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6 super useful tips to spot an 'undervalued' property in 2021

6 super useful tips to spot an 'undervalued' property in 2021
PHOTO: Stackedhomes

2021 is a bit of a conundrum, to investors and homeowners alike. While home prices are rising across the board, it’s a little painful not to take advantage of super-low interest rates; or face the prospect of prices going even higher if you wait.

Even in the current high-priced environment, however, there are ways to spot an “undervalued” property in the Singapore private property market. Here’s a checklist relevant to 2021:

  • Examine saturated areas first
  • Work out the new launch / resale price gap
  • “Worst house in the best area” strategy
  • Don’t ignore new launches just because it’s a later sales phase
  • For HDB properties, dodge the five-year mark
  • Check out older listings, including rental listings

1. Examine saturated areas first

Prices tend to dip when there is a lot of supply, within a given area. This is, for example, currently the case in Holland Village , where we’ve had seven new launches in a short time.

Pick out spots where you find multiple residential properties, of different ages, within a one-kilometre radius. This won’t be detailed enough to make any final decisions, but it gives you a point from which to start.

Take, for instance, the packed area around Tanah Merah MRT station. Within 1,000 metres, you can find the following:

Development Average Price Lease TOP Date
Urban Vista $1,343 99-years 2016
Grandeur Park Residences $1,562 99-years 2021
The Tanamera $904 99-years 1994
Optima @ Tanah Merah $1,216 99-years 2012
East Meadows $974 99-years 2001
The Glades $1,453 99-years 2017

As all of the above are in the same general area, there will not be a huge disparity in quality of location (barring a longer or shorter walk to the MRT). However, we can already see some interesting developments to focus on.

Grandeur Park Residences, which is four years newer than Urban Vista, comparatively isn’t priced all that much higher than The Glades.

If we’re willing to settle for older properties, we can see that East Meadows is priced only about 7.7 per cent higher than the Tanamera, although it’s newer by seven years.

From here, you can take a closer look at the properties, to note the discrepancies. For example, Grandeur Park Residences is bigger and much more crowded than Urban Vista, with 722 to 582 units; so you will be in a squeeze with more people.

The Tanamera is only 500 metres (seven minutes’ walk) to the MRT station, whereas East Meadows is further at 700 metres (eight minutes’ walk).

You can decide later if these discrepancies justify – or don’t justify – price differences.

These sorts of comparisons are tougher in areas with only a handful of developments (e.g. only J Gateway and Ivory Heights are within one kilometre of Jurong East MRT; and there’s no real comparison to make for value).

It’s best to use a tool like Street Directory as you are able to really hone in on developments that might have otherwise gone under the radar. While most people would default to Google Maps, we find that it isn’t as comprehensive in showing you the developments (and upcoming MRT stations as well).

2. Identify the new launch / resale price gap

We have a more detailed explanation of this in an earlier article . Without repeating too much of it here, the idea is to identify the price gap between a new launch and resale property in the same area (somewhat related to point 1).

Here are three simple steps:

  1. Find a resale condo with a number of new launches around it
  2. Look at the price gap between the new launch and resale
  3. If it’s a big enough gap (for that district), then it’s worth taking a closer look

The resale property that shows the biggest price gap often represents the best overall value, as you’re getting in the same location for cheaper. Do see the above link for a more detailed breakdown.

3. “Worst house in the best area” strategy

This is old real estate advice, and works best if applied in moderation.

This argument is that – if you look for a stigmatised or run-down property in a desirable location (e.g., an old flat in Bishan, or Peace Mansion in Dhoby Ghaut) – you are most likely to find an undervalued property.

