comfortable retirement.
Keen to know more? I invite you to contact me for a no-obligation discussion.