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Analysing unprofitable condos: 3 reasons why Stellar RV has performed poorly

Analysing unprofitable condos: 3 reasons why Stellar RV has performed poorly
PHOTO: Stackedhomes

You might have read our recent article on the 13 condos with the most unprofitable transactions.

In the first two days it racked up nearly 50,000 page views – a sure sign if ever that there needs to be more said about losses incurred in the property market.

That, or the fact that humans do have a tendency to focus more on the bad than good (it’s called the negativity bias).

But I digress.

Psychological aspects aside, there is a lot that you can learn from unprofitable transactions.

But if there is one thing that you need to take away from today it’s this: It never boils down to just one reason why a property is unprofitable.

It’s the same as buying a house – you wouldn’t be buying a unit just because there was an extra large swimming pool in the development.

It would be for multiple reasons, whether it be proximity to the MRT, the wind flow, or even something as obscure as the flooring that came with it was nice (true story).

So today, I’ll be delving deeper into some of the reasons why these condos have fared as badly in the resale market as they did.

More specifically, I’ll be touching on the first one of the list – Stellar RV.

Let’s get right to it!

Stellar RV

Location: River Valley Road (District 10)
Developer: Alliance Land Pte. Ltd.
Lease: Freehold
Completion: 2015
Number of units: 120 units
Profitable transactions: 0
Unprofitable transactions: 13

From the get-go, you can see that it isn’t a pretty sight at all. As of the time of writing, it has recorded 13 unprofitable and zero profitable transactions.

The average loss so far is -$133,027.

As of today, median prices currently stand at $1,724 psf.

Stellar RV did see some resistance over its pricing when it was first launched. Here is the average price for new launches in District 10, back in May 2012:

At that time, the average for the district was $1,636 psf. Now look at Stellar RV’s pricing in the same period:

The median developer price during its launch was about $2,039 psf.

Project Launch Date Units Prices in 2012
Stellar RV 2012 120 $2,039 psf
RV Suites 2008 96 $1,692 psf
RV Edge 2010 108 $1,731 psf
Loft @ Nathan 2010 121

*Loft@Nathan did not have an equivalent transaction in 2012 to compare

So in order to get a better understanding, it’s best to look at the immediate surrounding developments too.

As you might already know from that stretch of River Valley, there are many competing small boutique developments so I’ve picked out the closest competitors (both in terms of distance, attributes, and age).

Here’s a look at its competition from a quantum basis.

Project 1 bedroom size Quantum
Stellar RV 452 $938,000
RV Suites 495 $960,000
RV Edge 366 $707,500

*Prices are from 2012

As you can see from the table above, it was actually competitive from an overall quantum perspective – with the one bedroom at Stellar RV being slightly more affordable due to its smaller size over the older RV suites.

Of course, in terms of the most affordable entry price RV Edge takes the cake here, as the unit only comes in at a paltry 366 square feet.

Now that we’ve got the pricing out of the way, let’s look at some reasons for its dismal performance so far.

1. Timing issue

Stellar RV has only small units – the absolute largest units at Stellar RV are 936 sqft, with most units being between 506 to 517 sqft.

This was a project born out of the ongoing shoebox trend back then – as you can see from the graph above with transactions rising to the peak in 2012 (basically the year Stellar RV was launched).

This was also the period where there were concerns of a potential oversupply of shoebox units – a serious enough issue that it was even raised in parliament in 2012.

So Stellar RV unfortunately was not launched at the best of times, as it was one of the latest entries in terms of a shoebox development to the area.

As you’ve seen in the first pricing table above, Stellar RV was the highest entry price to the area as compared to its neighbours who have all launched earlier at much more palatable prices.

Case in point, RV Residences was launched later in 2013 – at a smaller size (420 sqft) for its shoebox units – and a more affordable price point.

So the diminishing shoebox trend, along with the notable price gap, already left some market watchers wondering if it had much room to appreciate.

2. Project characteristics

As with any small project, minimal facilities would always be a sticky point.

In the case of Stellar RV, it has a relatively small rooftop 27-metre swimming pool, gym, and barbecue area to round off its list of facilities. For those who drive, it has a mechanical car park – which isn’t a popular implementation either.

Sure, it is an efficient use of space – but daily usability can definitely be a pain.

To be fair, it isn’t that it had a bad offering amongst its peers – RV Suites and RV Edge didn’t necessarily fare much better.

