“Property is a good investment because it always goes up.”

…does it really?

Recent research debunks that widely-held belief. The statistics revealed that while 82% of condo owners are sitting on capital appreciation for their properties, only 44% will have annualized gains above 2.5% — and only if those owners purchased their properties before 2008.

Worse still, the average annualized returns last year were 2.2%. That’s less than if you’d left the money in CPF to generate a guaranteed 2.5% interest per year.

So is investing in property really the best idea? Today, we’ll dive into whether the return on investment (ROI) from buying a condo is equivalent to the hype.

The Rise and Fall of Property Investment

Until the 1970s, the concept of a condominium was still a foreign idea in the local property scene. At that time, all people knew about were HDBs and landed properties.

When the first condo, Beverly Mai, was built in 1974 at Tomlinson Road, it was a real gamble for the property developer. But this new housing type then went on to take the property market by storm, increasing from 118,000 condo units in 2009 to 210,000 in 2018.

In the years after that, the Singapore property market saw a few boom (and bust) cycles, from the 100% price increase between 1990 and 1996 to the 20.9% increase in 2007. Investors who lucked out and happened to purchase condos prior to the boom enjoyed high capital appreciation from their properties.

Since then though, the 2008 Global Financial Crisis along with the many cooling measures such as ABSD have brought an overzealous market back down to earth.

If you’re a homebuyer or investor exploring the viability of property investment in Singapore, here are a few key points that you may want to consider.

What Homebuyers Should Look for When Purchasing Their First Properties

As first-time homebuyers, there are two key factors to consider before diving right in to select the condo of your dreams: namely, your budget and the housing loan you take on.

1. Budget

There are a number of extra costs when you choose to purchase a condo over an HDB flat, so your budget needs to take these into account. Here are four key numbers you need to calculate to figure out the kind of condo you can afford:

1. Cash savings at the time of purchase for upfront costs
2. CPF OA balance at the time of purchase
3. Monthly loan repayment amount
4. Maintenance fees and other ongoing costs

For example, are you planning to buy a condo by the end of next year? If so, that gives you more of a runway to accumulate your savings for the 25% down payment required.

Are your CPF OA contributions greater or lesser than the monthly loan repayment sums? If you contribute less than you pay out, you’ll need to account for the cash top-ups.

And make sure to get the Approval-in-Principle for your loan before you put down the non-refundable Option Fee for the new condo. Unfortunately, more than a few homebuyers have lost tens of thousands because they failed to do their due diligence beforehand!

2. Housing Loan

If you take out a bank loan, you can borrow up to 75% of the property’s valuation — assuming you haven’t exceeded the TDSR limit.

A word of caution though: many people overextend themselves financially to buy their dream homes and fail to see the risks involved.

Loan interest rates are highly volatile and sensitive to the macro environment. Any negative impact on the market can easily trigger a sudden increase in interest rates, which leads to you paying out more than what you’d initially planned every month.

And with the Seller Stamp Duty in place, you’ve got no choice but to wait it out if you don’t want to pay the extra tax. That’s why it’s best to get a clear view of your financial status before taking on a steep commitment like buying a condo.

HDB Upgraders: Which is Better? Freehold vs Leasehold

If there is absolutely no doubt that buying a private condo is the best move, the next thing to consider is: Freehold or leasehold?

The choice depends on your estimated period of stay and budget. You pay more for freehold properties because of the indefinite ownership, which also enables easy financing. It’s best for homebuyers or HDB upgraders who intend to stay for a long period of time.

If budget is a constraint, leasehold can be a viable option provided the property is less than 21 years old — after this point, they start showing greater depreciation. If you plan to sell your HDB flat after the MOP, we’d recommend buying a leasehold that is brand new or relatively new.

However, don’t be fooled into thinking that freehold properties will always command higher selling prices than leaseholds. When a freehold property ages, the price can depreciate just like with any other property.

Also, bear in mind that because there are new condos being built every year, older properties will face a lot more competition over time.

Property Investors: Buying Condos for Investment

As long as you’re not expecting the same ROI as what you’d get a decade or two ago, you can still find great investment properties in Singapore.

The multiple cooling measures have quietened the market considerably, but it’s also led to a more sustainable market with buyers and sellers with ample financial backing.

With the influx of immigrants, there’s also more potential for growth. Currently, there are 2.16 million immigrants in Singapore out of a total population of about 5.7 million. This number is set to increase, with the country on track to reach 6.9 million in population by 2030.

Whether you’re investing in property for rental yield or capital appreciation, there’s a lot that this market has to offer. As one of the most stable nations in Southeast Asia and with its world-class infrastructure, the economy is set to thrive for years to come.

For the past few years, the private property prices in Singapore have also been uptrending; analysts have also projected the price index to rise from 155 points in the first quarter of January to 166.00 points in 2021 and 170.00 points in 2022.

Look Before You Leap

There’s no right or wrong to buying a condo in Singapore as long as you’re not taking on excessive debt to do so. The value is always in the eye of the beholder, but having a level-headed approach will definitely benefit you for the long term.

After all, buying a property is no small matter. A slight misstep can set you back by hundreds of thousands. Asking questions such as “how long do I want to stay?” and “should I wait for a better time so I don’t have to leverage heavily on loans?” will give you more clarity before you move ahead.