Disregard all the exciting new amenities and exciting marketing taglines that usually accompanies a new launch condo, and what are you left with? A way overpriced condo? Or value buys amongst the waves of expensive new launches?
It’s pretty difficult to afford real estate nowadays and you want your dollar investment to work as hard as you.
For young working professionals, it seems like you’re starting a one-legged race with huge mortgage repayments amongst other debts.
For mid-career/retirees, you are able to afford one, but throwing your life savings into an overly expensive new launch simply feels reckless. What good is an illiquid asset going to do for you in your sunset years?
These are problems that are often heard by realtors, and I can empathize. In my opinion, even if you dislike dealing in real estate, it is important to understand how it fundamentally works as most Singaporeans have most of their assets locked into one.
Money works in a funny way. I feel that in regards to the real estate situation in Singapore, the best defense (retaining your hard-earned cash) is a good offense (Strong capital appreciation). However, that does not mean you should recklessly start building your real estate portfolio with “en-bloc properties”!
This article will first mention the state of Singapore properties in comparison to our immediate neighbors, followed by my tips for finding good purchases.
Are There Still Undervalued Properties?
Maturing Markets
Owning real estate is akin to running your own real estate management business. The monetary investment is definitely required.
That being said, you will need to understand the reason why there are so little undervalued properties in Singapore is that the real estate market now is in its mature stages. This is not to say that the market is stagnating, we are still seeing good growth amongst all sectors.
However, the real estate markets in Vietnam and Thailand is expanding so quickly it’s almost comical, these will no doubt be the best capital investment opportunities.
Construction Costs
The vibrancy of the real estate market depends on incoming supply, which is usually backed up by healthy sustainable demand. So, does that mean you should always invest in countries with high real estate prices?
Well, the answer is not as straightforward. One major component that you should look into the construction floor area (CFA) costs.
In regards to condominium developments in Singapore, the average development costs are around US$257/sqft CFA (S$352/sqft CFA).
Comparing with our immediate neighbour, Kuala Lumpur costs are US$91/sqft CFA. This low construction costs, therefore, lead to serious overbuilding, which lead to the tumbling house price index.
Vietnam is soon to be a real estate powerhouse too, and with relatively low construction costs at US$89/sqft CFA, presents an excellent opportunity for real estate investors.
Hong Kong real estate prices are met with huge uncertainty, however, and the high construction costs of US$426.7/sqft CFA will definitely be passed to the consumer.
I presented to you two extreme ends of the spectrum of construction costs, to show that Singapore’s construction costs are high, but still realistic due to the implementation of cooling measures post-2009.
As Singapore’s economy is maturing, construction costs will inadvertently play a huge role in reducing your potential capital gain as a customer for new launches.
However, this is still not the eventual construction costs, as we have yet to account for the real estate developers’ profits and marketing costs.
Slim Margins for Developers
The eventual profits and marketing costs of the developers sit around 20-30% of the breakeven costs. As a result, this is a slim margin for most developers and it can be very challenging to make their prices more competitive with steep competition.
That being said, there are still plenty of good purchases in the market, where the developer’s margin is between 5-15%.
These are technically the developments with high immediate potential due to the pricing difference from the norms.
However, do take note that this is strictly just calculations based on a moving average, and further research is needed into the development.
Still Possible to Get Good Purchases?
With the aforementioned points in mind, how should you find the next diamond in the rough? After all, even if the price is right, you will still need to look into other factors.
The challenge is that because the development is still under construction, you will not be able to judge a property of its usual characteristics such as its interior construction quality, these traits are linked to real estate.
Spotting Best Buys for New Launches
Purchasing a new launch might seem as straightforward as picking great amenities and at a great price. These are all important, but you will need to understand the motivations of the price point which the developers have set.
Timing Your Entry
Depending on when you are intending to purchase a new launch condo, there are durations where units are heavily discounted to spur on purchases. These will be the loss leaders.
