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How to choose the right property to minimise risk and maximise profits

How to choose the right property to minimise risk and maximise profits

For most people, buying a house is the most expensive purchase in their lifetimes.

Whether you are buying for your own stay or investment purposes, many factors must be considered to ensure you are buying the right one. Ideally, you want to buy one with the lowest risks of losses and the highest potential for profits should you decide to sell it in future.

It may also be why there is a preference for new launch condos over resale condos. According to PropNex's Home Buyers' Sentiment Survey Report 2023 released recently, one reason for this preference is the potential for capital growth, with home buyers believing that new launch homes will earn them higher capital gains than resale homes.

Contrary to popular belief, this is not true for all new launch units. While some owners have indeed made profits after selling their units, there have been cases where owners have made losses when they exited.

Reasons include wrong entry prices, poor layout of the units, poor location, a lack of amenities or a combination of these factors.

An example of this is Scotts Square in District 9. The project was first launched in 2007 and was completed in 2010.

According to URA Realis data captured on Aug 8, 2023, Scotts Square has recorded 57 resale transactions. Only four transactions were profitable, while the remaining 53 made capital losses, translating to 93 per cent of the transactions being unprofitable.

Its location and amenities are probably not the main reasons for the capital losses. After all, Scotts Square is located in the heart of Orchard, within walking distance to major malls such as ION Orchard and Ngee Ann City.

Rather, the launch prices and timing may have resulted in unprofitable sales. Units at Scotts Square were launched during a property boom in 2007 and sold at an average price of $3,997 psf. This was way higher than the new launch prices in the district at the time at $2,224 psf.

Interestingly, after the project was completed, prices peaked at $4,049 psf in 2011.

However, a price decline for seven years followed, before a price increase in 2018. Although prices at the condo reached $3,610 psf in 2022, they never recovered to the previous highs.

How then, do you select the right property, whether a new launch or resale condo, that suits your needs and reduces the risks of a capital loss?

The CREATE Analysis Framework

We use the CREATE Analysis Framework to help clients choose the right home according to their objectives. It is a systematic approach to analyse the various properties based on these factors:

  1. Potential transformation
  2. Entry and exit timing
  3. Entry and exit price
  4. Potential for rental
  5. Amenities
  6. Competition

1. Potential transformation

Paying attention to announcements on transformations and developments in various areas of Singapore is crucial. This includes new MRT lines, residential areas and commercial hubs.

Examples of this include the opening of the Circle Line, Downtown Line and Thomson-East Coast Line (TEL), serving areas that previously did not have an MRT station, such as:

  • Pasir Panjang and one-north in District 5 (Circle Line)
  • River Valley in District 9 (TEL)
  • District 10 (all three lines)
  • District 11 (all three lines)
  • District 15 (TEL)
  • District 21 (Downtown Line)
  • Bukit Panjang in District 23 (Downtown Line)

Such transformation plans can inform you which areas have the highest growth and capital appreciation potential.

2. Entry and exit prices and timings

Regarding investments, it is common to hear "buy low, sell high". While most property experts generally do not encourage timing the market, we cannot ignore that market cycles influence the entry and exit prices.

A hot property market is characterised by high demand and low supply, leading to a price increase. In the last few years, home prices reached an all-time high due to demand factors such as a need for a bigger space, and supply factors such as construction delays.

Meanwhile, abundant supply and low demand result in declining prices. Some factors include an increase in the number of completed homes entering the market and rising interest rates for home loans, which we are starting to see now as home prices start moderating.

An ideal way to minimise capital losses would be to buy a property when the market is down, and exit during a market boom.

3. Potential for rental

Even if you plan to buy for your stay, you should consider the property's rentability. This includes proximity to employment hubs, schools and transport nodes.

This is why many people buy properties in the CCR (such as Districts 9, 10 and 11) for rental, due to its proximity to the CBD and connectivity to other parts of the island. The region also has amenities such as malls, schools and parks.

Orchard Sophia, the latest new launch in District 9, is one such development. It is within walking distance of various MRT stations (Dhoby Ghaut, Little India, Bencoolen and Rochor) and the Orchard Road shopping belt.

More importantly for landlords, the freehold condo is close to various tertiary institutions, such as SMU, NAFA, LASALLE College of the Arts and Kaplan, offering potential rental demand from foreign students.

4. Amenities

Not only should the property have sufficient amenities for your needs, but it should also serve the needs of potential buyers.

The most common must-haves include proximity to transport nodes, malls, supermarkets and schools. A bonus if the property falls within one kilometre of popular primary schools, given that those living within the radius are given higher priority for enrolment.

For instance, if you wish to enrol your child in Nan Hua Primary School, buying a home in District 5 within one kilometre of the school will help. A new launch within the radius is Parc Clematis, which will be completed soon.

5. Competition

When planning to buy a home, such as a new launch condo, looking at other new launches in the area and doing a comparison analysis is essential.

For instance, District 15 has seen three launches this year - the latest being Grand Dunman. It is also the biggest launch this year, offering 1,008 units. We will not go into a detailed comparison between these three launches in this article (you can consult me for a more thorough analysis of this).

But the major differentiating point is that Grand Dunman is just a two-minute walk from Dakota MRT. This is especially convenient for a district that, until 2024, lacks MRT access.

Applying the CREATE Analysis Framework

Nevertheless, the CREATE Analysis Framework is not a one-size-fits-all solution.

For instance, if a client intends to buy a home for their stay and sell it three to five years later, we may not need to consider its rental potential in-depth. But it would still be helpful to look into it to increase the potential buyer pool.

ALSO READ: 7 surprising lessons from unprofitable condo transactions since 2011

This article was first published in

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