ANALYSIS: Top five most unprofitable condominiums
By Elizabeth Choong
/ EdgeProp Singapore |
Eco (Picture: Samuel Isaac Chua/EdgeProp Singapore)
Contrary to popular belief, buying a property is not a sure bet to making money
After analysing sale transactions of condominiums over the last 12 months, the five developments in Table 1 below were found to have the most numbers of unprofitable transactions. The developments are less than 15 years old, thus eliminating lease decay as a key contributor to the unprofitable selling price.
Reflections at Keppel Bay
In the past 12 months, there were 65 unprofitable and 26 profitable sale transactions for Reflections at Keppel Bay. Losses ranged from $54 to $6.952 million.
All top three unprofitable transactions for Reflections at Keppel Bay were purchased in 2007 when Singapore’s property market was very active and prices were at an all-time high. Of the 65 unprofitable transactions, about 40% were bought in 2007.
As foreigners are not allowed to buy landed properties in Singapore without permission from the government (except in Sentosa), large penthouses are a much-sought-after alternative. However, the travel curbs imposed during Covid-19 made it challenging for foreign buyers to view the unit in person unless they were residing in Singapore.
To add to the woes of Reflections at Keppel Bay, the leasehold development faces competition from five condominiums (3,034 units) within a 500m radius. Nearby, Corals at Keppel Bay and The Reef at King’s Dock are newer and nearer to VivoCity and HarbourFront MRT Station. In the last 12 months, there were five profitable and only one unprofitable transactions for Corals at Keppel Bay and there were no transactions for the uncompleted The Reef at King’s Dock.
Parc Rosewood
Sellers at Parc Rosewood fared slightly better with 31 unprofitable transactions and 54 profitable transactions. Losses ranged from $2,000 to $105,000.
The average price for Parc Rosewood ($1,060 psf) based on transactions during the last six months is higher than the overall average of $980 psf for surrounding condominiums. Woodhaven is the only other development whose average price of $1,113 psf is higher than the overall average. However, Woodhaven obtained temporary occupation permit (TOP) a year later than Parc Rosewood.
Other than the Singapore Sports School, there are few amenities surrounding Parc Rosewood. Woodlands and Woodlands South MRT Stations, as well as Marsiling Mall and Causeway Point, are within a one-km radius of Parc Rosewood, but they are right at the edge of the radius.
Of the units in Parc Rosewood, 62.4% are one-bedders of 400 to 600 sq ft, which makes the units more suitable for rental unless the owner-occupier is a single. However, the lack of amenities and distance from the CBD make Parc Rosewood less attractive to tenants unless they work in the north region. Unfortunately, Woodlands has yet to be sufficiently developed as a regional hub to draw many multinational corporations. The limited appeal to tenants could have pushed investors to sell even at a loss.
The Sail @ Marina Bay
The Sail @ Marina Bay is located in the heart of the CBD, but its enviable location cannot save it from having 30 unprofitable transactions and only 27 profitable ones. Losses range from $5,900 to $1.001 million.
The seller of the most unprofitable transaction bought the unit in 2008 for $3,387 psf, which is way above the average price of $1,902 psf for The Sail @ Marina Bay and the overall average of $1,700 psf for leasehold condominiums in the same district. The seller sold the unit for $2,418 psf in 2021. This was higher than the average price of $2,060 psf for The Sail @ Marina Bay, but was not high enough to compensate for overpaying during purchase.
Expatriates looking to live near their office in the CBD are spolit for choice. Within a 500m radius of The Sail @ Marina Bay, there are six projects with 3,310 units, including newer developments such as Marina Bay Suites (TOP in 2013) and Marina One Residences (TOP in 2017).
The competition for tenants is expected to heat up post-pandemic because more companies are adopting flexible working arrangements, which reduces the need for employees to live near their workplace. Moreover, tenants could get a larger unit for the same price if they move away from the central region. The formidable competition for tenants will encourage some investors to sell.
The Sail @ Marina Bay is surrounded by offices with few amenities for families. Additionally, one and two-bedroom units make up 56.0% of the total units. Singaporeans own only 60.8% of the 1,111 units, while permanent residents, foreigners and companies own 15.0%, 14.9% and 9.3% respectively. This makes the development more suitable for investors than owner-occupiers, thus limiting the pool of resale buyers.
