Investing in property is one of the most popular ways to grow your money in Singapore. Even though property investment requires a large amount of capital and can take a long time to provide returns, Singaporeans buy property for capital appreciation, i.e., a rise in property value or price when you sell your property for more than you paid for. As the property is one of the things you can use CPF saving on, and because there is no tax for capital gain (when you sell your property more than what you paid for), property investment remains one of Singapore’s best investments.
Besides, the property can generate rental income, and there is always a chance to get a rental yield on your property investment before you sell the property for capital gain.
Factors Affect Property Price
Before you sign on the dotted line to buy your dream house or as an investment property, it is good to understand the factors affecting property investment. This may help you make your choice, be it your first house or make a long-term investment.
Without a doubt, the overall economy significantly impacts the property market. Key financial market indicators, including the unemployment rate, the consumer price index, and inflation, hugely affect consumer spending. Consumer spending is a key driving force in the economy and a critical concept in economic theory.
The property market is closely linked to consumer spending. When the market and house prices go up, homeowners or investors become better off and feel more confident. In turn, this means encouraging more spending on goods and services, renovating their house, or paying off other debt.
When the economic downturn, home upgraders or investors without holding power will have to let go of their property as they cannot afford their outstanding mortgage.
People are, therefore, more likely to cut down on spending and hold off from making personal investments.
To prevent speculative buy and mitigate the rate of price increase, the government can step in at any time with policies designed to have an impact on property prices.
Levy is imposed on developers if they do not complete construction and sell all units within a period of five years from acquiring land. Additional buyers’ stamp duty (ABSD) and the implementation of the total debt servicing framework (TDSR) have certainly significantly contributed to the property prices.
It will cost less for you to take a loan to buy a property if the interest rate is low. However, higher interest rates often discourage people from buying properties. Interest rates can affect the cost of financing and mortgage rate. Interest rates also affect capital flows.
Changing interest rates affect numerous aspects of real estate. Aside from the price of a property, interest rates also impact the capital flows on the market and directly impact the supply and demand dynamics for a property. The flow of capital affects supply and demand for property and, as a result, affects property prices.
State and Condition of Properties
The state and condition of the property, especially when it is old, can affect the purchase price. A newly renovated property can ask for a higher selling price compared to a rundown property.
If you are purchasing or investing in a leasehold property with the remaining lease is less than, e.g., 60 years, not just that you may have difficulty getting the full loan-to-value (LTV) from the bank when taking out a mortgage but also affect the selling price due to its age.
Locations and Amenities
Property value is clearly based on the availability of necessities and facilities connected with property estate. Nearby amenities like prominent schools, shopping malls, and improved transport infrastructure like MRT stations within walking distance can significantly affect the property price.
Singapore is divided into 3 regions, i.e., Core Central Region (CCR), the Rest of Central Region (RCR), and the Outside Central Region (RCR). The significance of each region will affect the property prices, market trends, and the impact on Singapore’s housing situation.
An old development in a prime area may have the potential for collective sale, i.e., en bloc, so some investors keep a lookout for the property with en bloc potential.
Mostly the residential property in Singapore is with a duration of 99 years. The golden years of a leasehold condo are its initial 10-20 years. This period is when the property appreciates the most. After this, you can expect rapid depreciation from the dropping lease tenure.
Freehold properties in Singapore, on the other hand, retain their value better over time.
However, this will also mean it is more expensive compared to leasehold properties.
Comparable properties refer to homes located in the same neighborhood with similar in size, age, condition, and features. Prices of comparable properties can affect the valuation of the property. The recent sales of properties with similar features often use as a benchmark against a property potential price.
Property prices are driven by supply and demand. To estimate price trends, it is necessary to forecast demand and supply. As such, it is important to look at all of the aforesaid factors together with market economic conditions concerning your investment goals to determine how over time your property investment may fare over time.