There is a kernel of truth to this, such as in the aforementioned Peace Mansion. This is a condo that’s one of the oldest in the Dhoby Ghaut area (in fact, one of the oldest in Singapore, with a completion date in 1976). Here’s how it compares in price to nearby properties:

Development Average Price Lease TOP Date
Peace Mansion $583.25 99-years 1976
Sophia Residence $1,557 Freehold 2014
Liv on Sophia $72,427.87 99-years 2018

Peace Mansion is in worse shape, as you would expect than Sophia Residence and Liv on Sophia. But take a look at how its prices have moved in comparison:

On a 10-year basis, Peace Mansion has held off depreciation far better than its newer counterparts, even the freehold Sophia Residence.

Prices have fallen by about eight per cent, whereas Sophia Residence has seen a drop of 9.25 per cent, and Liv on Sophia (completed quite recently in 2018) has seen a drop of 13.45 per cent.

Buyers of Peace Mansion in 2016 would have spent far less, and taken a smaller hit, than buyers of the neighbouring units; and given Peace Mansion’s gross rental yield of 3.54 per cent (2.78 per cent for Sophia Residence and 2.63 per cent for Liv on Sophia), a landlord might consider a Peace Mansion purchase to be a win.

However, be careful not to oversimplify this approach

It is not always true that the “worst” property in a neighbourhood is a value buy. A degree of common sense has to apply.

For example, Geylang is a high-demand neighbourhood that’s a 10-minute drive to the city. This does not mean a run-down, landed property in the red-light area is “undervalued”. The house would be almost impossible to resell, there would be no financing, etc.

You should always compare price movements to surrounding properties (as we have above). Just because a home is older and in a better location, doesn’t necessarily mean it will be undervalued.

There’s just a better chance that it will be, compared to a new launch or a better maintained home nearby.

You also need to factor in restoration costs, for older properties. This may effectively remove any discount.

4. Don’t ignore new launches just because it’s a later sales phase

It’s generally true that, the earlier you buy, the cheaper a property will be. However, there are exceptions to this.

As we show in regular updates , there are instances where new launches have actually become cheaper rather than more expensive. Some buyers may be surprised to learn, for example, that even developments like Marina One Residences actually saw developer prices dip in later sales ($2,400 to $2,340 psf).

New launches sometimes even have fire sales on the last few units; such as we saw with 38 Jervois last year. This is quite rare though, and often due to factors like developers rushing to meet their five-year ABSD deadline .

So instead of the early buyers making a profit, it would be the later buyers that would stand to gain. An example of this would be at Sky Habitat.

All those who bought in 2012 during the first few months of launch.

As compared to most who bought during the price drops in 2014. While obviously 2021 is a great time to exit, the lower purchase price does give you that buffer to play with.

5. For HDB properties, dodge the five-year mark

For reasons we’ve explained in this article , five-year old HDB flats are a perennial favourite. Because they’re already completed, new home buyers don’t need to wait for construction time.

The eventual time to upgrade is also shorter, as the Minimum Occupancy Period (MOP) starts from the key collection and not purchase (a BTO flat might mean waiting eight to nine years to upgrade, after taking into account construction).

The lease decay is also negligible, at this stage.

Sellers of five-year old flats tend to be (1) aware of all the above (2) are often aiming for an upgrade. This prompts them to ask for higher prices, and the odds of getting an undervalued flat from them are slim to none.

The same applies to Executive Condominiums (ECs) that have just reached their five-year MOP. In fact, ECs are expected to see their biggest price surge after five years, as they’re also half-way to full privatisation.

As such, you’re least likely to spot an undervalued property in this age range; and you’re better off researching older units.

6. Check out older listings, including rental listings

If you already have a particular development in mind, do check out listings that have been around for a while. Most sellers have a given time frame in which to sell their property; as they near the time limit, they may become more amenable to negotiation.

It’s common for realtors to advise their clients to drop the price, if no one responds after about three months.

Note that home buyers should check rental listings as well. Sometimes, if a unit has been vacant for some time, the landlord might be ready to dispose of it for less.

While none of these methods guarantees you’ll find an undervalued property, they provide a good place to start looking

This article was first published in Stackedhomes.

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