Eco and Urban Vista
Eco and Urban Vista are within 500m of each other, with New Upper Changi Road and Grandeur Park Residences sandwiched between them. Both condominiums are in a well-established residential suburb with many nearby amenities such as Tanah Merah MRT Station, Anglican High School and Bedok Market.
However, there were 27 unprofitable sales for Eco and 26 such sales for Urban Vista in the last 12 months. There were also 14 and 10 profitable sales for Eco and Urban Vista respectively. In contrast, there were 37 profitable sales and only five unprofitable sales for Grandeur Park Residences. Losses for Eco ranged from $5,132 to $228,200, while losses for Urban Vista ranged from $879 to $216,443.
All sellers from the top three most unprofitable transactions for Urban Vista bought their units in 2013, when property prices were recovering after having bottomed out the year before. However, newer developments in the neighbourhood posed competition to older developments. This translated to downward pressure on prices for the older developments.
Bedok Court, Casa Merah, East Meadows, Limau Park, Optima @ Tanah Merah, Tanah Merah Mansion, The Glades, The Tanamera and Grandeur Park Residences are some of the condominiums within a 500m radius of Urban Vista and Eco.
Grandeur Park Residences is the newest development, having obtained TOP in 2020. It is not surprising that tenants prefer the newer Grandeur Park Residences. This is clearly indicated by the higher average monthly rent of $5.00 psf for Grandeur Park Residences compared $3.60 psf for Eco and $3.90 psf for Urban Vista.
Eco has 434 one-bedroom units which makes up 60.8% of the total number of units in the development, while 64.4% of the units in Urban Vista are 800 sq ft and below. These smaller units are more suitable for rental than owner-occupation.
Bedok is a well-loved residential area, but it is more popular among local occupiers than the expatriate community. The limited pool of tenants for such units could have pushed owners to sell despite losses. Two of the most unprofitable transactions for Eco are for one-bedroom units of about 600 sq ft.
How to avoid making a loss?
While there is no guaranteed method to avoid making a loss, the suggestions below might help to mitigate some risk.
Mistake 1: Lack of research to discover prevailing prices
It is easy to say avoid buying high and selling low, but less easy to determine when the market is at its peak or is bottoming out until after the fact. In general, it is a good idea not to buy in an overheated market, when prices are rising sharply and the market is very active with high sales volume.
Buyers can also use EdgeProp’s Market Trends tool to check the average prices of their ideal property and neighbouring projects. This knowledge will put them in a better bargaining position.
Nevertheless, buyers should always be prudent and do their sums carefully to ensure that they have sufficient funds to meet their financial obligation, so that they are not forced to sell to cut their losses.
Mistake 2: Not understanding the MasterPlan
Ultimately, it boils down to demand and supply. Understanding the planning for an area, its upcoming supplies and the potential sources of new demands are essential to avoid making expensive pitfalls. Owner-occupiers can also use EdgeProp’s tools to do their research and do some comparison shopping before signing on the dotted line.
Investors can also do some research on nearby properties and walk away from the deal if there is too much potential competition for tenants.
Mistake 3: Lack of nearby amenities
Buyers should do a thorough research to understand nearby amenities, e.g. schools & MRTs or if possible take a walk around the neighbourhood of the property before committing. Important amenities, such as supermarkets, hawker centres and public transport nodes, should be within easy walking distance. These amenities will add to the appeal of the property to resale buyers and potential tenants.
Mistake 4: Buying condos built just for investment purposes
One-bedroom units make up the bulk of some condominiums that are built to attract buyers who plan to rent out the unit. Owner-occupiers are less attracted to such developments because of perceived weaker security and privacy due to the constant change in residents. This will limit the pool of potential resale buyers.
Additionally, investors will have to compete for tenants with their neighbours in the same development as well as surrounding condominiums, thus adding downward pressure on rents.
Buyers should avoid buying units in such developments unless they plan to live in it for the long haul, or there are compelling reasons that will make the development a guaranteed magnet for tenants.
Check out the latest listings near Reflections at Keppel Bay, Parc Rosewood, eCO, The Sail @ Marina Bay, Corals at Keppel Bay, Grandeur Park Residences, The Reef at King’s Dock, Urban Vista, HarbourFront MRT Station, Woodlands South MRT Station, Tanah Merah MRT Station
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