Location, location, location.
This famous mantra was coined by Harold Samuel in 1944. For years, it has been quoted whenever anyone is asked what makes a good property.
But is it really all about location?
For example, some homes seem to have all the attributes of a good property. They are very close to an MRT station, less than 1km from a prestigious school in Singapore’s central region, near amenities, and even have a freehold tenure. But they don’t sell as well as one might expect.
On the surface, a property’s location certainly plays a huge role, but it’s not that simple. Seeing the essential attributes of a property requires a certain level of astuteness. Some people can see the hidden investment value in a dilapidated shack in a Geylang alley, while others, despite having access to a wealth of property data, unfortunately still end up with mediocre property assets.
Therefore, if you are in the early stages of investing in a home, we have compiled some essential basics you need to know for your reference.
While these alone won’t make you an expert—that requires experience, after all—it will at least help first-time homebuyers take the right first step:
Table of Contents
The “Right” Property Depends on Your Purchase Intention
Before you start looking at different properties, you should be clear about your intentions. For a pure homebuyer, choosing a property that is good for investment might be the wrong move. For example, a homeowner might not enjoy living in an integrated development with a noisy shopping mall, even if it has good rental prospects.
For different home-buying goals:
- For own stay
- Right-sizing
- Upgrading (e.g., selling an HDB flat to upgrade to a private condo)
- Investment (capital gains on resale, rental income, etc.)
The qualities you should prioritize for a home will differ. If you are buying a home for your own stay, you don’t need to worry as much about rental yield since you won’t be renting it out anyway.
If you are an upgrader planning to move in five years, you can overlook certain less desirable qualities, such as having to stay in an area with poor connectivity for now. This is especially true if prices are likely to rise in the next five years when a nearby school is completed.
When your needs are clear, choosing a property becomes much easier.
Key Qualities to Look for in a Property
- Accessibility
- Amenities vs. Disamenities
- Remaining Lease
- Transaction History
- Rentability and Rental Yield
- Layout
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2.1 Accessibility
Generally, properties near an MRT station sell better. However, this does not mean that properties near an MRT station will yield better returns.
New MRT stations are often announced many years in advance, so most developers will price in the upcoming station. Even the relationship between rental yield (see below) and distance to an MRT station is not consistent.
However, investors should favor properties near MRT stations because they are generally easier to find tenants for (improving rentability, even if not the yield). Tenants also tend to be “stickier” and may accept longer leases when they experience the convenience.
Similarly, properties near an MRT station typically attract a wider range of potential buyers, making it easier to find a buyer. This is different from getting a better return, as the buyer may have also paid a premium for the property.
This is especially true in an era where cars will become increasingly expensive, with car taxes and COE prices soaring in 2023. In a sense, being located near an MRT station can effectively “save” the money that would have to be spent on a car.
The maximum comfortable walking distance for most healthy adults is about 1 km, which takes about 10 to 13 minutes to walk. This can be used as a standard for measuring accessibility. If it’s beyond this range, most people would consider it too far from the MRT station.
If you are a homeowner, remember to consider children or family members with mobility issues; the phrase “a five-minute walk to the MRT” may not apply to them.
Finally, note that accessibility cannot be measured by a map alone, as it can be very different from reality. Walking times on Google Maps do not account for terrain, such as steep slopes, or even the extra time it might take to cross a dangerous path.
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2.2 Amenities vs. Disamenities
Look for the following places within a 1 km radius:
- Grocery store
- Clinic
- Mall
- School
- Workplaces (especially business parks or tech hubs)
- Entertainment venues (like cinemas, stadiums)
- Parks, park connectors, nature trails
Obviously, the more of the above you can find within a one-kilometer radius, the more attractive the location generally is. But be aware that some places can be both an amenity and a disamenity. Such controversial places include:
- Places of worship
- Hospitals
- Airports
- Nightlife
- Malls, offices, and schools
For example, The Ola EC, located in front of Sengkang General Hospital, may be preferred by some for its proximity to healthcare, while others may worry about ambulance sirens at night. Some also consider feng shui, which generally advises against houses facing the entrance of a morgue.
