Singapore Property Investment – 7 Key Factors [Guide]

Singapore property investment has been one of the most preferred options fo asset progression in Singapore. As a highly developed city-state, Singapore is home to a well-regulated property market that provides ample opportunities for investors to grow and preserve their wealth.

However, investing in Singapore's property market requires careful planning and analysis to ensure optimal results.

In this detailed property investment guide, we will list seven key factors that every investor should consider before jumping on the bandwagon.

Although this article focuses on private residential properties, these factors also apply to HDB flats and executive condos.

To begin, let us examine why Singapore’s private residential property market has remained attractive when it is ranked one of the most expensive in the world. This can be attributed to the following factors.

Singapore’s Stable Political Climate

Singapore has only known one government since its independence in 1965, and it is not about to change anytime soon. For foreign investors, this provides a stable political climate to ‘park’ their funds and grow their property investments.

Singapore is also very efficient and transparent when it comes to doing business in the country. It also has a pro-business framework and an established and fair legal system, while corruption is highly frowned upon. Due to its safe haven status, it naturally becomes a magnet for many foreign investment funds and ultra-high-net-worth (UHNW) individuals.

In recent years, Singapore has witnessed a rapid growth of Family Offices where foreigners transfer a significant amount of their wealth here to be managed.

These include those from China following its rapid economic growth in recent decades. In fact, China has the second highest number of ultra-high-net-worth (UHNW) individuals in the world. In an attempt to protect their wealth,  Singapore has witnessed an influx of funds from China and Hong Kong following the imposition of China's new security laws. Many have feared that Beijing's new security laws could be used to seize their assets on vague national security grounds.

As such, many rich Chinese have ventured into foreign property investments, with Singapore being one of their main destinations. The reasons for doing so are to preserve their wealth and avoid the scrutiny of the country’s communist rulers. This has helped to keep Singapore’s property market buoyant although the latest property cooling measures imposed by the Singapore government on 27 April 2023 that saw a hefty hike in ABSD (stamp duties) from 30% to 60% has significantly curtailed foreign demand.

Nonetheless, this does not affect citizens of Liechtenstein, Iceland, Norway, Switzerland and the United States. This is because of their Free Trade Agreements (FTAs) with Singapore. Other foreigners, including many rich mainland Chinese, who succeded in gaining citizenship or permanent resident status have also argely circumvented the latest policy changes

Economic Outlook and Market Conditions

The economic outlook and market conditions are essential factors to consider when investing in Singapore's property market. Its economic stability and growth potential have played a crucial role in the real estate market's performance.

Despite the economic headwinds that Singapore is facing - US and Swiss Banking crises, elevated interest rates, and economic disruptions due to the Russia-Ukraine war - the economy is still forecast to grow between 0.5% to 2.5% in 2023 by the Ministry of Trade and Industry.

So far, Singapore's property market has remained resilient despite widespread weakening in many countries around the world.

This can be attributed to Singapore's strong economic fundamentals while the series of property cooling measures in the last two decades have prevented a property bubble from forming by curtailing property speculation and allowing the market to grow in line with economic fundamentals.

The property cooling measures have also ensured prudent borrowing by households to finance their properties (more on this below), enabling most of them to overcome the significant rise in mortgage rates.

Careful Calibration of New Private Property Supply

Another factor keeping Singapore's property market supported is due to the careful calibration of new property supply by the Singapore government.

As can be seen in Chart 1 below, the estimated unsold inventory of new private property launches as of 2nd Quarter 2023 is only 17,924 units. This is below the quarterly average of 27,767 units from 2012-2021.

With an annual take-up rate of about 10,000-11,000 units in the last 10 years, this could easily be wiped out in less than 2 years. This proactive management of the property market is aimed to ensure a steady growth of property prices.

CHART 1: Unsold Inventory of New Private Properties

Singapore Property Investment Provides Long-Term Capital Gains

Looking at the past 10-year records, Singapore property investment offers attractive long-term capital gains. As can be seen in Chart 2, it mostly outstrips the returns from savings and fixed deposits, as well as Singapore's inflation rate (CPI), offering an attractive investment option.

