In last Tuesday’s article, we discussed housing affordability and renting as an option for singles under 35 and couples who do not intend to get married yet. If you have not read that article yet, check it out here. We will carry on the discussion and talk about the following options if we are looking at the decision to buy instead of renting.
To build on what we’ve previously discussed, we will focus on 2 main aspects of the property purchasing decision: affordability and capital gains. We will be deciding between the number of bedrooms (Studio, 1-Bedder, 2-Bedder) and the general region (Central vs Non-Central) as the key variables. At the end of the article, we will put out generic recommendations for the most affordable, the most potential for capital gains, and the most balanced housing option for the specific demographic.
What’s the Budget we’re working with?
To work out a budget, we take the average age to start work as 23 years old, with a median monthly salary of $3,800 and a savings rate of 50%. We factor in an average annual increment of 3.5%. Here’s a table to illustrate how much the average worker can save by the time they are 30. CPF OA, which can be used for property purchases, gets allocated 23% of your income if you are aged below 35. On top of that, it gets a minimum interest rate of 2.5%.
Putting all these numbers together, we should have the following accumulated savings. Generally, we are working with a property budget of under $1 million. Note that in this example, we show that it’s possible to go at it alone. If instead you’re working with your partner in this property journey, you would be able to get there faster or be able to afford up to a $2 million property by the time both of you are 30.
Prioritise Affordability or Capital Gains?
Before we go any further, we first need to know the priority. Are we gunning for an affordable place because we are in a rush to move out? The sense of urgency and time factor will make affordability a bigger priority for some people. Or are we going for as much capital appreciation as possible? For the first-time property investors who are not in a rush to have their own place, but rather want to get into property to grow their wealth. Regardless of which group you’re in, this article is for you. We will cover both angles and even help those of you who are not sure what your priorities are yet.
The intuition people would have is that the further from the city centre, and a fewer number of bedrooms, the more affordable the property would be. This puts Non-Central Studios as the most affordable property type, hypothetically. However, for capital appreciation, it is far less intuitive. Finding a property that is a hidden gem (undervalued) is tough. Generally, it has a good location but has a performance lag compared to other properties that are similar. We will go into further detail on this later.
Not everyone is willing to go for Studio apartments in the Non-Central areas even if they are more affordable. The space constraints and less central location might be a trade-off that not every person is willing to make. That being said, this article will put the trade-off in numbers so that you would know roughly what you are sacrificing to get a larger and more central place.
On the Hunt for Bargains — What is the Most Affordable?
When we are searching for the most affordable property type for the demographic we are writing for (singles under 35 & couples not intending to get married), we are looking at solely private condominiums (Condos) or resale executive condominiums (EC). The key difference is that only Singaporean Citizens and Singaporean Permanent Residents may buy a resale EC immediately after the MOP. Foreigners would have to wait till the EC is fully privatised before being able to purchase it. This would mean buying ECs which are at least 10 years old. We include new launches for Condos. Let’s compare Condos and resale ECs options under $1 million.
Looking at the Quantum alone, Condos provide more affordable options than ECs in the form of studio apartments. The non-central Condo Studio options are the cheapest, hovering around 575K (downpayment of 144K), and can be considered after saving for 5 years based on our previous table if you’re doing it alone or 3 years with a partner. The central studio apartments average around 650K (downpayment of 163K) can also be afforded with a little extra time.
One might think that ECs are more affordable than Condos. But this might not be the case if we are looking at resale ECs which can have much elevated prices compared to their launch price. While studio apartments are the most affordable options, we see the prices creeping up since the pandemic started (2020). The steeper price growth for these two categories might push buyers to consider non-central 1-Bedders instead, in the near future.
In terms of affordability, non-central Condo Studios are definitely the cheapest option, in line with intuition. You might go for this option if you’re in a rush to move out. Do keep in mind that the prices are quickly rising now and it might not be favourable when you intend to exit to upgrade to a bigger unit. Buying Studios usually falls in line with a rental yield strategy rather than for own stay. We recommend that you make more considerations before jumping straight at the cheapest option.
Getting Value — What has the most potential for Capital Appreciation?
On the PSF side of the story, EC 2-Bedders and above have the lowest psf but also the highest growth rate. Very soon (next 3-5 years), EC 2-Bedder prices would converge with non-central Condo 2-Bedder psf, which has not been performing well psf wise.
