Four Things to Understand When Investing in Property

When selecting a residential property to buy, it’s important to realise that you are not just buying that particular unit or investing in that development, you are also making an investment in the neighbourhood and surrounding areas. You need to consider how all aspects line up today, and also what the future may hold. The flat itself may seem perfect, but if the building is poorly maintained or in a remote or unsafe location, this is probably not a good investment.

The investment prospects of a piece of property have a lot to do with where it’s located. This is clear when you consider how much a property increases in value upon the completion of a nearby MRT station and/or new amenities. Conversely, property values will stagnate and eventually decline if the neighbourhood becomes blighted or run down over time due to a lack of estate renewal.

It goes without saying that people who want to responsibly invest in property have a lot of homework to do before taking the plunge. There are four main things that potential investors should understand and consider when they start looking at property, hopefully under the guidance of a reputable real estate agent.

The Urban Redevelopment Authority’s Master Plan

To get an understanding of how a particular location could evolve, you can look at the blueprint. By this I mean the Master Plan put forth by the Urban Redevelopment Authority (URA). This is revised every five years, so the latest one would be Master Plan 2019. You can see that it shows that the focus is on creating more sustainable green spaces, adding a variety of amenities that can support the area’s future needs, along with revitalising some of the most familiar spots for improved use of the land.

Some of the areas that are undergoing urban transformation include the Woodlands Regional Centre, Greater Southern Waterfront, Jurong Lake District, and Punggol Digital District.

Master Plan 2019 for Bishan

Source: Urban Redevelopment Authority

If you analyse the Master Plan 2019 for the area surrounding the Bishan MRT station displayed above, you can see a site (in blue) zoned for commercial purposes “subject to detailed planning.” This area is designated for a development that would include office buildings, retail stores, and hotels. At some point in the future these commercial structures will be built around the existing structures in that area. So, if you are thinking about buying a home in that particular area, this information in the Master Plan 2019 should be taken into consideration when evaluating the vicinity’s growth potential.

For example, with more commercial outlets planned for the future, that could mean added convenience for residents, which would likely increase the rental appeal as well as the value of properties in the area.

2. Capital Improvements and Rental Outlook

Generally speaking, when urban areas are transformed it usually results in enhanced connectivity and accessibility to infrastructure, transport, amenities, and conveniences – old and new. This inevitably improves the lives of those living in the area. There are usually a variety of factors that influence property prices (like supply and demand as well as how strong the economy is). But when you add new amenities to the area they can make a positive impact on the area’s desirability, which in turn supports rental values and home prices.

Let’s take a look at Jurong East, which has benefited greatly from a years-long makeover that has revitalised the entire neighbourhood with a number of new commercial and residential developments. Using the caveat data from URA REALIS, the average price in Jurong East for private non-landed resale home has steadily gone up once JEM, JCube, and Westgate were completed over the course of 2012 and 2013. Then the Ng Teng Fong General Hospital was completed in 2015, when the average price was $839 psf. The average price has continued to rise, and now in 2022 it’s at $1,219 psf (Chart 1).

Chart 1:

Average Resale Price in Jurong East of Non-Landed Residential Properties

Source: Pinnacle Research, URA Realis Data

While the revitalisation project of Jurong East was underway the residential leasing market seemed to also improve. The neighbourhood experienced an uptick in rental volume in Q2 2017 (Chart 2) that reflected a rise of about 64% QOQ from 217 in Q1 to 355 in Q2. The leasing volume has remained within a range of 200 to 300 since then, which is markedly higher than before 2016 when rental contracts ranged from 100 to 150. In the meantime, even though the quarterly median rental rate or $psf/month fluctuated, the trend was still upwards.

The Jurong Lake District is slated to be Singapore’s largest commercial district apart from the Central Region. It is shaping up to become a robust business hub that will also offer an exciting lifestyle that will attract tourists. Therefore, future residents and property investors are likely to enjoy a measure of capital appreciation over time.

Chart 2:

Median Rental and Rental Volume in Jurong East for Non-Landed Private Homes

Source: Pinnacle Research, URA Realis Data

3. Future Resale Buyers and/or Tenants

Understanding the importance of identifying the target audience, property investors should try to envision who are likely to be the unit’s future tenants. Will they be an active single professional, a young married couple with no children, or an expatriate family with young kids in school? Visualising the possibilities is important because it can help determine the best locations when creating a list of the most suitable properties.

For example, if the property you’re considering is in close proximity to schools it should appeal to young couples who may soon be starting a family as well as families with school-aged children. It stands to reason that expats would be interested in a property located near an international school that would best suit their kids. Working professionals are likely to be interested in a property located in close proximity to business and/or industry centres, which would allow them to live in the same area where they work. Because living near an MRT station is a great convenience, units in these areas can garner a higher rent than those further away.

It's also very important to choose a home that would have wide appeal. According to the Property Ownership Aspiration Survey conducted by the NUS Institute of Real Estate & Urban Studies (IREUS) in 2022, people looking for a non-landed private home want it to have a spacious layout with good flow and a large master bedroom. They also want a home near shopping areas and/or an existing or planned MRT station. The developer’s reputation is also an important consideration for property investors.

4. Your Own Financial Holding Power

Because urban renewal and rejuvenation projects can take years and sometimes decades, property investors cannot expect immediate gains. This is why it is vital that investors have the financial resources to hold onto their property/investment long enough to ride out any volatility in the market.

So, if you can’t hang onto the home or property for three to five years minimum, you may want to gather more resources before you take the plunge. Real estate must be considered a long-term investment, so the longer you can hold onto the property the more capital appreciation you can expect to enjoy.

You will also want to consider the property’s leasehold tenure because if you have children that you plan on leaving the property to, you may want to look for a freehold property. These are more likely to maintain their value and will not be impacted by lease decay, which owners of leasehold properties inevitably face.

All investments involve a measure of risk and real estate is no exception. But with thorough research and planning you can minimise those risks and enjoy some peace of mind while you look for the right property investment.

At Pinnacle Estate Agency, we strongly believe in sharing our real estate knowledge to the public.⁠ For more content like this article, check out our Singapore Property Guides.