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Should Buying A Low Lease Project Be A Viable Option?

Posted by Jayson Ang on June 1, 2023
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Recently, attitudes among the younger generation towards low lease projects have been shifting. We’re seeing more young couples opt for older properties with a more rustic, vintage feel.

While this may have been met with resistance from traditionalists, is it truly wise to disregard the merits of low lease projects? Before we get into a discussion of this, let’s take a closer look at what to consider when deciding on a low lease property.

This article delves into the pros and cons of buying low lease properties in Singapore. We provide insight into the key points to ponder when deciding if this is the right move for you.

Does It Make Sense For Whom?

Before we rush to judgement on whether low lease projects make good investments, we must first consider the individual’s needs who is buying the property. After all, it is people who will be living and benefitting from the property. Evaluating the individual’s age, financial standing, number of expected occupants, purpose of buying the property (personal or investment), and potential other options should take precedence.

If you’re of retirement age (55 to 65 and beyond), you’ll want a low lease project that can last you through your golden years. The best option would be to look for a property with a lease of at least 30 to 40 years remaining. Let’s begin our search with age!

Media attention has been drawn to the trend of young couples buying properties instead of older buyers; this results in older buyers often receiving loan options with shorter terms, while younger buyers may be limited to a lower Loan-to-Value ratio. It’s a choice between making larger monthly payments or paying more up front – a dilemma not to be taken lightly!

Before investing in low-lease properties, it is important to ensure that you are in a strong financial position. These projects tend to carry a higher risk than newer developments, with banks often reluctant to grant loans or high valuations for them. To ensure you don’t place your current and future financial needs at risk, you must take into account the potential for a higher mortgage payment or down payment. Even though it can be time consuming, it is imperative to do the math and ensure your accounts are in order.

When purchasing a property, it is important to consider the number of people that you intend to live with. If there is the possibility of a child in the future or if your parents might move in with you, you should plan ahead and account for all potential scenarios. You don’t want to find yourself stuck in a lease agreement that is too small and too expensive to leave without a loss. To prevent this, the buyer should consider if they can afford a bigger place to live. Doing so can significantly improve your quality of life if this situation does occur.

Buying for your own stay or investment is an entirely different prospect; with low lease projects, those seeking an own stay property stand to benefit the most.

To get a better understanding of the potential pitfalls to watch out for, please refer to the next section. To simplify, these projects are tailor-made for the retired generation or couples in search of something that looks and feels like a home.

Lastly, remember that when you find a property that takes your fancy, it’s a sign that you should go for it!

What Advantages Are There To Exploring Low Lease Projects?

When taking a closer look at low lease projects, one could opt for a low lease HDB flat or a low lease condominium. We’ll delve into how these two might differ in terms of performance in the next section. Low lease projects are favored due to the less intense competition from buyers, which can result in lower prices when purchasing the unit of your choice.

For those looking for a low lease project, there is a great selection of choices: from established estates to central locations to more tranquil surroundings. It’s all about the location – a well-known truth when it comes to finding the right property – but for those who prefer a certain style, there are also options for more aged, rustic properties. Ultimately, it boils down to personal taste.

Some speculators may consider the possibility of a enbloc sale, but since such a sale is more like an unexpected windfall, it is difficult to predict accurately. If the timing is not ideal, we will classify it as a pitfall.

Pitfalls To Be Aware Of

Beware of the potential drawbacks when looking at low-lease projects – we aren’t discouraging you from exploring them, but the general public’s reluctance speaks volumes. Here are some of the pitfalls you should consider:

  • Weak demand and fewer potential buyers leading to
  • Difficulties in assessing the bank’s valuation due to lower transaction volume,
  • Needing more cash to pay the down payment due to loan issues,
  • Rents dropping due to tenants preferring newer units,
  • Higher upkeep costs as the property ages,
  • Potential building integrity issues if wear and tear is excessive,
  • Lease expiration potentially reducing property value to zero,
  • An earlier than expected enbloc triggering the Seller’s Stamp Duty –
  • Accurately prorate CPF use based on age and the remaining lease.

All of these worries are worth looking into before making your purchasing decision – don’t brush them off, as it could end up being a costly mistake.

I’ve already provided an outline of these potential issues earlier in this article, however, this isn’t to suggest that lower lease properties are automatically bad. The main idea is to take care when selecting a low lease property, to ensure it matches your requirements and can help avoid any of these problems.

Comparing Performance of Remaining Lease : HDB & Condo

Resale HDBs between the ages of 31 and 50 are known to experience the most price volatility. In this period, many of those with waning leases opt to sell while the more optimistic take their chance. Remarkably, prices tend to rise rather than fall in such cases, with the occasional exception. It is truly remarkable to note that even resale HDBs with over 30 years in age are still more expensive, on average, than their younger counterparts.

If you’re considering buying a resale HDB, you should be aware that those aged 51 and above are the cheapest in terms of price per square foot – around half the price of those aged 31-50 – but they have the highest growth rate at 26%. So it pays to be careful not to buy at peak prices when an HDB is aged between 31 and 50, as it will be hard to recoup if you decide to sell later on.

By examining the monthly percentage shift in resale HDBs, we can observe the development of prices from a 0% baseline in January 2019. Low lease projects are often the brightest stars in this scenario, demonstrating consistent, steady growth which may be due to the exorbitant cost of resale HDBs, pushing buyers towards more economical options.

The case for resale Condos is somewhat distinctive; the psf (price per square foot) for older condos isn’t too far off from the cost of the younger ones. Nevertheless, similar to before, middle-aged condos exhibit the greatest degree of volatility. It’s plausible that the limited psf band is the result of market forces bringing prices closer together, since there are fewer regulations regarding the buying and selling of private properties. This can also explain why growth rates for older properties have decreased from 12-14% between January 2019 to March 2022. It appears that market forces are ultimately responsible for evening out the disparity.

Volatility among middle aged condos is not the same as middle aged resale HDBs. Now, movements are more balanced, with neither direction particularly dominating; whereas in the past, there were greater increases and more uniform decreases.

The market is a risky game of chance – there are opportunities for tremendous returns, but also potential losses if you don’t pay attention. If you buy low, you stand to make more than the market rate; however, beware of overpriced properties, particularly middle-aged condos. It’s difficult to retain value in these cases, so make sure you’re getting a unique project for the premium.

Conclusion

Having looked at the pros and cons of investing in a low-lease property, the data from the resale HDBs and Condos provides a valuable insight into the current market trends. Although it’s not a death sentence, buying a low-lease property comes with its fair share of drawbacks, not least of which is the difficulty in exiting, should you decide to do so. This could limit your potential future property investments and be costly, especially if you’re still young.

Have you thought of renting? If you’re passionate about vintage styles, you can rent a property that you love while still having room to invest in property. Why not buy one property as an investment and rent another – this way, you’re minimizing any potential risks that may arise.

If you’re looking to explore the topic in greater depth, don’t hesitate to get in touch with me here!

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

  1. Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
  2. Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

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