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What is a good investment property right now?

good investment property

Which property to pick as investment now?

Catching up with colleagues recently, the conversation naturally tends towards properties. We had an interesting discussion on what is a good investment property to acquire now

Our conversation centred investment properties and not properties meant for a dual purpose of own stay and investment. Very often, the objectives for either purpose are difficult to align and could at times be opposing!

To keep things realistic, the hypothetical investor that we created must represent those that we are likely to encounter. I have summarised our discussion into the funnel below.

investment property funnel

Macro-economic factors

Buy low sell high. This is the investment adage we all know about. When making an investment, it is critical to consider the current macro-economic factors. 

Is the economy expanding or contracting? How is the employment situation? Is the population carrying too much debt? How is the demographic landscape changing? Where is the interest rate heading?

I won’t go into details here as I have shared my thoughts in a previous article which you may want to refer for a more in-depth discussion.

Hotspot

Next, is identifying where the growth areas will be. In Singapore, the plans for development is clearly laid out by the Urban Redevelopment Authority (URA). 

Over the years ever since URA have created their concept and masterplan, we can see that our government has stayed true to the plans in developing the country.

Therefore, studying the plans carefully and following the lead of URA, is the veritable way to go for your real estate investment.

On this topic, I have also written a more detailed article on identifying potential hotspots.

Capital growth 

While we were sipping our lattes and deliberating on this topic. The consensus is that capital growth is more important than yield. The reason is that yield is generally low in Singapore.

If an investment is focused on yield, then the return on investment will not be as profitable as one that is focused on capital growth.

The potential for capital growth is tied closely with identifying growth areas through careful scrutiny of the plans laid out in the concept and masterplan available through the URA’s website. 

URA concept plan
URA Concept Plan 1971, 1991 and 2001

Look for areas where the government has announced plans to attract businesses to set up shop, create more jobs, and attracting more people to live, work and play there. One example would be Punggol 21.

When it was announced as a new town, the government also laid plans to create a digital district there. It also pushed to redevelop the Seletar Aerospace Park. 

Although it didn’t take off immediately, however, over the last two decades, we can clearly see the tremendous transformation of Punggol from a sleepy backwater to a bustling centre of activities. Property prices, too, have grown by leaps and bounds. 

But that is in the past. Let’s look for future potential. The most recent announcement of a new town is Tengah. This housing precinct will support the transformation of the Jurong Regional Centre to that of Singapore’s second Central Business District.

Featuring a new name, Jurong Lake District. This district also consists of Jurong Innovation District, Tuas Megaport, a new national garden known as Jurong Lake Gardens and will serve as the southern gateway to the One Belt One Road initiative.

Another indication of the capital growth potential is the expansion of transportation links and capacity. With the announcement of the Cross Island MRT Line and the Jurong Region Line.

Looking at the MRT map of this region, it would not be remiss to link the Jurong Lake District to our Shenton Way, Raffles Place and City Hall of the 1990s. 


Jurong region line map
MRT lines and stations in Jurong Lake District. Source: ChannelNewsAsia.com

As more businesses start to move to this location, with the government leading the way by shifting their ministry’s headquarters to this location, more people would want to live near their workplace.

The virtuous effect of having more people living and working in this region will attract more business and even more people to desire to reside here. Thus boosting demand and hence the price of real estate in this location.

It is also human nature to want to live in a new and modern environment. Looking at Punggol again as an example, some of the prices for their flats are just shy of more centralised housing estates like Tiong Bahru!

Rentability and yields

Although I said yields aren’t as important as the potential for capital growth in the preceding section, it is nonetheless still an important factor as we shall see shortly.

When evaluating investment properties, the yield must exceed the interest rate you are paying for your mortgage. This is necessary for the investment to be viable. 

However, with the low-interest-rate environment currently. Coupled with a fairly healthy rental market, the yields are mostly above the mortgage rates. Resale properties tend to have a higher risk of having a lower spread of yield to rates. 

We noticed that the newer properties tend to fetch better yields as compared to older resale properties. The higher the spread you can achieve the more your rent will be able to cover the monthly mortgage payment.

A healthy yield is also a function of rentability. Demand from tenants ought to exceed the supply of units. Many expatriates seek properties with great amenities, offers convenient transportation means and near to good International schools for their children.

Modern condo facilities

The design, layout and utilization of space also play a part in attracting tenants to consider living there. Projects with modern and lifestyle-themed facilities will score well too.

Right entry price 

For new launches, the right entry price is dependent on what strategy the developer is using to price their units. 

The developer will adopt a sell at breakeven (or even a slight loss) at the beginning then followed by a gradual price increase.

Or they will sell at a market rate and then move units later by giving discounts as they near their deadline. 

The choice of which is mainly dictated by the price of the land they bid and the market condition when they are ready for launch. 

Singapore property investment

If they are able to launch when the market is roaring, they might choose to go with the latter strategy and sell as much as they can at market rate, locking in profits beforehand.

However, if they are launching into a soft market, they might price their units at breakeven prices to entice buyers. They will then raise prices once they achieve a certain level of sales.

For the investor, we need to recognise at what stage and strategy the developer is using and ascertain whether the price offered is the right entry price.

Margin of safety

On rare occasions, there might be an opportunity to own an asset at a very special price. Should the market falls in the interim, the entry price is such that there is sufficient buffer to withstand any short term volatility. 

Encountering such a scenario doesn’t necessarily mean it must be a fire sale property. The margin of safety can come from the fact that the majority of the transaction is above the price you entered. 

Therefore, few sales, if the condition doesn’t warrant it, will occur at the prices where many owners have brought. 

Margin of safety opportunities often presents themselves when there is an upheaval in the market. The most recent example would be the COVID-19 crisis.

Conclusion

So the question is, does such a property exist? At the risk of getting booed, I shall not name this property for the simple fact that this was merely an exercise in formulating a general principle that can be applied at any time under any conditions. 

This property may pass the scrutiny now, but conditions change and more importantly, your situation is unique, which may render another property as being more suitable. 

Everyone’s capacity for investment is different. Their investment time horizon is also different. Some are more risk-averse. Some are not.

Therefore, I urge you to seek unbiased advice if you are seeking for an investment property. To get started, click a date below and select a time slot that is convenient for you.

 

farrand ashlyn

About The Author

Farrand Hey writes to share his experience gathered over the last decade of serving homeowners and investors. 

He is passionate about helping the younger generation plan for their future and grow their wealth.  

His clients and colleagues alike frequently sought him out for his unbiased and honest views. 

When he is not busy with work or writing, he loves to cook and watch reruns of Top Gear.

Farrand also makes it a point to stay healthy through exercise as health is wealth. Although he finds it hard to resist the lure of tasty food.

Recently married, he is still basking in marital bliss. That’s a photo of him the day after proposing to his wife.

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