Sentiment in the private residential market continued to be buoyant in 1Q2018, with overall home prices soaring by 3.9% within the time period. This surpassed the 3.1% in the URA flash estimate announced earlier and marked the highest quarterly price gain in eight years. The increase is likely due to pent-up demand and buyers’ fear of missing out on good value buys as prices trend up.
But while real estate investment is a well-established way of building wealth over the long term, when it boils down to it, there are a few elements that could go into determining whether a particular property investment would do well.
To find out what they are, we looked into the 20 most profitable property transactions that took place between January and April 2018 to identify factors that could possible contribute to successful property investments. Only non-landed private residential properties were considered in our analysis.
Top 20 most profitable property transactions between January and April 2018
Based on the matching of URA caveats, the sale of a 2,885 sq ft, four-bedroom unit at Ardmore Park in prime District 10 was the most profitable transaction in 2018 so far. The unit at the luxury condominium, Ardmore Park was sold for $8.4 million ($2,912 psf) on Feb 19, fetching a $4.65 million (124%) profit for the seller, who bought it for $3.75 million ($1,300 psf) in August 2003.
Meanwhile, the biggest loss of the year so far involved a 2,411 sq ft, four-bedroom unit at Turquoise, a condominium at Sentosa Cove. The unit was put up for mortgagee sale at a Knight Frank auction in March and was sold for $3.6 million ($1,493 psf). The unit was purchased for $6.18 million ($2,539) in October 2007.
Of the list, the average profit of the 20 most profitable transactions taking place between January and April 2018 was $2.39 million, while the average overall percentage of profit was at 112%. The average annualised profit for the most profitable transactions within the same time period was 6%.
In comparison, the average loss for the top 20 unprofitable property transactions within the same time period was an eye-watering $1.45 mil. The average percentage of overall loss was at 26.20%, while the average annualised loss was at 4.3% per annum.
What do profitable property deals have in common?
1) Longer holding periods
We already know that property investments are highly illiquid. Which makes it all the more necessary for investors to be doubly sure that they have sufficient holding power to weather any fluctuations in property prices and rental demand before committing to a property.
Based on our analysis, property sellers of the top 20 most profitable property transactions between January and April 2018 held on to their properties for an average of 13.1 years.
Meanwhile, property sellers who made the unfortunate list of the top 20 most unprofitable transactions held on to their properties for an average of 8.4 years.
Having greater holding power allows investors to tide over temporary setbacks or wait for the market forces to turn in their favour. In the first four months of 2018, we observed that within the prestigious Ardmore area, profitable transactions at Ardmore Park and Ardmore II had an average holding period of 11.6 years. Meanwhile, unprofitable transactions within the Sentosa Cove district, including those at seafront projects like Turquoise, The Berth by the Cove, The Oceanfront@Sentosa Cove and Marina Collection had an average holding period of 7.9 years.
2) Freehold tenure
The scarcity factor in land-hungry Singapore makes freehold properties an attractive asset class for many homebuyers, and this is reflected in the biggest property gains of 2018 so far.
Of the list of the top 20 most profitable property transactions taking place between January and April 2018, 17 of the 20 property units transacted were at freehold properties.
Meanwhile, of the list of the 20 most unprofitable transactions within the same time period, 11 of the 20 loss-making units transacted were at freehold properties, eight were at leasehold properties and one was at a 999-year leasehold development.
Interestingly, we found that unprofitable transactions at freehold properties had slightly smaller losses than their leasehold counterparts. Sellers of freehold properties made an average overall loss of 22.9%, compared to the 30.2% overall loss made by sellers of leasehold properties.
3) Older properties
Old freehold properties could be gold when it comes to successful property investments. Based on our analysis, the average age of properties on the list of the most profitable deals between January and April 2018 was 20.6 years. Meanwhile, the average age of properties on the list of the most unprofitable property transactions was 8.3 years.
4) Larger area size
Size matters when it comes to property investments, and in this arena, bigger is sometimes better. From our analysis, we found that the average area size of the top 20 property transactions that saw the highest profits in 2018 so far was 2,746 sq ft.
In comparison, the average unit size of property transactions that saw the biggest losses in 2018 so far was 2,220 sq ft.
5) Central location
All 20 properties on the list of the most profitable transactions between January and April 2018 are located in the Central Region. Of the list, 13 of the properties are located within prime districts 9,10 and 11, while the rest are located in district 15 (Katong, Joo Chiat, Amber Road) and one in district 20 (Bishan, Ang Mo Kio).
Meanwhile, the four most unprofitable transactions taking place within the same time period occurred in Sentosa Cove. But overall, 15 of the 20 most unprofitable deals occurring within the same period took place in prime districts 9,10 and 11, as well as the Downtown Core.
Now that you’re more aware of the possible characteristics of a successful property investment, would you still consider these most affordable new condominiums in 2018? Let us know in the comments below!