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In this current environment of escalating PSF prices in Singapore, there might be some of you out there who thinks that buying landed property will be a better choice than buying a condo unit at a high-rise development.
With landed properties, the PSF price seems more value-for-money as compared to buying a new launch development.
The perception of lower PSF prices of landed properties however should be taken under the correct context though.
As someone who has owned a HDB flat, a condo unit and eventually a landed property, I realized the journey of each property type is very different.
Let’s explore the differences you must know in regards especially for the private condo and landed property ownership track.
#1: The Types of Loans You Can Take With Landed Homes
If you choose to buy a landed home from a developer, this is quite straightforward. There is only 1 loan you take.
But if you choose to buy a landed home in the resale market, you will have to be aware of something called a construction loan. For some new owners of landed homes, they might go for simple Addition & Alteration (A&A) which can be internal or external.
And there are those who might wish to go all the way.
For example, you purchase an old landed home and you decide to tear it down and build a new one – there are 2 loans you have to take. Typically, it will be:
Home Loan – $2.5 million
Construction Loan – $1.5 million
Why do people do this? This is because they wish to increase the Gross Floor Area (GFA) of the property, to make it more livable or simply to increase the value of the home for the future.
You would have probably seen this in various CNA articles like those below:
You can read more of such articles here.
#2: Coordination with Various Government Agencies
As a landed home owner, you have to learn to be self-reliant and really manage your own home development. All A&A projects have to be lodged online – even though if you might think it is a minor one.
You can check out this Residential Handbooks from URA where they go into specific details about the renovation or reconstruction works you can do if you are buying a semi-detached houses, bungalow or terrace houses.
You can submit your planning permission requests here.
At the same time, you have to be prepared to coordinate with various government agencies and get approval on what needs to be done especially if you plan to do a full rebuild.
Your will need a team of qualified personnel to coordinate and sometimes pre-consult for submissions. For example, a Qualified Person (i.e. architect or engineer) must certify and inspect the building plans before submitting them to the BCA for approval before any building work can commence.
All this take time and thus a rebuild process may be longer than required.
But of course before all this can happen, the Singapore government needs to know whether you can even qualify to buy landed property in the first place. Singapore citizens are welcome to buy without restrictions.
But foreigners will be subject to an approval process by the Singapore Land Authority – you can read the FAQ here.
#3: Construction Costs Have Increased By Approximately 30%
In the current COVID-19 pandemic, with materials and labor shortage, construction costs have gone up. How do I know this?
Because I am going through the same process as I do some rebuild work for my own home.
It is also a challenge to find the most suitable and qualified architecture and construction firms to work on building your dream home.
This is a very different ballgame from the typical interior renovation work you might be familiar with.
Even the Singapore government is affected when you see neighborhood upgrading projects get delayed due to rising costs.
So do bear this in mind especially if you have plans to buy an old landed home that might require extensive reconstruction. You have to factor in the increased costs.
Also do consider the maintenance cost of landed property in Singapore. To upkeep a landed home, you need to consider costs like:
exterior painting
pest control
landscaping
swimming pool costs & maintenance
Unlike a private condo development where you can pool the costs with other homeowners, you are solely responsible for the upkeep and maintenance of your landed property.
Take note of this when you are analyzing the pros and cons of owning landed home vs a private condo unit.
#4: Viewing Your Landed Home Ownership As Stewardship
There are some who think landed property owners breathe in a certain rarefied air. It is true to a certain extent – landed properties are limited in the context of Singapore.
Perception can work in several ways. You can be perceived as the striving homeowner who has achieved the Singaporean dream.
Or you can perceive this title of “landed home owner” as a form of stewardship. This is typically what I notice when I see families buy landed homes.
The landed property is:
a “forever home” – a place they intend to stay in the long-term
an investment to hedge against inflation
an asset to be passed down to the next generation
Just like a Patek Philippe – you never really own it, you merely hold it for the next generation.
Cheesy? Yes.
But is it true? Yes.
This is when I see sellers who are the children or grandchildren selling off the landed home which they inherit so the proceeds can be split amongst the beneficiaries.
Of course, there are some sellers who are empty-nesters and they decide to cash out and let go of their landed home to secure their retirement nest egg.
Just like buying the correct Patek Phillippe – emphasis on the correct – can be a solid investment, so can buying the correct landed home.
With condo developments being a dime a dozen and easily available, it is harder to generate such feelings of stewardship for private condo units.
#5: Scarcity Can Work In Your Favour
For those who are really keen to buy a landed home there are certain aspects you must not get too attached with.
One of it is the indicative valuation. You have to understand that the indicative valuation is merely a number in a very big context.
Landed properties only represent 5% of the total property supply in Singapore. This number has remained fairly unchanged over the past decade.
At the same time, you must remember the government has stopped selling land on a freehold basis ever since this country’s independence.
So a freehold landed property in Singapore is probably rarer than a Patek Phillippe Nautilus Ref 5711.
A freehold or a 999-year leasehold landed property is actually a golden ticket given its scarcity.
You can expect the demand for freehold to increase – which in turn will increase the gap of prices between freehold and leasehold properties.
Unlike a condo unit – where you have many backup choices in the event you get rejected by the seller – a chance to buy a landed home rarely appears in the market.
With that exclusivity and limited quantities available – the prices of landed properties are less susceptible to speculative purchases. This high entry bar acts like a safety net to prevent speculation from happening.
That is why landed property listings are guarded jealously by agents. Relationships between owners and agents are sacred, exclusive and only for a select few.
This means not any Tom, Dick, Harry property agent can come in to manage a buy/sell transaction of an exclusive freehold, landed home.
The players in this landed property game from the sellers, buyers and agents are really quantitatively small – in the context of Singapore’s overall property market.
This psyche of paying more needs to be adjusted – you have to understand that you are usually dealing with a very small group of homeowners and your alternatives are limited.
At the same time, negotiating with a very small handful of freehold landed owners requires a certain level of experience, knowledge and expertise.
The golden ticket of the freehold landed home can be seen easily in the price index graph:
It is an appreciating asset with solid returns for those who have the ability to own one. It is quite a different picture for 99-year leasehold landed homes.
So do take note of this disparity of freehold landed homes vs leasehold landed homes.
Conclusion
When you see the likes of business owners from Dyson, Grab and Secretlab – buying Good Class Bungalows (GCBs) which are the ultimate landed homes in Singapore – you know they are parking their monies in a very safe asset for hedging purposes.
In an era of low interest rates, this is how the rich park their monies to make sure it is not eroded by inflation and fluctuations of other tangible assets.
That being said, landed properties might not be suitable for you. If you make the wrong choice – it is ultimately a very expensive mistake.
If you were to fall in love with a landed home, would you be aware of whether you are overpaying or not?
Entering into an exclusive property segment that is more illiquid than the mass market segment can bring more harm than good.
That is why I invite you to sit down and do your own proper research. If you need help and consultation on the landed property segment, I invite you to contact me via whatsapp with your questions.
I did similar in-depth research when I was buying my first landed home years ago. And the information is still fresh in my mind seeing that I just closed on my 2nd landed home just a few months back.
If you are keen to explore your options in the landed property segment, feel free to contact me (Harvey Chia) for a no-obligation discussion at 9199 9141.
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