When you buy a residential property, you are not just buying the unit or the housing development itself, but also the surrounding environment and community of that property—not just in the here and now, but also the future development of the area. Simply put, a luxury apartment in a location with poor transportation and amenities may not be a sound investment.
The prospects of a physical property are inevitably tied to its location, which is why property values may rise when a new MRT station appears nearby or a new facility is built. Conversely, if a neighborhood falls into disrepair over time without property renewal, home values may stagnate or even decline.
Related Articles:
Beyond location analysis, potential investors will also want to review the capital growth and rental potential of a residential development, as well as consider the target tenants if you are renting out the unit for rental income.
It is often said that property investors should do their homework before buying. Here are 4 important factors investors should consider when evaluating a potential purchase—preferably with the help of a reliable real estate agent.
1. Analyze the Blueprint for Urban Transformation
To better understand how a region will develop, it’s always good to have a blueprint. This is where the Urban Redevelopment Authority’s (URA) Master Plan—reviewed every five years—comes in. The latest 2019 Master Plan aims to create sustainable green spaces and living amenities for all to support our future needs, while rejuvenating some of our familiar places for more optimized land use. Some notable examples of ongoing urban transformation include the Jurong Lake District, Greater Southern Waterfront, Punggol Digital District, and Woodlands Regional Centre.
Figure 1: Bishan URA Master Plan 2019
For instance, in the 2019 Master Plan for the area around Bishan MRT station (see Figure 1), a plot of land has been zoned for commercial use (in blue) and marked as “subject to detailed planning”. This means there is a possibility of new commercial developments like office towers or mixed-use projects (office/retail/hotel) on the site in the future—integrating with existing commercial projects in the area. This detail in the 2019 Master Plan can be very helpful for assessing growth potential if a buyer is looking to purchase a home nearby.
For example, more commercial offerings nearby can bring greater convenience to residents, and more companies moving into new office buildings could enhance the rental appeal of homes there.
Related Articles:
2. Capital Appreciation and Rental Prospects
Generally, the transformation of urban spaces often improves accessibility and connectivity with new and old amenities and infrastructure, thereby enhancing the lives of residents. While many factors influence price trends (such as supply-demand dynamics and economic health), the introduction of new amenities in a precinct tends to make the area more popular and can help support prices and rental values.
Take Jurong East for example. Over the years, the area has undergone significant rejuvenation, with the development of several commercial properties and new homes, bringing new life to the neighbourhood. According to URA Realis data, the average transacted price for non-landed resale private homes in Jurong East has risen steadily following the completion of JCube, JEM, and Westgate between 2012 and 2013, and later the opening of Ng Teng Fong General Hospital in 2015—with average prices climbing from $839 psf in 2015 to $1,219 psf in 2022 (see Chart 1).
Chart 1: Average Price of Non-Landed Resale Residential Properties in Jurong East
As the transformation of Jurong East took shape, the home rental market also saw improvements. In terms of rental volume, Jurong East saw a spike in Q2 2017 (see Chart 2), where the number of rental contracts rose to 355 from 217 in the previous quarter—a quarter-on-quarter increase of about 64%. Since then, rental volume has continued to hover around the 200- to 300-mark, which is higher than the 100 to 150 rental contracts seen prior to 2016. Meanwhile, the median rent on a psf-per-month basis has generally trended upwards, despite some fluctuations from quarter to quarter.
With the upcoming Jurong Lake District—billed as the largest business district outside the central region—set to be an exciting lifestyle, business and tourism hub, it is possible that investors and future residents may see some capital appreciation over the medium- to long-term.
Chart 2: Rental Volume and Median Rent of Non-Landed Private Homes in Jurong East
3. Potential Future Tenants and/or Resale Buyers
Understanding the target audience is important. Investors need to envision who the potential tenants for the unit will be—are they expatriate families with school-going children, young couples without kids, or single, busy professionals? This visualization exercise is useful, and it helps to narrow down the locations and draw up a shortlist of suitable properties.
For instance, having schools within a 1- to 2-km radius will appeal to families with children and young couples looking to start a family. In particular, expatriates may look for properties near international schools for their children’s schooling needs. Meanwhile, being near key employment hubs or industrial clusters may attract working professionals who may be drawn by the convenience of living and working in the same precinct. In addition, proximity to an MRT station is an added advantage, and units near MRT stations also tend to command a higher rental yield.
It is equally important to select homes with attributes that appeal to a wider audience. According to the Institute of Real Estate and Urban Studies (IREUS) at NUS’s Property Ownership Aspiration Survey 2022, the key attributes that residents of non-landed private homes look for are: a spacious and functional layout, proximity to current/future MRT stations and/or shopping malls, a good-sized master bedroom, and the developer’s reputation.
Related Articles:
4. Holding Power/Market Cycles
The process of urban renewal and transformation can take years, or even decades. Therefore, buying into a district where there are ongoing or planned rejuvenation efforts may not translate into immediate gains. Investors need to ensure that they have sufficient holding power to ride out market volatilities for at least three to five years. As property is a long-term play, investors are more likely to enjoy better capital appreciation by holding on to the property for the long haul.
Here, it is also useful to consider the property’s tenure. Investors who want to pass on the property to their children may be more interested in freehold properties, which tend to hold their value well and are not subject to lease decay that affects 99-year leasehold properties.
As with all forms of investment, buying a property involves risks. However, proper and comprehensive planning can help to mitigate these risks and hopefully allow you to embark on your property investment journey with a greater peace of mind.
Related Articles:
For further enquiries, please get in touch:
WeChat: sgleokwek
Telegram: sgleokwek
WhatsApp: Message us