Putting this together with our Quantum chart, EC 2-bedders are likely much larger on average as opposed to their Condo equivalents (comparable quantum but lower psf means larger size). The demographic pushing this demand are likely families with larger households. Note that while price performance on psf and quantum may be good now, it does not guarantee continued growth at the same pace.
We posit that moving forward, non-central Condo 2-Bedders hold better value. The rising EC psf will help prop up the Condo psf as well. Going back to the Quantum chart, notice now the average quantum of 2-Bedder ECs have diverged and climbed higher than 2-Bedder Condos (by a margin of ~4.7%). This is a disparity gap to be highlighted. Over the next 5 years, non-central Condo 2-Bedders will have their PSF and Quantum propped up to follow the EC prices leading this segment. Central Condo 2-bedders would probably then follow suit.
In terms of affordability, non-central Condo 2-Bedders sit at an average of around 860K (downpayment of 215K), which would take 7 years of saving up alone or 4 years with a partner. Non-central Condo 2-Bedders also have the most transaction volume out of all the options we have highlighted. The transaction volume for non-central Condo 2-Bedders is easily more than twice of any other option. This would mean more accurate valuations and an easier time finding a buyer when you exit. You’ve probably heard it many times before but it should not be understated. Having that amount of volume indicates the health of the market.
In terms of being a candidate for the highest potential for Capital Appreciation, non-central Condo 2-Bedders is where it’s at.
Finding a Balanced Option
Not everyone is looking to buy property purely for capital appreciation. Nor is everyone simply looking for the cheapest deal. Sometimes people look for a balance between factors, in terms of price, location, convenience, and returns. In this respect, we think that central Condo 2-bedders are a good option.
Being in a more central location (CCR or RCR) can really be a lifestyle perk for those who like being near their favourite cafes or restaurants in town. If your workplace is in the central region, saving the transportation time and costs can be a huge deal over a long period of time. Speaking of time, if you intend to buy the property for ownstay. You are probably going to stay for at least 5 to 8 years barring any huge life changes (getting married/having kids). Make sure that you’re buying in a location and neighbourhood that you love living in. Don’t just be “ok” with it. This is a huge decision we are talking about.
Another important balance point is the ideal amount of space you might need. With Work-From-Home still being on the table, we are not sure if working in offices will really be the norm for all sorts of occupations again. This might be a factor for your consideration. Moreover, you should get a good idea of what a comfortable living space is for you. Try short-lease rentals or service apartments of different sizes to see what suits your needs best. If you have a partner living-in, you might want to weigh in their opinion as well.
Central Condo 2-Bedders fits the bill in terms of location and space. In terms of quantum, it hovers around 865K and at $1,300 psf. This averages a size of 665sqft. While the PSF is above the other options of similar size, it still lies before the PSF of smaller apartments. It lies in the middle of the range, although this might not mean much. In terms of affordability, a 865K purchase requires around 216K for downpayment. This translates to being able to buy the place with 7 years of savings if you’re going on your own. With a partner’s help going 50-50, it will take 4 years total.
Similar to the non-Central option, central Condo 2-Bedders will have their prices propped up with the rise of resale EC prices. While there is slightly less room for capital appreciation than its non-central counterparts, there are still plenty of reasons to be optimistic about performance since the location is much more central. Future developments in town along with deeper transportation infrastructure upgrades would help push prices up.
Parting Thoughts
To round up our discussion, we’ve looked at almost 30,000 transactions in the Condo and resale EC market over the past 5 years for properties under $1,000,000. We came up with the following recommendations.
If you’re purely interested in the cheapest option, non-central Condo Studios is what you should go for. If you’re looking mainly for the potential for capital gains, finding a non-central Condo 2-Bedder in a good location. This decision would need to be made more carefully as many Condo and location specific factors can easily affect its potential for growth. However, in general, it is the best option categorically for this objective. A balanced option considering other factors would be central Condo 2-Bedders. This would be good if you frequently head to town and enjoy having more breathing space.
What we have highlighted are general trends and property types that might suit the demographic of people who are under 35, either single or not planning to get married. If you need advice on what the ideal property strategy is for your specific situation, reach out to us here.