Although there have been dips during economic recessions and global financial crises, property prices have always recovered to record new peaks.

Hence, it is no surprise that have turned to property investment to grow and preserve their wealth.

CHART 2: Comparison - Singapore Private Property Prices vs Interest Rates vs Inflation Rate

Scarcity of Land In Singapore

As a very small country, Singapore faces a scarcity of land in Singapore. Although massive land reclamation has been undertaken by the government, there is a limit to its effort.

Singapore only has a total land area of 733.1 square kilometres (as of December 2021). This makes it the 178th largest country in the world out of 197. It has a population size of 5.975 million, but according to the Population White Paper (PWP), this is expected to hit 6.9 million by the year 2030.

Given the scarcity of land, the Singapore government has stopped offering freehold land in its Land Sales (GLS) programme. All new land plots will be sold with 99-year leases or shorter. This was stated by Prime Minister Lee Hsien Loong in his 2018 National Day Rally speech.

He said flats with 99-year leases are sufficient to be handed down to one or two more generations before being reverted back to the state. He reckoned that if flats were sold as freehold property, the government would eventually run out of land to build new flats for future generations.

As a result, the only way for housing developers to acquire freehold land is through en-bloc acquisition of existing freehold properties. However, some of the freehold land purchased by developers are being redeveloped and sold with 99-year leases. This is to ensure the land will revert back to them once their leases end.

With freehold land getting scarcer, will freehold properties offer better ROI than 99-year leasehold properties for those looking at Singapore property investment?

To answer this question, let's examine how these two segments have performed below over the last 10-year period.

Singapore Property Investment - Freehold Versus 99-Year Leasehold

CHART 3: Price Trend Comparison: Freehold vs 99-year Leasehold

As can be seen from Chart 3, over the last 10-year period across the whole of Singapore, 99-year leasehold private properties appreciated an impressive 61.48% compared to 29.05% for freehold properties.

Next, let's zoom in on a specific district and compare how two properties located near each other performed (refer to Chart 4).

CHART 4: Average Price Trends Comparison - Clementiwoods vs The Parc

Located in Singapore's District 5, Clementiwoods is a 99-year leasehold property while The Parc is freehold. They are located just 4 minutes drive apart.

Clementiwoods was launched in January 2007 and The Parc in August 2007, a difference of just seven months. As can be seen from Chart 4, the average price of Clementiwoods has appreciated by 118.71% since its launch versus 94.08% for The Parc.

Although the above illustrations may not be 100% representative of the whole real estate market in Singapore, the above two illustrations are worth pondering on whether to invest in a 99-year leasehold or freehold property in Singapore.

If there are any properties you wish to gain a deeper insight into, please WhatsApp or Email Me.

Naturally, most of us would wish to own our properties forever and pass them down to our descendants. Although there is nothing wrong with such thinking, are there factors that we may have overlooked when it comes to maximizing the ROI of our property investments?

Let us examine some of the factors below.

Freehold Properties Cost More

Given Singapore's small land area, almost 80% of our land tenures are 99-year leaseholds or shorter. Contrary to popular belief, the government is not obliged to extend their leases when they expire.

Nevertheless, many leasehold residential properties had their leases extended by paying the government a lease top-up when they went under en bloc sales. Due to such sales where homeowners pocketed a tidy profit, people have become less averse to leasehold properties. Nevertheless, there is no guarantee that the government will grant a lease extension and it will depend on the following factors:

• Land use intensification
• Mitigation of property decay
• Preservation of community

Besides the uncertainty over lease extension, another factor to take into account is the cost difference between a 99-year leasehold and a freehold property.

All things being equal (same location, size, amenities, etc) freehold properties cost minimally 10-20% more than similar 99-year leasehold properties. For example, if a leasehold condominium costs 1 million dollars, a similar freehold will cost at least 1.1 million dollars (assuming a minimal 10% premium).

Property Stamp Duties Add to Cost of Property Purchase

But when you take into account the Buyer’s Stamp Duty (BSD), it will cost you an additional $24,600 and $28,600, respectively.

