For property investors seeking to make a quick buck in the market, the purchase price is usually a big factor in determining how much capital gain the investor can make over the next few years.
Let’s recap, in general, there are a few ways property investors can get a high return on their investment.
I assume a non-landed residential condominium development.
- Rent out the unit with minimal vacancy in between tenants
- Sell the unit at a higher price than purchase
- Leverage up more
- Buy a run-down unit, refurbish it, then rent or sell it at a higher price than if no refurbishment were done
In this post, I’m going to identify a few properties that have prices that are at a substantial discount to their historical highs.
We’ll also see what we can learn as property investors to avoid making losses and generating as high a return as possible.
Let’s dive straight into it.
Properties with recent average prices below historical high
The following is a list of developments with recent average transacted prices far below their highest transacted price.
In the list, the highest transacted prices were usually registered in 2011-2013 which some say is the peak of the Singapore property market cycle, or in 2007 just before the Global Financial Crisis.
|Development||Date of highest price||Price psf||Average recent price psf||Discount|
|Avila Gardens||28 Feb 2013||1,700||750||55%|
|St Regis Residence Singapore||9 May 2007||4,600||2,200||53%|
|Reflections at Keppel Bay||23 Nov 2011||3,300||1,600||51%|
|Marina Bay Residences||15 Apr 2011||4,400||2,200||50%|
|Helios Residences||16 Jan 2013||4,000||2,000||50%|
|Skysuites 17||2 Jul 2013||2,400||1,200||49%|
|Draycott Eight||23 May 2007||3,200||1,700||47%|
Quick look at the curated list of properties show a number of them being in the prime CBD districts.
These developments for example, are St Regis Residences Singapore, Reflections at Keppel Bay and Marina Bay Residences.
There are other projects in Singapore that have recent transacted prices a way off their historical peaks.
Contact us and we can help you sift through some of them. If you’re looking for new launch condominiums, we can help.
How do I know property prices are high?
One lesson for property investors can be extracted from this.
“Entry prices are very important”
For some properties, it could take up to 7 or 8 years before prices climb back to the peak, and for other developments, it may not even rise back to the peak.
Generally, as the economy grows, house prices should grow along with it because demand for property is derived (“derived demand”).
demand for property depends on the result of changes in the prices for some other related good or service.
For example, residential prices rise or fall because of changes in demand and supply of raw materials, tenants (affected by government labour policy), land supply etc.
Office space prices and rents are affected by demand and supply of tenants such as law firms, tech companies (Google, Facebook etc.)
So how does an investor know when prices are high?
One way is to find out the yield of the unit. Yields take into account both the cash flow producing capability of a property and the price of it.
In the Singapore residential market, present rental yields are about 3.2%.
Historically, this is comparable to the 2001 period during the recovery after the Asian Financial Crisis.
Some may say this means property prices are quite high.
Not that simple actually because there are other factors to consider such as bond yields (historically low around the world due to expansionary monetary policy and a low inflation environment), government policy (stamp duties on the supply and demand side), economic growth, technological advances etc.
At the end of the day, one rule of thumb investors can look at is to find out where prices are now compared to historical peaks.
With a built in buffer when a property is purchased at good value, there is more potential for capital gains.
- Entry prices are one consideration on whether a property investor can extract as much value as possible from an investment.
- Whether prices are expensive or cheap now depends more than looking at property yields, though it is one indicator.
Share with us, what do you look out for before buying a property for investment?
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