Top 5 : Greatest Challenges That Investors Face In Singapore’s Real Estate Market
Singapore's real estate market is a dynamic and attractive investment landscape for both local and international investors. Known for its...
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TLDR
Undervalued properties in Singapore are those priced at least 10% below market value, often due to urgent sellers, developer ABSD deadlines, or less-desirable locations catching up in value. To find such properties, compare prices of similar developments nearby, look for motivated sellers, monitor projects nearing ABSD deadlines, and check older or long-unsold listings. Auctions and rental listings may also reveal good deals. Always investigate why a property is undervalued and consider factors like renovation costs, resale potential, and future area developments. While finding undervalued condos is challenging given Singapore’s price trends, using data, research, and a good property agent can improve your chances of making a profitable purchase.
What if I mentioned that there are methods to find “more affordable” properties?
As Singapore remains the priciest location for private property in the Asia-Pacific for the second consecutive year, it can be difficult for homeowners and investors to locate undervalued homes at prices below the market rate.
The article also highlighted that Singapore’s public housing system, which encompasses HDB resale and BTO, is the most economical and accessible option for homeownership. Consequently, this article is aimed at those who are opting for condos instead of BTO.
What are undervalued properties?
As the term indicates, undervalued properties are those that have market values lower than the usual rates. In simpler terms, they are listed at prices beneath the bank’s suggested market value or their true worth. Typically, a property is deemed undervalued if it is priced at least 10% below the market valuation; for instance, a condominium listed at $3 million could be undervalued by as much as $450,000!
Another perspective on undervalued properties involves comparing the average selling prices of prime locations with those in less desirable areas. If the selling prices in less sought-after regions are equal to or exceed those in prime locations, these can be considered undervalued properties.
Various circumstances can result in the emergence of undervalued properties, such as developers eager to sell their units before their Additional Buyer’s Stamp Duty (ABSD) deadline or homeowners needing to sell quickly. Nonetheless, as the saying goes, one person’s challenge is another’s opportunity; such situations provide ideal chances to find great deals.
Identifying an undervalued property available for purchase requires more than mere luck; it necessitates experience. With sufficient research and the helpful tips we will provide below, you will certainly be able to successfully secure an undervalued property.
How do I find undervalued properties?
You should examine the prices of nearby properties or the average costs of similar homes to determine if your chosen property is genuinely undervalued. If you are considering resale private properties, the RCR is an excellent resource for identifying undervalued options.
Quarterly trend of resale private properties (2014-2024)
As of now, the average price per square foot for resale private condominiums and apartments in the three areas stands at $2,142 (CCR), $1,767 (RCR), and $1,428 (OCR).
Quarterly trend of new-launch private properties (2014-2024)
As of now, the average price per square foot for newly launched private condominiums and apartments across the three regions stands at $3,110 (CCR), $2,536 (RCR), and $2,170 (OCR). Properties in the RCR are situated on the outskirts of the city, providing a balance of proximity to urban conveniences while offering greater affordability, tranquility, and exclusivity, thereby delivering excellent value for your investment.
It is important to highlight that the price disparity among these three regions is narrowing considerably. This trend can be linked to the Urban Redevelopment Authority’s decentralisation initiatives; numerous amenities in the RCR and OCR now compete with those in the CCR. This was notably demonstrated in 2009 when an international brand, Uniqlo, selected Tampines 1, a shopping centre in the OCR, to launch its first store in Singapore.
Identifying an undervalued property does not equate to seeking out “cheap” or obscure locations. In fact, you may be surprised to discover that undervalued properties can often be found in sought-after areas. Without further delay, here are eight tips to help you get started.
1. Begin by examining saturated areas first
You can always begin by examining regions that have a variety of properties of differing ages within a 1 km radius.
