What size to buy? New or resale? Most importantly, what’s your exit plan when you invest in a property? Three experienced property agents shares tips and more.
A STUDIO OR A BIGGER UNIT?
After you have decided on the district and type of property you’re interested in (say, a condominium), do your homework to find out the demand in the area. “In certain areas, there is a high demand yet low supply of smaller units with one or two bedrooms.
In this case, it is more worthwhile to consider getting a smaller unit instead of a three-bedroom just because you can afford it,” says Daniel Wong, associate group director at PropNex Realty. “For a property to make money, its rental has to be strong, so it is equally important to understand the supply and demand of the area to determine competition.”
CONSIDER THE RENTAL YIELD – NOT JUST THE PRICE POINT
Rental yield is the by-product of capital gain. Buying a cheap larger unit that does not offer an attractive rental yield can become a financial headache down the road. Property investment is a long-term thing; it cannot be immediately liquidated if you cannot afford to upkeep it.
And don’t forget that you have to pay the Seller’s Stamp Duty of 12% if you sell it within the first year of purchase; 8% within the second year; and 4% within the third.
Also, while it may seem pricier at first, a sound investment will work hard to make you more money. Wong shares a case study of a client who bought a one-bedroom unit in Tanjong Rhu for $998,000 in September 2017. Initially sceptical about paying such a high price in the prime location, the client felt she could easily get a two-bedroom place somewhere else.
He explained why he believed the unit was undervalued and thus a good buy. “It was freehold and just next to a new MRT station being built. Compared to the neighbouring projects, and despite being freehold, the unit was priced pretty low. I was convinced it would appreciate once the station was ready.” True to his prediction, that unit is worth $1.13m today. “My client made a paper profit of $132,000 in just 18 months, which is rare for a one-bedroom apartment.”
THE GOOD THING ABOUT BUYING COMMERCIAL PROPERTIES? INVESTORS DON’T NEED TO PAY THE ADDITIONAL BUYER’S STAMP DUTY. FOR A SINGAPOREAN BUYING A SECOND RESIDENTIAL PROPERTY, THE ABSD IS 12% AND THE THIRD, 15%.
NEW CONDOS STILL BEING BUILT: ARE THEY GOOD BUYS?
It’s no secret that new condominiums are priced higher than resale units in the same area. Their designs are often more compact, too. “They also offer terrific per square foot growth if you’re one of the lucky buyers in the early launch phase,” says David Ng, senior associate marketing director at PropNex Realty.
Seasoned investors are often invited to VVIP launches ahead of everyone else. That is when the discounts are the steepest. To get on that coveted list, it helps to keep in regular touch with one or a few trusted property agents who know your requirements and budget well. You may want to get on the mailing lists of developers or look out for advertisements on social media as well.
Or ask your agent if a developer has any “Star Buys”. Some can be very attractive.
Alternatively, units with addresses deemed less lucky, like #04-04, which the Chinese associate with “death” can usually be picked up at a bargain price. An added bonus of buying brand new: “Developers may offer manageable progressive payments that could be spread out over many years,” according to Ng. So, yes, you can find great deals for new condos if all the stars align!
GO WHERE OTHERS HAVE NOT VENTURED
Low Po-Yu, senior marketing director at ERA Realty Network, says a brave investor with the courage to venture where others have not been often stands a better chance of making a tidy profit.
Always looking for ways to make her clients’ money work harder, she enjoys sourcing for properties off the radar and spotting opportunities that others have missed.
Low shares the case of a client with a freehold three-bedroom condo that brought her a steady rental yield until its value plateaued. As she was making just a little over 2%, Low advised her to sell it.
“The sell one, buy two concept is very popular now. With my client’ profits, I helped her to buy two properties: a $1m condo apartment and an industrial B2 property.”
B2 properties are zoned to be used for industry, warehouse, utilities and telecommunication uses, whereby the business uses will impose nuisance buffer more than 50m, and within health and safety buffers. Special industries such as the manufacture of industrial machinery and shipbuilding and repair may be allowed in selected areas and are subject to evaluation by a competent authority.
Examples of B2 properties are the ramp-up factories of West Park Biz Central in Pioneer Crescent. Although Low’s client is a business owner, she’d never thought of getting a B2 property.
“Many investors think of residential first, office next, and then retail. They don’t think of investing in noisy workshops.” Low shares some benefits of venturing into this market. Firstly, investors don’t need to pay the Additional Buyer’s Stamp Duty (ABSD) when purchasing commercial properties. For a Singaporean buying a second residential property, the ABSD is 12%, and the third is 15%.
“Secondly, businesses that require a B2 space, like carpentry workshops, cannot rent B1 spaces. This means you have a captive tenant pool that’s likely to sign very long-term leases. Also, the government tends to develop more B1 spaces, which creates a demand for B2 spaces.”
Based on Low’s advice not to put all her eggs in one basket, her client paid for her B2 property in full and took a loan for the new apartment. “Her rental yield has since jumped four-fold to 8%.” More importantly, the long-term stability means she enjoys peace of mind during her retirement.
If you are looking to invest in a property, it pays to think out of the box!
Photos COLLECTIVE DESIGNS