When do Residential Properties Lose Their Value?
Property prices will always increase in tandem to the overall property price index. However, there are occurrences where this is not true, and are hidden within the general market momentum.
This article seeks to cover under what circumstances these scenarios can happen so that you can avoid picking lousy buys.
High Priced New-Launch Properties
Purchasing new launch properties can be a tricky matter for your wallet, as most of these properties will be launched at a premium price. Without a good explanation for the developers selling at these prices, it is very dangerous to purchase them with the notion that Singapore property prices will always increase.
Place yourself in the shoes of the end-consumer who is the occupier, and observe if it is a property that you will be interested to stay in.
Choosing a good new launch property requires complete research, and I have done a number of new launch property reviews on my website. So be sure to check them out for a second opinion!
You might not agree with the points that I have written for my reviews, therefore, I have written articles on how to pick good properties, so be sure read on those to develop your own understanding of what is a great purchase!
Leasehold Properties generally depreciate strongly due to the loss of their tenure. Although not the sole factor, the CPF Housing Loan Limits on an aging property partially contributes to this issue.
The CPF usage will be pro-rated based on how near to age 95 the property lease can last the buyer.
This poses a problem as there will be a smaller pool of potential buyers that will be able to purchase the aging property, which causes sellers to account for this when pricing their property on the market.
If you are intending to purchase a property, use the CPF Housing Usage Calculator to find out how much CPF funds can be used.
While freehold properties do not face the issue of tenure loss as compared to leasehold properties, they do have their set of problems.
This occurs when prices for new freehold properties are often paid at a 10-15% as compared to their leasehold counterparts. This premium can cause properties to face a potential drop in value if a newer leasehold property is offered within the vicinity.
Remember that the main reason why a property either appreciates or depreciates goes back to the existing rental demand.
If a neighboring leasehold property offers better facilities/amenities and at the same rental rates as a freehold property, the tenant will not be bothered about the tenure of the property.
This causes reduced rental demand for the freehold property. There will be instances where the landlord will not be able to service the mortgage of the property due to a lack of cashflow, and might be forced to sell the unit at a reduced amount. All it takes is for a few owners to start selling their properties at a loss to generate this “loss momentum”, which pulls down the overall price of that development.
Value can be a subjective term that can have different meanings for an investor or homeowner. When you are referring to value strictly in regards to cash returns, as long as your cash is locked within a fixed asset, it will not generate any real capital gains, only paper value.
In the case of an en-bloc situation, in my opinion, property investors get too caught up with holding onto their properties for the chance for it to undergo a collective sale. I believe that this is not a very viable option for investing.
Over the years, news reports on en-bloc sales reaching a new high figure will tempt future investors, and this can delude investors that their aging property is worth holding on to.
Although there are certain variables that place your property in the best scenario that an en-bloc situation can happen, this is not usually the case and often can trap you in a downwards spiral of unmet expectations.
It is best to understand the fundamentals of why an en-bloc situation can happen. It usually means that the particular development is far aged as compared to surrounding developments. This causes developers to see the discrepancy in amenities and facilities.
The developers will see it as a potential to earn a profit after rebuilding and reselling these units at a profit. If the development is more than 10 years old, owners that are holding a minimum of 80% of share value and 80% of the total strata area will need to agree to the sale. A collective sale price is later discussed and agreed upon.
Do not forget that your property will be less attractive to individual buyers when there are other newer listings in the immediate surroundings.
Let us take for example the case of Queensway Tower, a freehold property with shares its land with Queensway Shopping Center.
Queensway Tower has been underperforming as compared to the surrounding property prices at an average 11.85% p.a. Furthermore, take note of the total transacted volume for Queensway Tower.
Just one unit was transacted out of 78 residential units! This has been the case for the past few years too!
A loss in value to the property is seldom due to the internal characteristics of the development, but due to the impact of upcoming developments in its immediate surroundings. One easy way of ensuring that you are purchasing a good property is to analyze the URA Master Plan.
Although its main focus is not to ensure that Singaporeans will make good property purchases, the URA Master Plan aids in this as the future of Singapore is constantly being redeveloped as land is better prioritized for its economy.
The defensive investor can see in advance what upcoming developments will be released close to their existing real estate investment, and plan their next financial decisions from thereon.
The smart investor can take this opportunity to leverage on the URA Master Plan to find excellent purchases. I did a review on Marina One Residences, and I feel that it is an excellent example of how you can utilize the URA Master Plan to its maximum potential.
Focusing on the URA Master Plan places you far ahead of the many speculative investors of real estate who rely on general market momentum to guesstimate the value of their property.
Why let this important resource to waste? The homework is already done for you by the Singapore Government!
If you are looking for good investment properties, feel free to contact me at +6596329840 or Joshua.firstname.lastname@example.org I will provide for you a full breakdown into the property details and provide for you a complete property wealth planning.
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.