The calculation of Buyer's Stamp Duty is based on the rates shown in the table below:

Example:

If you are buying a residential property costing 1 million dollars, the calculation for BSD is as follows:

However, if you are buying a freehold property for $ 1.1 million dollars, the BSD will amount to $28,600.

Accounting for the buyer's stamp duty, the freehold property will cost $104,000 more than its 99-year leasehold counterpart (after taking into account the difference in stamp duty and property price).

But bear in mind that nowadays, you can hardly get a 1-million dollar private property. Even if you can get one, it is likely to be a shoe-box apartment or condominium. If you want a bigger home, the price difference between a freehold and a leasehold property can be quite substantial.

If you are a Singaporean buying your second or even third property, you have to fork out Additional Buyer's Stamp Duty (ABSD) of 20% and 30% respectively. For permanent residents and foreigners, the ABSD are even higher (refer to the table below).

These stamp duties can add significantly to your property purchase.

The bigger your financial outlay, the greater your financial burden. This could mean setting aside a significant portion of your monthly income to service your mortgage.

Typically, taking a 20 to 30-year bank loan is quite common, especially for young Singaporeans venturing into property investment for the first time. To service the mortgage, compromises may need to be made, like cutting back on expensive meals or holidays.

Nevertheless, prudent property investment can help you build your retirement egg nest. Hence, it is important to evaluate your options by speaking to a professional real estate agent who can share with you the following:

• Current market trend and its latest demand/supply situation.
• Properties with good investment potential.
• What are the property hotspots.
• Recommend properties that meet your budget and investment horizon.

Freehold Status Only In Name?

In law, the Doctrine of Tenure states that all land belongs to the State. Thus, technically speaking, what a person ‘owns’ is not the land itself but an ‘estate’ in the land. There are two types of freehold land – Estate in Fee Simple and Estate in Perpetuity (also known as Statutory Land Grant). To the layman, both are the same. However, there are actually some differences, as explained below:

Estate in Fee Simple - A freehold estate where the owner can own it ‘forever’ without any conditions.

Estate in Perpetuity or Statutory Land Grant - A freehold estate where the owner can own the land ‘forever’. It is however subject to the terms under the State Lands Act. The terms include the rights of the State to have free access to the land, take mineral oil and duty to maintain boundary marks.

Why are we saying freehold status only in name? This is because, under certain circumstances, you can be forced to give up your freehold property through government land acquisition and en bloc sales.

Government Land Acquisition

Private land may be acquired by the government for public purposes such as economic and infrastructure developments. For example, if the government wants to build a new MRT line, widen a road or construct a new highway and your land or property is in the way, it will be acquired under the Land Acquisition Act. It is administered by the Singapore Land Authority (SLA).

Since April 2007, landowners whose land is acquired will be paid market value under the Act. The compensation will not be adjusted if there is any increase or decrease in value between the date of notice of acquisition and the date of vacant possession. In other words, the potential value of the property is not taken into account. The government will enjoy/bear the difference in price.

Hence, in Singapore property investment, nothing is 100% certain, as was highlighted in this case.

En Bloc Sale

An en-bloc sale can happen in several ways:

• Owners of old properties face high maintenance costs selling collectively to interested housing developers. This will help them fetch a higher price per unit than if they sell individually.
• Older low-rise properties with large open spaces and common areas that have been under-utilised. This allows more intensive use of the land to build more housing units.
• Revision of plot ratio. This is one of the major factors driving en bloc sales. If the URA raises the plot ratio, the Building Control Height will be increased. This allows higher buildings to be built on the same plot of land (refer to the table below). With the increase in Gross Floor Area (GFA), more housing units can be built. The plot ratio of land is indicated in the URA’s Master Plan which is revised once every five years.

• Change in the zoning of land use. This is also included in the Master Plan and specifies what the land is used for. These zoning include Residential, Commercial, Commercial & Residential, Hotel, and Business Park, to name a few. For example, if a land that was formerly zoned ‘Residential’ is subsequently revised to ‘Commercial & Residential’, the value of the land will increase. This is because commercial developments usually command higher rental returns than residential properties.