Perhaps, taking a deeper look into its floor plans would help.

From here you can see that there are a few oddities to the layout that you would not be seeing in new launch shoebox units of today.

For one, these still incorporates a bomb shelter despite the already small size of the unit. While its great to have extra space for storage – when it comes at the expense of living space you can see why the space might feel even more cramped as a result.

Likewise, while having that small space carved out for a study/office is super relevant in today’s work from home environment – at 452 square feet of space, it means that the space would look even more cramped than usual.

The final strange aspect is the placement of the AC ledge on the outside of the living, with the balcony located outside the master bedroom instead.

It’s tough to visualise from just words, but there’s a reason why this isn’t commonly done.

It makes the living room feel smaller than it already is, and it just isn’t a welcoming feel to come home to.

It’s clear that this development is aimed at landlords, who are disinclined to buy in such a weak rental market.

That said, I don’t want to solely single out Stellar RV for its layout, so let’s take a look at its competition in RV Suites and RV Edge.

At 495 square feet, the smallest one bedroom unit at RV Suites is no doubt bigger than Stellar RV but you can see that without the study plus the additional space it seems a lot less crowded.

Also, while there is the dreaded planter, it is after all a mini-balcony so you do not get that same half length window that you have at Stellar RV.

Objectively speaking, it’s hard to really compare RV Edge given it is quite significantly smaller in size.

Not many people could take living in a one bedroom of this floor size, but they have managed to fit in everything that you could possibly need – even with a household shelter.

Again, that quantum is notably much lower – so what you lose in terms of floor space you get back in savings.

Sure, sometimes floor plans can be quite subjective according to lifestyle – but in this case (at this size especially) I do think the flaws of Stellar RV are quite clear cut.

3. Rental returns

The last thing that I’d like to highlight here are the rental returns.

To keep things on a level playing field, I will only be taking the average monthly rental from 2015 – as that is when Stellar RV was launched.

Note that I will be taking the prices from 2012 as a comparison as there were no units sold in 2015 for me to get a more accurate rental yield.

It’s not the best, but I’ll just have to make do with the data available.

Project 1 bedroom size Quantum 2015 Rent Rental Yield
Stellar RV 452 $938,000 $2,629 3.36 per cent
RV suites 495 $960,000 $2,857 3.57 per cent
RV Edge 366 $707,500 $2,374 4.03 per cent

As you can see, Stellar RV did not enjoy great gross rental yields from the start. Despite it being the newest development out of the three it had the lowest rental yield of 3.36 per cent.

Project 1 bedroom size Quantum 2016 2017 2018 2019 2020
Stellar RV 452 $938,000 $2,420 $2,171 $2,220 $2,200 $2,179
RV suites 495 $960,000 $2,895 $2,550 $2,667 $2,561 $2,600
RV Edge 366 $707,500 $2,318 $2,190 $2,149 $2,160 $2,120

That performance didn’t actually get better either over the years.

Yes, rental yields came down for all because of the soft rental market – but you can see in 2020 the average monthly rental for Stellar RV was actually pretty much comparable to the much cheaper RV Edge.

Project Size Difference in rent 2020 Quantum 2020 Rental Yield
Stellar RV 452 -17per cent $857,000 3.05 per cent
RV suites 495 -9per cent $896,800 3.48 per cent
RV Edge 366 -11per cent $755,000* 3.37 per cent

*RV Edge only had a recent transaction from 2019, so this might not be as fair a comparison

To sum up the performance from 2015 till 2020, Stellar RV had the biggest drop in rent of -17 per cent.

This was further compounded by the drop in quantum, and correspondingly, the lowest rental yield of all.

For a development that is clearly geared towards investment and hence rental, you can see why it has performed as such so far.

It goes without saying, if you had bought an RV Edge unit instead of Stellar RV for investment from the beginning – you would have enjoyed better rental yields, and even a slight appreciation.

Final words

There’s a lot to learn from poor performing developments such as this.

As always, there’s never a singular reason for poor performance – it is always a combination of different reasons.

But an exercise such as this can help you in identifying the reasons why and possibly factors to avoid in your next purchase.

For more on issues affecting property investment, or in-depth reviews of new and resale properties, follow us on Stacked . If you’re pondering the future gains of your property purchase, do reach out to us for a proper consultation.

This article was first published in Stackedhomes.

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