As an investor looking to purchase a property in land scarce Singapore, your first step forward will be to have a good understanding of your purchase objective. Is it for rental yield or capital gain? The answer to this fundamental question will ultimately define what is a good deal.
With a clearly defined objective you can better assess and zero in on your options based on the factors such as tenure, location, land and unit size and price per square foot.
Know your district well
Be it capital gain or rental yield that you are looking for, always start your search in Singapore’s core central region. This would be namely Districts 9, 10, 11, 1, 2 and 4.
As the market is beginning to pick up now, the core region will naturally lead the pick up giving you a first mover advantage. Do some research on the potential upside and downside of the property with respect to the region it is in.
In 2007, the peak price for RiverGate in District 9 (it was S$2,700 per sq ft but now it is around $1,400 to $1,500 per sq ft. The big dip in price per sq ft only means that this property has the potential for such an upside when the market picks up.
Think of it as blue chip versus a penny stocks.
We know that blue chip stocks always have a higher upside potential than the latter. Blue chips like Ardmore Park in District 10 is expected to give a high capital gain because there is a potential for significant price increase when the market improves. On the other hand, Infiniti in District 5 has a launch price of around $550 per sq ft and peaked at $800 per sq ft. This simply means that we can expect only a slight increase when the economy improves. On the other hand, Infiniti also have a lower downside risk.
Properties in the core districts are also more rentable and its prices also move first when the market picks up. Projects near to the MRT, business financial centre or major commercial buildings will have an added boost to rental rates too. Yield can scale to a good 5.5 percent range.
For example, rental for a three-room unit at Robertson 100 in District 9 can reach a quantum of $5,500 while a similarly sized unit at Esta in District 15 is only $3,500.
If you have been thinking of investing in a property, now is the best time to look for a good district to buy in. The recent launches in the West, North and East side are being priced at about S$650 per sq ft. If you managed to get one in District 9 for $950 per sq ft, you are getting a good deal.
The longer the better
Singapore properties come in one of two tenures - leasehold (99, 999, or 103 years) or freehold. When considering a property with leasehold tenure, say, a 99-year project, we must ensure that the surrounding projects are also 99-years since people will naturally favour a freehold property rendering your leasehold property less sellable. If the 99-year project is priced close to a freehold one, then the resale price of your leasehold property will be negatively affected.
However, a freehold property does not necessary mean it is a good project either, especially if it is located on the outskirts.
Size matters
The size of the apartment also affects both yield and capital gain. Bigger apartment usually do not have a good rental yield but will have a higher chance of capital appreciation when the market picks up. If you are investing for rental yield, it is best to place your bet on a small unit with a relatively small quantum purchase price like a studio apartment or a two-room unit.
The land size on which the project is built on is another major factor, especially for high-end developments in good districts like District 9 or District 10. Besides the prestige of owning a property with high land size in say, Orchard area, it will most certainly also fetch a good value in the future when there is a chance for an en-bloc sale. So think twice about saying yes to a project with a small land size that is selling at a very high price per sq ft. It may not be the best decision to make.
Unit size is also another very important consideration.
For example, with an option of two studio units in the same location, one of the size 570 sq ft priced at $1,400 per sq ft and another of 807 sq ft priced at $900 per sq ft, the second unit makes a better investment.
Remember that all properties will gradually move upwards alongside the market, hence, bigger properties will command a higher profit margin.
Money Value
The price per sq ft will directly affect your future profit and an investor’s decision to buy the property.
For example, if we compare two properties in District 9, the 10-year-old Mirage Tower priced at $950 per sq ft and the brand new RiverGate going at $1,500 per sq ft. Mirage Tower has lower risk and hence might be the better choice.
Risk is an important consideration because we never know which way the market is going to move tomorrow. Our main aim then is to ensure that even when the market is down, the rental can cover the mortgage.
Conclusion
Whether you are looking for yield or capital gain, it is important to consider all factors and try to understand the market well. If you have done your research well, you are now one step closer to purchasing your dream house.