For an en bloc sale of a residential property to take place, owners of 90% of the share value must agree if the development is less than 10 years old. For a development that is more than 10 years old, the threshold is lowered to 80%.

If you are one of the 10% or 20% of homeowners who are against the en bloc sale, too bad for you! You will be forced to sell no matter whether your property is freehold or leasehold.

Location More Important Than Freehold Status? 

This may sound like a cliché. But location is a very important factor when it comes to Singapore property investment.

For example, a property that is near the Central Business District is more desirable than one in the suburbs due to the convenience it offers. A property that is near an international school will be also more desirable. The reason is simple! These properties will see high demand from expatriates working here, especially those with children. As such, they will fetch higher rentals. Tenants care little whether your property is freehold or leasehold. What is important to them is convenience.

There is no difference in rental prices between a leasehold and freehold property of similar attributes. But due to the lower cost of the leasehold property, its ROI will effectively be higher.

For a simple illustration, a leasehold property costs 2 million dollars while a freehold costs 2.2 million dollars (assuming a minimal 10% premium for the latter). If both fetch the same monthly rental of $5,000 per month, the annual rental yield of the leasehold property works out to be 3.0% compared to 2.7% for the freehold.

In addition, we have highlighted earlier that the potential capital gain of leasehold properties may not necessarily be inferior to freehold. Nevertheless, one needs to be cognizant of the negative effect of lease decay and its effect on the prices of 99-year leasehold properties.

Before plunging straight into Singapore property investment, you may wish to take note of the following key factors to maximise your ROI:

• Amenities - Are there any shopping malls, public parks, popular local schools or international schools nearby?
• Conveniences – Is the property well-served by an MRT station, bus interchange or an expressway?
• Future Development – What is the future potential of the area? Has it been earmarked by the government for rejuvenation or transformation? For example, some exciting upcoming developments include the Greater Southern Waterfront, Jurong Lake District, Woodlands Regional Centre, One-North, and Punggol Digital District.

As the saying goes, location creates desirability, desirability creates demand, and demand raises real estate values. This is illustrated in Chart 5 below, which compares the prices of freehold and leasehold condominiums for the past 20 years in prime District 9 (Orchard, Cairnhill, River Valley) and the suburbs in District 27 (Yishun, Sembawang).

CHART 5: 20-year Average Price Trend Comparison of District 9 and District 27

From Chart 5, it can be observed that over the last 20-year period, District 9's average price (psf) for 99-year leasehold private properties has appreciated much more than their freehold counterparts (+376.23% vs +209.35%).

Also, in many instances over that period, it has surpassed freehold properties.

Similarly, District 27's average price (psf) appreciation of 99-year leasehold private properties outstripped their freehold counterparts (+302.05% vs +173.09%).

So, when looking at Singapore property investment, do not be too hard-nosed about freehold status. Instead, stay focused on the property’s location, rental yield, amenities and conveniences, as well as future transformation potential. And of course, one needs to have an exit strategy to maximise ROI.

Demographic And Lifestyle Changes

The extended Singapore family unit is getting rarer nowadays. It is not a given that children will live with their parents when they grow up. In fact, many married couples prefer to live on their own. If your children and grandchildren will not be staying with you, is buying a freehold property necessarily a better option to preserve or grow your wealth for legacy planning?

As illustrated above, the capital appreciation of leasehold properties can actually be higher than freehold, in addition to higher rental yields for properties with similar attributes. Nevertheless, buying a property should come with an exit strategy to maximise your ROI as its rate of capital appreciation tends to taper off, or even fall, as the property ages. This is regardless of whether it is a freehold or 99-year leasehold property.

For a first-time real estate investor, buying a leasehold property could also make more sense if you face a tight cash flow. With a lower outlay, you will avoid over-stretching your finances while taking the first step into the exciting world of property investment.

You can always reassess your investment or asset progression options later, including buying a second property, when your finances improve.

Email or WhatsApp Me if you require any assistance on this.