However, as more units are sold and with more publicity, the pricing (PSF) gradually increases over time as there is less pressure on the developers to sell the units, even with the looming ABSD dateline.
If you are interested in a new development, contact your real estate agent for any updates in regards to discounted units.
There are circumstances when developers will withhold certain choice units, and be released in a later phase. One such development is Marina One Residences. The second phase was released at a higher PSF, which resulted in buyers meeting a good opportunity.
UPDATE (12 Jan 2021): The Urban Redevelopment Authority's (URA) control on pipeline supply for new launches can be a good way to detect profitable areas. Areas with low supply typically mean that there should be a healthy demand for properties in that area.
You might be thinking shouldn't the opposite be true and that shouldn't high supply mean that there is increased demand for a location? In my opinion, if it is reported that there is high supply within a region, you are probably already too late to seize a profitable unit.
To be extra sure, you can always cross-reference data on the past transaction data within your area of interest.
Irwell Bank Residences is an interesting case study. With the unit potentially meeting TOP in 2026, the review states that pipeline supply is in very low supply.
Master Plan
Finding a good property can be done by observing the Master Plan for new updates within the vicinity. I’ve covered this point in an earlier article.
Without going into specific details, the Master Plan provides all the information you need on Singapore’s land planning. This in turn helps to understand the investment you are making with greater clarity.
A good example to take note is in regards to future new launches. The site plan of your potential investment helps to detail how your unit will be placed. You do not want your view to be blocked by a future 30 story apartment stack!
In addition, tightly clustered new launch condo releases can also spell trouble for investors, as this will lead to an oversupply of residential units for tenants. This will drive asking rentals down, which in turn results in poorer cash flow in consideration with your outstanding mortgage.
Low Maintenance Fees
Maintenance fees should not be overlooked by investors as overtime this will lead to a huge expense. Think carefully if the bespoke services that you are sold to, is truly necessary for future buyers or tenants of your property. Is it worth the $450/month charge?
Typically, smaller developments with fewer units will require a higher maintenance fee from its owners.
Integrated Developments
Integrated Developments are the best in class for condos, as these are developments that are located directly above an MRT station. Integrated developments make for an excellent choice, but investors might be put off by the premium that it commands.
You will still have to rely on the Master Plan and keep track of new developments in the area, as it might interfere with the development’s appreciation potential.
At this moment, one interesting integrated development that you should keep an eye on should be Woodleigh Residences, starting from $1,891 psf.
In comparison to other leasehold condos in the area, The Woodleigh Residences price have slightly corrected from $2,026 to $1,886 psf due to strong competition from Park Colonial and The Tre Ver.
If you will like more information in regards to The Woodleigh Residences, feel free to contact me at 96329840 for current prices, site plan, floor plan, and much more!
Spotting Best Buys for Resale Properties (Bonus)
Although this article is mostly on new launches, I feel that not talking about resale properties will be a missed opportunity.
When developers constantly break the price barrier, it provides resale properties the opportunity to play catch up, provided that they are still in relatively good condition.
Also, a property that is in good condition can generate better rental yield too, as compared to new launches. Investors of new launch properties will often ask for a higher rental price, which will make your unit more attractive as the more affordable option.
Remember, time on the market will also result in a drop in rental yield, and this can usually affect both new and old developments. The following are some of the reasons why a rental property might remain on the market for a long period of time
Not priced competitively
Oversupply in the area (New developments)
Dated fittings and furnishings (Old developments)
Poor location (Subjective)
Summary
Thanks for reading this article. Overall, on top of analyzing developers' profits and costs, a good location is crucial. These two factors play a huge role in finding the best buys among new launches and resale properties.
I understand that there are plenty of statistics being talked about in this article, but I am unable to share materials as they are not owned by me. Instead, if you are keen to find out more information, do contact me at +6596329840 or email us at estatemagnates@gmail.com.
The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.
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