All the above factors bring a certain degree of noise and traffic congestion. For homeowners, whether they can be considered amenities is subjective. For example, if there is an office building near your home, but you neither work there nor rent out your property, then the office building is not an amenity for you.
2.3 Remaining Lease
New investors are advised against choosing older leasehold properties. Investors who buy old properties often rely on rental yield, trying to buy properties at a low price due to lease decay but renting them out close to market value. While this is a viable strategy, it is high-risk because older properties are not easy to sell if something goes wrong.
Therefore, for leasehold properties, it is best to limit your search to those that are no more than 30 years old.
The same is true for those buying for their own stay. If you purchase a property in the late stages of lease decay, you will have fewer options later. For example, the possibility of downsizing will be lower if your retirement funds are negatively affected.
To understand the difference between leasehold and freehold tenure in detail, you can consult with us.
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2.4 Transaction History
A property’s transaction history allows buyers to set reasonable expectations, including a fair price and potential returns. You can compare the transaction history with that of neighboring units within a one-kilometer radius to gauge its overall performance.
This information can be obtained from the caveats lodged with the Urban Redevelopment Authority (URA). However, since the data can be difficult to sort through, you can also contact us directly, and we can help provide the information.
Typically, buyers might want to know from the data about the transaction flow: are there consistent unit transactions every month? Or was there a year with no transactions at all?
This is often the case with small boutique condos with only a few units. If a buyer wants to purchase a unit in 2023, but the last transaction for that unit was in 2019, how would they assess the new price to pay?
Similarly, seeing consistent transactions is a good thing. It’s safer when more people are buying at roughly the same price, which means the buyer isn’t setting a new price record.
2.5 Rentability and Rental Yield
Rentability refers to how easy it is to find a tenant. Rental yield is the ratio of the annual income generated by a property to its total price. The two are not the same.
The formula for gross rental yield is simple:
(Annual Rental Income) / (Total Property Cost) x 100.
For net rental yield, you would deduct other recurring expenses from the rental income, such as property tax, maintenance fees, utilities, etc. You can also add one-time costs like stamp duty, legal fees, and renovation costs to the total property cost:
(Annual Rental Income – Recurring Expenses) / (Property Cost + Stamp Duty + Legal Fees + Renovation Costs) x 100
In Singapore, the typical gross rental yield for most condos is between 2% and 3%, while compact units (510 sq ft or less) have a gross rental yield of 3% to 4%.
Net rental yield averages between 1% and 2%, and 2% to 3% for compact units.
These figures are higher now due to the high rental market, but don’t expect these current yields to last long-term.
If you can find a property with a higher yield than this, you might have struck gold. However, be aware that high yield often means a low price; high yield can also be due to advanced lease decay, poor accessibility, or lack of amenities. These factors will affect rentability.
To understand rentability, you can try to investigate details such as:
- Past vacancies (watch out for properties that have been untenanted for a long time without a reasonable explanation)
- A large number of short-term leases (this suggests tenants see it as temporary housing and want to move quickly, or they think they can easily bargain when renewing)
- Any incidents where tenants have voluntarily broken their lease for reasons related to the residential complex (e.g., fights with security). You need to check if these are ongoing issues.
Information on rentability is hard to dig up, so you may need to rely on a real estate agent.
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2.6 Layout
Sometimes, a house has the right location, lease, and amenities, but it’s ruined by a poor layout. After all, the house is where we spend most of our time.
Generally, when buying a house, you need to consider today’s living trends. For example, there was a time when older two-bedroom units could be as large as 1,000 sq ft, but this often came with a yard and utility room. The demand for such two-bedroom units has decreased, and even if the price per square foot is cheaper, it might be harder to sell because its total quantum is often higher than that of newer, smaller units.
Here are some key factors to consider:
- Efficiency of the layout
- Options for future renovations
- Dual-key units
- Ratio of functional space to open space
- Long-term suitability
Finally, this article does not comprehensively list all the factors to consider when buying a property. We will be doing a Part 2, so please stay tuned.
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