How do you spot a good property investment unit? For a start, you can copy other successful property investors, or do your homework by checking vacancy rates, research nearby schools and check for upcoming major infrastructure developments.
In Singapore, we often find ourselves asking: How can an island this tiny have so many property investment choices? It doesn’t help that sometimes, being across the street will raise or lower the rental income by more than 10 per cent. It’s true, there’s a bit of property wizardry involved in finding a good investment unit; but here are some quick tips that don’t require a whole army of property analysts:
Tail other successful property investors
While we’re against herd mentality, this is one move that’s always useful for beginners looking for an investment unit. Look around for a veteran investor, whom you consider fairly successful – they don’t even need to be at the top of the property game, just more experienced and with a better track record than you.
Look in the same general areas that they do, and try to find out which properties they’re interested. Chances are, they know something that you don’t.
For commercial properties, look for major chain brands
Using this analogy, major chain brands such as McDonald’s and Uniqlo, do extensive analysis before picking a location. While you can’t afford the same advisory services, you can take a page out of their book.
For example, when Uniqlo first set up in Singapore, they picked Tampines One, a suburban mall, instead of the usual Orchard Road location. That was a pretty good cue for investors, to look around the same general area; they wouldn’t have set up there if there was a lack of foot traffic.
For Food and Beverage (F&B) locations, an old tactic is to try and spot major fast food chains. If you see these in the area, you know that foot traffic is probably good.
For residential properties, check the vacancy rates
A lot of investors check rental yields in an area. That’s useful, but seasoned landlords are also careful to check vacancy rates when scouting for an investment property.
This is a more immediate indicator of the current situation. For example, in February last year, there were high vacancy rates in the Sentosa Cove area. This was a good clue that things were not hunky dory, despite the usually high rental incomes associated with the area (it was due to a shrinking number of well-heeled expatriates, an ongoing problem this year).
When buying a residential investment property, look for schools in the vicinity (not just “elite” schools)
You probably know that, if you live near a particular school, your children are more likely to get in. As such, there’s always good demand for homes near “elite” schools. But even if a school is not as famous, it still benefits the landlord.
The reason is that, if the family’s children attend the nearby school, they’re less likely to want to move. That results in longer leases.
Look for signs of gentrification aka organic urban renewal
If you don’t know what the word “hipster” means, take a walk along Jalan Besar or Tiong Bahru. Some of the more “ulu” and rundown places are actually home to pricey cafes. At the same time, you may notice some of the corner shops are actually high-priced boutiques, that are just ironically low-end in appearance.
Gentrification is one of those things that happens organically – it’s seldom planned by the town council or government. This is why you need to walk around and check with your own eyes, rather than just relying on the Urban Redevelopment Authority’s (URA) master plan.
Look for the “ripple effect”
When one particular neighbourhood upgrades, and the prices rise, there’s often a ripple effect in surrounding areas. If you can move early, and buy before the ripple hits, you could see some nice gains.
A simple way to do this is to compare transaction prices in one area, to those of surrounding estates (you can do this with the 99.co property map). A common precursor to the ripple effect is when you spot a price disparity of five per cent or more, between one area and the neighbourhood next to it.
A cruder approach is to just look for estates with a lot of major upgrading, such as Paya Lebar in the past year. There’s a good chance that surrounding areas will benefit, in the following year or two.
Keep an eye on any properties in such areas; there’s a good chance that they’ll soon be revitalised thanks to their neighbours.
Visit property auctions to snag a bargain price investment property
Do drop by during mortgagee sales. While there’s no guarantee you’ll always get a good price, you might find the occasional fire sale – this is when a property has become too costly for its owner, and they’re eager to sell it quickly.
If the reserve price is not met during the auction, remember to approach the sellers directly if you can. They may accede to a private deal with you.
Look for aging properties, in neighbourhoods with slated upgrades
No, this is about hoping for an en-bloc sale (although that possibility exists). It’s about rental yield. Remember, tenants don’t really care about how many years are left on the lease – all they care about is convenience and comfort.
This means that an older property – if it’s in the right location – could generate the same rental income as comparably newer properties. Given that its price is lower due to age, you would effectively have a higher rental yield.
But you need to ensure that the price of maintenance or restoration isn’t too high. Also, you must be sure of its rentability, as it’s not easy to sell a property with an expiring lease.
Look for major infrastructure development
Prominent examples of this include the High Speed Rail (HSR) in Jurong, the Johor Baru-Singapore rapid transit system in Woodlands; lesser examples are the emergence of new MRT stations or roads. In general, property prices in Singapore are closely tied to the government’s infrastructure initiatives.
Key things to look for are:
- The development of business hubs, such as tech parks and offices; this raises employment in the area, aiding both rental prospects and home values
- Major park and recreation zones
- Factors that alleviate traffic and noise, such as “Car lite” designations, which will appeal to residents and tenants
- Development of education institutions
Buying your first home or investment property? We’re here to help. Find out how to make your property purchase safe as, well, houses. Our panel of experts are ready to answer your questions, and provide clarity on any property issues.
Consult them at Property Investing for Non-Millionaires, on 25th May 2019, at the HDB Hub Auditorium (Toa Payoh). Tickets are just $20, and early birds get a 50 per cent discount.