With a clearly defined objective you can better assess and zero in on your options based on the factors such as tenure, location, land and unit size and price per square foot.
Know your district well
Be it capital gain or rental yield that you are looking for, always start your search in Singapore’s core central region. This would be namely Districts 9, 10, 11, 1, 2 and 4.
As the market is beginning to pick up now, the core region will naturally lead the pick up giving you a first mover advantage. Do some research on the potential upside and downside of the property with respect to the region it is in.
In 2007, the peak price for RiverGate in District 9 (it was S$2,700 per sq ft but now it is around $1,400 to $1,500 per sq ft. The big dip in price per sq ft only means that this property has the potential for such an upside when the market picks up.
Think of it as blue chip versus a penny stocks.
We know that blue chip stocks always have a higher upside potential than the latter. Blue chips like Ardmore Park in District 10 is expected to give a high capital gain because there is a potential for significant price increase when the market improves. On the other hand, Infiniti in District 5 has a launch price of around $550 per sq ft and peaked at $800 per sq ft. This simply means that we can expect only a slight increase when the economy improves. On the other hand, Infiniti also have a lower downside risk.
Properties in the core districts are also more rentable and its prices also move first when the market picks up. Projects near to the MRT, business financial centre or major commercial buildings will have an added boost to rental rates too. Yield can scale to a good 5.5 percent range.
For example, rental for a three-room unit at Robertson 100 in District 9 can reach a quantum of $5,500 while a similarly sized unit at Esta in District 15 is only $3,500.
If you have been thinking of investing in a property, now is the best time to look for a good district to buy in. The recent launches in the West, North and East side are being priced at about S$650 per sq ft. If you managed to get one in District 9 for $950 per sq ft, you are getting a good deal.
The longer the better
Singapore properties come in one of two tenures - leasehold (99, 999, or 103 years) or freehold. When considering a property with leasehold tenure, say, a 99-year project, we must ensure that the surrounding projects are also 99-years since people will naturally favour a freehold property rendering your leasehold property less sellable. If the 99-year project is priced close to a freehold one, then the resale price of your leasehold property will be negatively affected.
However, a freehold property does not necessary mean it is a good project either, especially if it is located on the outskirts.
Size matters
The size of the apartment also affects both yield and capital gain. Bigger apartment usually do not have a good rental yield but will have a higher chance of capital appreciation when the market picks up. If you are investing for rental yield, it is best to place your bet on a small unit with a relatively small quantum purchase price like a studio apartment or a two-room unit.
The land size on which the project is built on is another major factor, especially for high-end developments in good districts like District 9 or District 10. Besides the prestige of owning a property with high land size in say, Orchard area, it will most certainly also fetch a good value in the future when there is a chance for an en-bloc sale. So think twice about saying yes to a project with a small land size that is selling at a very high price per sq ft. It may not be the best decision to make.
Unit size is also another very important consideration.
For example, with an option of two studio units in the same location, one of the size 570 sq ft priced at $1,400 per sq ft and another of 807 sq ft priced at $900 per sq ft, the second unit makes a better investment.
Remember that all properties will gradually move upwards alongside the market, hence, bigger properties will command a higher profit margin.
Money Value
The price per sq ft will directly affect your future profit and an investor’s decision to buy the property.
For example, if we compare two properties in District 9, the 10-year-old Mirage Tower priced at $950 per sq ft and the brand new RiverGate going at $1,500 per sq ft. Mirage Tower has lower risk and hence might be the better choice.
Risk is an important consideration because we never know which way the market is going to move tomorrow. Our main aim then is to ensure that even when the market is down, the rental can cover the mortgage.
Conclusion
Whether you are looking for yield or capital gain, it is important to consider all factors and try to understand the market well. If you have done your research well, you are now one step closer to purchasing your dream house.
Extract from the article written By Kelvin Fong
Kelvin Fong is the senior associate district director at PropNex. He is also the group leader of Powerful Negotiators group, the NO. 1 Team in Propnex. He has seven years of experience in the real estate industry, adding many accolades to his name along the way. He has led his group to be the top earners at the agency.