Taking Aljunied MRT as a reference, within its 1 km radius, there are 184 projects. Naturally, we won’t be considering all 184 projects. Instead, let’s focus on six projects of different ages as examples.
| Development | Average psf price | TOP Date |
|---|---|---|
| SimsVille | $1,290 | 1998 |
| Central Grove | $1,295 | 2001 |
| The Waterina | $1,833 | 2005 |
| Viento | $1,569 | 2013 |
| Sims Urban Oasis | $1,807 | 2017 |
| Arena Residences | $2,089 | 2023 |
Here are several insights we can gather:
If you’re open to considering older developments, Central Grove might be an option, priced only $5 per square foot higher than Simsville despite being three years newer. It’s also worth noting that Central Grove is located 400 metres from Aljunied MRT, while Simsville is double that distance away. Conversely, Arena Residences, a more recent project, comes with a significantly higher price tag. This is largely due to its development occurring after the pandemic, which led to increased raw material costs and construction delays. However, like many new projects, the unit sizes tend to be smaller compared to older developments. That said, Arena Residences offers a freehold status, unlike Central Grove, which has a 99-year leasehold.
Various factors can influence property values, including location, property size and condition, convenience, design and architecture, tenure, and market supply and demand. However, using this comparison method can be more challenging in areas with fewer developments. For instance, within a 1 km radius of Woodlands MRT, there are only seven projects, a stark contrast to Aljunied’s 184 projects. Thus, accurately comparing property prices based on the number of units in a development, distance from the MRT station, and price variations can be difficult.
Nonetheless, this serves as a reasonable starting point but is certainly not enough to guide your decision on purchasing an undervalued property.
- Assess the differences in prices between prime and less prime locations
Evaluating property prices between prime and less prime areas is an effective strategy for uncovering undervalued properties, whether in highly sought-after regions or emerging neighbourhoods. Prime locations, celebrated for their closeness to amenities and central districts, generally command higher prices. Nevertheless, undervalued properties can still be located in these regions due to circumstances such as distressed sales, auctions, or properties that require renovation. By grasping the market value in prime areas, you can identify these rare opportunities where prices fall short of market expectations.
In less prime locales, where prices tend to be lower, there is often a greater potential for value appreciation, particularly in developing neighbourhoods. Comparing these prices with those in prime locations can help pinpoint areas that are currently undervalued but hold promise for substantial growth as they progress.
This comparison also helps in managing risk versus reward. While prime locations provide stability, less prime areas may present higher returns, albeit at increased risk. By examining price differentials, you can diversify your investments by acquiring undervalued properties in both stable and emerging markets, ultimately enhancing your return on investment.
3. Consider the “worst property” in the “best location”
We didn’t intend to imply that when we refer to the “worst property.”
Many property buyers commonly believe they can uncover undervalued properties by seeking out neglected or stigmatised homes in desirable areas. While this strategy could be advantageous if you’re looking to invest in a rental property, as many tenants are open to living in older homes in prime locations, it requires careful consideration.
Acquiring the “worst property” in the “best location” doesn’t automatically guarantee a good deal, particularly if the area has certain negative perceptions.
Take Geylang, for instance; it’s recognised as a red-light district yet is situated on the outskirts of the city, appealing to those wanting proximity to urban life. However, its “less-than-ideal” reputation could potentially affect your exit strategies, making future sales more challenging. This may not hold true in every case, but it is worth considering.
Just because a property is aged and situated in a prime area doesn’t necessarily mean it is undervalued. Furthermore, there are additional factors to take into account when buying an older property, such as potentially high renovation costs that could add to your financial strain.
4. Look out for motivated sellers
There are many reasons why homeowners are motivated to sell their property. They could be moving to another country, require urgent fundings for their business, or have already purchased a new home and are looking to avoid paying ABSD. As such, their sense of urgency might lead to them being more willing to reduce their asking price in exchange for a faster transaction.
There may also be sellers who have faced some sort of financial distress and are looking to liquidate their homes for quick cash. This sort of urgent situation may lead to them being open to lower offers and negotiations. You might be able to get the price reduced by approximately five to ten per cent. That being said, it is vital that you are vigilant when making such purchases. Always find out the motivation behind the sale, especially with undervalued properties, before making the final decision.
5. Look out for developments approaching their ABSD deadlines
Everyone is liable for ABSD when buying a property in Singapore.
Singaporean citizens purchasing their first property are exempt from ABSD. However, it applies once they own more than one property. In contrast, permanent residents and foreigners must pay ABSD when looking to buy property in Singapore. This is an important consideration for foreign investors contemplating the Singapore property market.
Additionally, it is not only homeowners who face ABSD; developers acquiring land are also subject to it. According to IRAS, developers face a 40 per cent ABSD if they build more than five units, of which 35% can be refunded. However, they will only receive this 35% refund if they successfully sell all units within five years of acquiring the site.
