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How to pick a landed property wisely in a S$2,000 psf climate

In Singapore, it's no secret that new property launches, and even resale properties in select districts, have been consistently hitting the S$2,000 per square foot (psf) mark for quite some time now. The big question on everyone's minds: Is this trend set to continue into the foreseeable future?

Regrettably, the short answer is yes. While this S$2,000 psf price point has become standard in the Core Central Region (CCR) and districts like 15, 19, and 20, other areas, such as districts 11, 13, and 16, are experiencing the ripple effects and gradually catching up. In essence, when you find a district that resonates with you, it becomes your own personal CCR.

However, buyers and sellers view the market through different lenses, resulting in a price gap. So, how can a prospective buyer justify paying S$2,000 psf when the market might not fully support it, but they genuinely love the location? Here are some factors to consider that could make this investment a wise decision.

1. Opportunity cost

In Raama’s view, every purchase (or non-purchase) has an opportunity cost that realtors are obliged to bring to our client’s awareness. Say, you’ve taken to a landed property that checks all your boxes in a desirable location. The question is, how long can you afford to wait for a similar listing to become available if you passed on it? Crucially, what might you end up paying in the future? The inventory of landed properties is inherently imbalanced, with only a fraction of the districts you desire to purchase being listed for sale. This, in itself, is a bit of a gamble. Furthermore, waiting could lead to price increases due to ongoing construction and neighbourhood transformations. Some buyers opt to address their needs immediately, and historically, those who remained indecisive often found themselves on the losing side.

2. State of the market

In a seller's market, we don't typically negotiate for lower prices. It's a situation where either you or another buyer is poised to grab the opportunity. If a seller is requesting 5-10% above the market value, we typically urge buyers to secure their place in this competitive segment. Sceptics out there may say: Of course you’d say that. You’re a realtor! Well, being a realtor does help us to put the 5-10% premium into perspective for our clients. In reality, that isn’t a big ask, especially when you consider that just from January to September, landed property prices in District 19 have surged by a significant 20%.

3. Structure of the property

Build-up is yet another reason to fork out S$2,000 psf for a landed property. When it’s clear that the seller has made substantial investments, like increasing the number of rooms and stories of the property, its overall value increases. When compared to an untouched piece of land in its original state, a renovated property typically holds a superior position. Recently, Raama facilitated a deal involving an older house in its original condition. The owner had higher expectations, but the property was eventually sold to a buyer with plans to rebuild it and sell it within three years. As realtors, our expertise lies not only structuring such deals but also employing trade secrets to achieve a win-win solution for all parties involved.

How would we pick a landed property in today’s market?

In a climate where S$2,000 psf is the new norm, where would realtors like ourselves put our money to turn a profit within five to seven years? While Jackie acknowledges that landed property prices will surely appreciate over teh years, he admitted that he has a soft spot for District 20 (The areas around Sin Ming, Thomson, and Sembawang Hills hold particular appeal.. The Thomson East Coast Line, which swiftly whisks you to Orchard in a mere 10 minutes, is a major draw for him. Additionally, it’s enveloped by prestigious schools such as Ai Tong School and Catholic High School, which naturally broadens his pool of potential buyers. Likewise, Raama sees great potential in districts with high-quality schools in their midst. On top of that, he looks out for a promising growth story and the layout of the house.

What about me? Firstly, the size of your plot plays a pivotal role. If it's relatively compact (1,000 to 1,600 sqft), a price point around S$2,000 psf is almost a given. If you're entering the market at S$2 million, chances are you'll exit with a value closer to S$3 million. However, once you surpass the 2,000 sqft mark, you should consider having specific features that can justify prices of S$2,4000 psf down the line. This could include factors like the direction the house faces, its house number, or parking considerations.

Why prices will not come down

We will not hold our breath for prices to come down for two reasons. One, landed properties in Singapore are very close to the heart of their owners, often because they are deeply entrenched in a family’s legacy. As such, most owners are very unlikely to let go of them, let alone settle for a price below their expectations. Two, even an increase of interest rates is unlikely to sway this group. Unfortunately for you and fortunately for them, the sellers we represent today do not have a lot of debt in their portfolios. If anything, when they price their landed properties at S$2,000 psf, they consider it a reasonable number because of one simple concept: replacement cost. If they were downgrading to a private condominium, it would set them back by S$1,700 psf at the very least, and that is if they’re buying a 3-bedroom unit. To be frank, this is unlikely as most landed homeowners are used to large spaces. Realistically, they will look at 4-bedroom units, which will come up to 2 million easily.

You may say: Surely they can turn a profit if they bought a maisonette or a 5-room HDB flat with their earnings? It’s true, but it also means they would be subject to the 15-month wait-out period, which deters most landed homeowners from buying an HDB.

Cheap leasehold vs expensive freehold

If the S$2,000 per square foot (psf) price point feels a bit challenging to accept, here's an even tougher reality to grapple with: these days, even 99-year leasehold landed properties are commanding such prices, not to mention the freehold and 999-year leaseholds. The dilemma you might face is whether to opt for a 99-year leasehold property with an existing structure at S$1.3k or S$1.4k psf, or go for a smaller plot at S$2k psf with an older house.

If you have the financial means to make a purchase, Raama's advice would be to consider a freehold property. One of his clients bought a semi-detached property in District 14 for 4.2 million, although it wasn't an easy decision. Fast forward three years, his Seller's Stamp Duty (SSD) obligations concluded, and he contemplated selling due to a downturn in his business. Over those three years, he enjoyed living there and now has the flexibility to proceed with his decision.

Similarly, Jackie, who "always goes with freehold when it comes to landed property," prefers the peace of mind that comes with never having to worry about lease decay. This perspective is also valid and depends on when the "lease decay" narrative will resonate with the market, similar to what happened in the HDB segment in 2018. So far, this fate hasn't befallen the 99-year leasehold segment, but predicting the future remains uncertain. Ultimately, it's about your personal comfort level.

Not sure what your next move should be? Reach out to me (Harvey Chia) at 91999141 for a non-obligatory chat.


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