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Does a VIP neighbour really affect property values?

October 9, 2017

vip neighbour cover


The news has been abuzz about the “Yistana” lately, with new President Halimah Yacob finally vacating her Yishun abode. It was an interesting moment – some complained about the inconvenience, others raved about the potential benefits. But does a VIP neighbour really raise property values?

First, a caveat

Property values are a strange thing. It’s difficult to isolate any one particular factor, and determine how much it affects the price. For instance, consider the famous ad, selling the flat three floors below the President for $460,000.

If the price were to rise to $470,000, then could we attribute the extra $10,000 to the fact that the President used to live in the block? How would we know?

The rise in price may be due to the opening of Northpoint City, a mega mall that will service the Yishun area. It could happen as a natural uptick of the property market, which has been down for around four years, and is nearing an inflection point. It may even be due improved accessibility, via bus and train.

It’s hard to separate correlation and coincidence from actual price factors; and even if we knew what those factors were for sure, it’s hard to determine how much they influence the price. Some people care a lot that a celebrity or politician used to live nearby; others may not be fans, and not care at all.

As such, it’s hard to state – as a fact – that the presence of VIPs in the neighbourhood will “raise the property value by X”. Take such claims with a whole shaker’s worth of salt.

The impact of star value on properties is uncertain

It’s often assumed that VIPs, particularly celebrities, will raise property values; if not for the neighbourhood, then at least for their own home.

However, property markets have shown that isn’t always the case. For example, back in 2008, Meg Ryan’s Bel Air property sold at around S$15.1 million, despite an asking price of $15.53 million. In 2011, Osbourne’s sold their fancy Malibu beach house for only S$13.6 million, almost 21 per cent less than the actual asking price.

In 2015, the Sentosa Cove home of (now jailed) pastor Kong Hee was taken off listings when it failed to sell altogether. At the time, Kong Hee and his wife were arguably celebrities of a sort. The house has only recently gone back on sale.

In fact, curiously in 2016, the UK experienced a “celebrity home price slump”, when stars all seemed to be losing money on their property sales.

It’s unlikely that celebrities are causing the price to drop, however. What’s more probable is that, due to their star status, their property agents will push for an ambitious price.

If you were advertising a celebrity home (here are some in Singapore that you can see), you’re almost certain to set the asking price high. The realities of the market then kick in, to moderate the price level – this would explain why most celebrity homes fetch amounts below their asking price.

Some of the key factors to note here are:

A VIP neighbour can actually provide a disamenity to the neighbourhood

This was demonstrated by United States President Donald Trump, even before he was elected. The traffic around Trump Tower (where he lived and worked) became an endless snarl, due to security precautions that had to be taken. Local businesses complained about loss of customers, due the inconvenience of blocked roads, and inaccessibility by car.

For a time, there was a similar concern in Yishun, although in our case the neighbours turned out fine. But Yishun residents can be considered lucky. Others who live near a VIP neighbour might experience whole views blocked out, or ugly security fencing (VIPs and celebrities have higher privacy needs, as fans and loonies may try to break in).

Also, it’s not very pleasant to have hordes of photographers and journalists clogging up the place, every other day.

While home buyers may be wowed by the celebrity presence at first,  most realise that the charm will quickly give way to frustration. The more famous the celebrity, the greater the disamenity they often create.

It’s hard to tell if a VIP neighbour scales up the area, or if the reverse is true

Why don’t we have accurate numbers on how VIPs affect property values? Here’s the simple reason: VIPs tend to move into areas that are already high end, or which are already being gentrified.

It’s unusual for celebrities or famous politicians to move to “ulu” places, or low rent areas. As such, whenever you see a celebrity home, it tends to already be in an upscale neighbourhood. And obviously, you can’t credit the celebrity for its property value – it was already fancy to begin with.

It comes down to whether the buyer is an investor

If the buyer is working under emotional reasons (e.g. the buyer is a fan), then of course the property price can be inflated. The buyer isn’t interested in capital appreciation, or rental income.

If the buyer is a property investor, however, having a VIP neighbour will matter a lot less. The investor only cares if the celebrity “aura” could attract tenants, or will raise the property value; if neither of those prove true (or are not significant enough), there may be no real difference in the ultimate price.

Found the content in this article useful? Read more about things to consider before becoming a property investor and how to spend a $1 million windfall on property investing.

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