Obsolescence of Properties

Whether properties are freehold or leasehold, all of them face the risk of Economic, Functional and Physical Obsolescence.

• Economic Obsolescence – This happens when the environment around your property changes and causes the value of your property to diminish. For example, there is a change in zoning of the neighbouring land into a cemetery.
• Functional Obsolescence – This is when the design of old freehold properties is no longer desired, resulting in a reduction in demand. For example, apartments with no lifts do not meet the needs of the rapidly ageing population.
• Physical Obsolescence – This is when a property is deemed to be physically obsolescent if it costs more to repair than rebuilt due to gross mismanagement and physical neglect.

Also, there is always the fear of lease decay negatively affecting the value of 99-year leasehold properties. Although such fears are not unfounded, this is only likely to happen 20-30 years down the road. In the meantime, freehold and leasehold properties rise and fall in tandem during property cycles without exception.

Within this time frame, ask yourself what is more important: Clinging on to the existing property for sentimental reasons or flipping it to maximise your ROI to build up your retirement egg nest?

If you choose the former, be prepared to fork out extra money for the upkeep of your property. As building ages, many things will begin to fall apart. These may include faulty electrical wiring, leaky roofs and rusty concealed pipes, to name just a few.

If you stay in a condominium that is 25-30 years old, do not be surprised that all the lifts will need to be replaced. This can be a very costly affair, especially in a small development where there are fewer owners to share the upgrading cost. All ageing properties face such major issues, no matter how well they are managed or maintained. Perhaps, the money spent on upgrading can be better utilised by investing in a newer property?

Unless of course, there is a high potential of an en bloc sale or a major transformation in the area you are staying, such as in the Greater Southern Waterfront or the East Region that could substantially boost property values.

Capital Appreciation Rate - New Launch Versus Resale Property

One important factor in Singapore property investment many may have overlooked is the rate of capital appreciation between a new launch versus resale private property. A new launch private property will always be priced higher than a resale with the same attributes and location.

Unless you urgently need a place to stay and cannot wait for the new property to be completed, or if capital appreciation is not your main concern, then, by all means, buy a resale. Otherwise, a new launch should be the investment of choice.

To illustrate, let's compare two developments located beside each other near Queenstown MRT station - Commonwealth Towers and Queens. They were launched in May 2014 and September 2006 respectively.

When Commonwealth Towers was launched at an average price of $1,621 psf, Queens was selling at $1,281 psf in the resale market, a 26.5% premium. As of 10 September 2023, they were selling at $2,071 psf and $1,534 psf respectively, a difference of 35.0% (refer to Chart 6 below).

Assuming you have bought a 1,000 sqft apartment, this would translate to a gain of $450,000 for Commonwealth Towers versus $253,000 for Queens.

CHART 6: Average Price Appreciation - Commonwealth Towers vs Queens

Conclusion

To sum up, the tenure of a property may not always be the most important factor when it comes to Singapore property investment and asset progression. Buying a lower-priced resale property may also not be the best option when it comes to maximising your potential capital gain.

Of course, there are other important factors to consider, such as:

• Location (Eg, CCR, RCR or OCR)
• Future developments (Eg, new business park, employment hub, or lifestyle facilities)
• Potential transformation
• Rentability and rental yield
• Amenities (Eg, shopping malls, popular schools, nature parks)
• Conveniences (Eg, existing or potential new MRT station, bus interchange, expressway)
• En bloc potential

Such factors apply to HDB flats as well.

Should you require more advice or wish to know more about using your CPF funds to finance your property purchase, please do not hesitate to Email or WhatsApp Me for an obligation-free consultation.

We will be happy to share with you our in-depth research and market-driven data to help you realise your investment objectives and build your retirement egg nest.

What Singapore Properties Can Foreigners Buy?

If you are a foreigner or Singapore permanent resident looking for property investment, there are many rules and regulations you need to be aware of. There are restricted properties that foreigners are barred from buying.

In addition, you need to take note of the stamp duties payable as this could add substantially to the cost of your Singapore property investment. If you are in the market for a new home, we can assist you. Please WhatsApp or Email me.

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