As a result, developers nearing their ABSD deadline often offer incentives, such as significant discounts. For instance, Prominent Land, the developer of 38 Jervois, slashed the prices of the remaining 16 units by 13 to 24 per cent in 2020, managing to sell them within three days. Nevertheless, it’s important to note that such deals are rare.
- Pay attention to individuals looking to buy or who have already purchased their marital home.
An increasing number of young single Singaporeans aged 26 to 35 are investing in new private properties, opting to rent them out instead of residing in them for rental income. This trend arises because HDBs require a minimum age of 35 for singles to own an apartment. Furthermore, HDB owners must complete a five-year MOP before they can rent out their flats. Consequently, private properties appear to be the most attractive investment choice.
If these individuals plan to enter the next life stage of marriage, they will need to upgrade to a larger home, which means either facing a steep 20 per cent ABSD on their second property or selling their investment property first. Most would prefer the latter option as it allows them to save a considerable amount, benefiting their married life.
If they have already acquired their marital home but still hold onto their investment property, they must sell it within six months if they wish to have their ABSD refunded. In either case, you can expect such sellers to lower their asking price to facilitate a successful sale.
7. Look for older listings, including rental ones
Property listing websites like PropNex.com, 99.co, and PropertyGuru are excellent resources for finding undervalued properties. Although identifying undervalued listings can be challenging due to fluctuating listing prices, a bit of research might lead you to some hidden gems. Many sellers are open to negotiating their asking price if their property has been on the market for an extended period. Additionally, it’s not only sale listings that are worth examining; rental listings should also be explored!
Properties that have remained vacant for several months or even years could be worth investigating to see if the owners would consider selling. Don’t be disheartened if they decline your offer initially; it’s always possible to follow up after a few months to check if their stance has changed. The landlord might have reconsidered their decision. At this stage, enlisting the help of a property agent may be beneficial, as they can provide you with up-to-date transaction data to assess the difference between listing and market prices.
8. Property auctions
Property auctions are a less commonly known way to acquire properties at a considerable discount. This method involves selling properties to the highest bidder. There are various types of property auctions, but the most prevalent in Singapore is the English auction (Open Ascending Price Auction), where buyers can place bids either in person or online. Typically, a property firm like PropNex oversees the auction process.
Property auctions often lead to faster transactions, increasing the likelihood of discovering affordable or undervalued properties. Property firms usually organise these auctions regularly. While this approach does not always assure you will find undervalued properties, it is worth keeping an eye out for them.
Properties are generally sold through two main avenues: mortgage sales or owner’s sales:
- Mortgage sale: This involves properties that have been repossessed by the bank due to the homeowner’s inability to keep up with loan repayments. Consequently, the property is auctioned off to recover the outstanding loan amount along with interest.
- Owner’s sale: In this case, the homeowner chooses to sell their property through auction intentionally. Various reasons may drive this decision, such as the need for a quick sale, divorce proceedings requiring asset division, or homeowners aiming to expand their selling opportunities to enhance their chances of a successful sale.
Other key things to note before purchasing undervalued properties
It is crucial to understand that the least expensive property does not necessarily represent a great bargain. It is important to investigate the reasons behind the property’s low valuation before deciding to buy it. Furthermore, consider future aspects, such as the ease of selling or renting it, rental yields, and maintenance costs. Assessing growth potential and natural demand is also essential.
Pay attention to the immediate environment as well. For instance, does the property face heavy traffic? What is the state of the resale market? Additionally, inspect the exterior of the property for any structural problems. Reviewing the government’s master plan for the area can provide insights into any advantageous developments anticipated in the coming years. This information will greatly assist you in determining if the property is genuinely undervalued.
Final thoughts
Finding undervalued properties is like searching for a needle in a haystack, and the process can be quite time-consuming. However, investors and homeowners can simplify this task by utilising some of the methods mentioned earlier. Additionally, enlisting the help of a property agent, who has access to our in-house applications like the investment suite and business suite, can make your search easier.
For instance, the business suite features a “spot” function that enables agents to highlight your personal preferences, such as proximity to renowned schools and MRT stations, allowing them to assist you more effectively and efficiently. Regardless of the property you choose, it’s important to take the time to outline all your financial obligations to facilitate better budgeting for your ideal home.
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:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- 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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