If you have a couple hundred thousand bucks (or even a million or two) sitting idly in your bank account earning a pittance in interest rates, you may want your money to work harder for you.
You’re not much of a risk-taker, which is why you feel real estate is a safer bet than perceived volatile financial instruments like cypto-currencies, futures options, and Forex. As the saying goes, you don’t want your fingers burned.
Supposing that you’ve already set your mind on investing in property, the question now is: what kind of property should it be?
Want your money to work harder for you?
Leaving aside commercial and industrial properties, properties in Singapore can take the form of HDBs, condominiums and landed houses.
The obvious disadvantages of investing in an HDB and landed property here
Back in the 60s, the Singapore government came up with the housing board scheme to enable the populace to own a roof over their heads.
Priced very affordably, HDB flats are meant for own-stay and not as an investment vehicle. As a matter of fact, there are strict rules governing the rental of HDB flats with heavy penalty awaiting anyone running afoul of these rules.
With HDBs out of the investment equation, then how about landed property?
A sizeable number of landed residential properties in Singapore are privately owned and, as such, are available for investment.
Singapore’s iconic black and white bungalows are not for sale. You can rent one from the government two years at a time.
However, being land scarce, Singapore has only a limited supply of landed properties, and you have to be pretty wealthy to afford one for investment.
Besides being extremely expensive, landed properties also mean you have to take care of more aspects of the property as a landlord. For example, leaks in the roof, a crumbling wall, blocked drains within your compound come under your list of responsibilities.
If you prefer to be a more hands-off landlord, then this leaves you with condos for investment. With condos, you can buy, find a tenant, pay your monthly maintenance fees, and then simply let others do the heavy lifting for you.
How’s the condo development scene in Singapore?
Despite the onslaught of the Covid-19 pandemic in 2020 and 2021, which brought much hardship to many economic sectors in Singapore, condo development remained buoyant.
2019
Source: Singstat
2020
Source: Singstat
2021
Source: Singstat
2022
Source: Singstat
Just before the pandemic struck, there were 80 new condo launches in Singapore in 2019. Understandably, this number tapered down to 26 and 24 respectively in 2020 and 2021 with shortages in foreign labour being the main stumbling block.
However, with the opening of the economy this year, 2022 has so far seen 30 new launches and a projected 33 more.
The strongest indication of a heated property market is when the government announced an across-the-board increase in the Additional Buyer’s Stamp Duty (ABSD) in December 2021.
In short, real estate is still seen as the investment of choice among Singapore investors.
And why not?
Unlike other financial instruments that can see your capital diminish (or worse, vanish) overnight, real estate is universally recognised as fairly stable, investment-wise.
Hold onto it long enough and you can even earn a very healthy profit from its sale. Meanwhile, if you put it up for rent, you can use that rental income to offset your monthly loan repayments and, if there’s balance, save it up for your next condo purchase!
However, don’t entertain the idea of using your property for Airbnb. Unlike other countries that are more lenient in this respect, Singapore has strict laws regarding short-term stay. For HDB, renters have to commit a minimum of 6 months, while it is 3 months for private properties like condos.
With all things considered, real estate is a wonderful income-generating asset if you can afford one and can afford to hold onto one for the long-term.
It is even more so in the uncertain economic times that we’re living in today. Besides news of a looming recession, we’re now in the middle of an inflationary market, no thanks to the pandemic and the Russian invasion of Ukraine.
Investing in real estate will help cushion the blow of capital fluctuations because properties are not short-term investment instruments.
Pros of investing in a condo in Singapore
1. Capital appreciation
Like in anywhere else around the world, location is a big factor in determining the value of a property.
Those that are sited near amenities, such as transport hubs, schools and malls, are highly prized and thus, fetch a higher valuation price. That’s why Singapore properties that are located in the CBD are unsurprisingly valuable.
But, in Singapore, condo buyers have an extra advantage.
You may still reap a nice harvest if you invest in a condo in the suburbs today. If you have not heard about it yet (which is unlikely), the government is planning to de-centralise our island nation.
Artist’s impression of Jurong Lake District, Singapore’s next largest business district and a world-class sustainability district (Image courtesy of KCAP Architects & Planners, SAA Architects, Arup, S333 and Lekker)
What this means is areas deemed as suburban today, such as Punggol, can very well be the CBDs of tomorrow in Singapore. Just imagine your property’s value going up in multiples!
But let’s not get carried away and start building castles in the air. Rome was not built in a day. If you’re dreaming of selling off your condo for a big pile of cash, be prepared to pay for the down payment, BSD, ABSD, legal fees, property agent’s commissions, maintenance fees, renovation costs, bank loan and whatever that needs paying, today.
2. Good rental potential
With a seemingly endless stream of foreigners (students and job seekers) flocking to our shores every year, the residential rental scene in Singapore is ever buzzing.
As a condo owner, you will most definitely have eager would-be tenants knocking on your door, particularly those with a little bit more to splurge. To this group, the resort-like facilities of condos are worth spending that little extra on.
Tenants, particularly expats, are attracted to the resort facilities condos offer
Let’s allow the numbers to do the talking. Check out the tables below to see how much the median rentals are by district.
City & Southwest (D1 – D8)
Source: Squarefoot
Orchard/Tanglin (D9 – 10)
Source: Squarefoot
Newton/Bukit Timah & Southwest (D11, D21)
Source: Squarefoot
Cons of investing in a condo in Singapore
1. Large capital outlay
In Singapore, the average size of a condo unit is 1,053 sq ft and the average price per square foot is $1,731. Compare this with the average size of an HDB unit of 1,067 sq ft with an average price of just $507 per square foot, and you will see a world of difference.
This means that you have to be mentally, emotionally and financially prepared if you want to invest in a condo. As real estate is for those who can play the long game, you must acknowledge that your investment will be illiquid for a very long time.
On top of that, current lending rates are not particularly favourable. According to a Straits Times report on 30 June 2022, UOB raised the rate on its three-year fixed rate package to 3.08 per cent per annum, up from 2.8 per cent previously.
2. The 99-year time bomb
With limited land, Singapore has more 99-year leasehold condos than freehold ones.
Although you can still find freehold condos to invest in, it makes more sense to choose a 99-year leasehold. Reason being, leaseholds are less pricey than freeholds by 15 – 20%, and also tenants don’t care what lease tenure your property is.
However, the downside to investing in a leasehold condo is its expiring lease. When there’s less than 30 years on its lease, the value of your property would have depreciated quite a bit. Plus, banks don’t extend loans at this point, so you’ll be hard-pressed to find a willing buyer.
To know more about freehold and leasehold condos, click here Should I buy a freehold condo? and here Should I buy a leasehold condo?.
We’ve laid out the facts about whether or not to invest in a condo. The decision is now in your hands.
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representatives.
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