Analysis How The Endowment Effect Is Hurting Your Property Decision Making – Case Study Of A Rental Investor

  • November 29, 2019
  • 9 min read
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Ryan

Ryan is an all about numbers property guy. 1 part property consultant, 1 part writer, 2 parts numbers geek, and 3 parts Thai.

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Fred
Fred

It is obvious that most FH properties will yield less than leasehold. At the start state, FH will cost more, what more at D10 location. No tenants will pay more because your property is freehold. Even between leasehold properties of 99-year and 60-year leases, which I see may come, the yield will differ in favour of shorter lease as the invested capital will be less. That is because these yields/returns are calculated on annual basis instead of total quantum of its tenure or lifespan. The attachment of endowment effect is common. A good agent will know how to temper these… Read more »

Stacked Homes
Stacked Homes

Well said Fred! Freehold and leasehold plays are very different, and a good agent is one who can advise objectively

Anonymous
Anonymous

From a rental perspective, it does make sense to opt for Alex Residences over Levelz for the reasons set out in the article. However, considering that Alex Residences is a 99 year leasehold, with multiple condominiums touting similar advantages in its vicinity (Artra, Metropolitan, Ascentia Sky etc), it seems that Levelz, a freehold property in D10 (with new launches approaching approximately $2400 – $2600psf), has the potential to achieve a higher sale price. If Mr Tan is not fully dependent on the rental income (the difference of approximately $180 a month), it might not be entirely unreasonable to hold on… Read more »

Stacked Homes
Stacked Homes

Thanks for your response! In terms of pricing, we’ve seen how The Levelz has been quite stagnant. In fact, with multiple developments around like Wilshire residences and Leedon Green that has gone en bloc, plus the number of old developments surrounding it – Sommerville Park, Spanish Village, Sutton, Gallop Gables, we think that it’s going to be quite a while before there is any en bloc talk.

But of course, if your desired outcome is capital appreciation, then you are right! It’s definitely not unreasonable to hold on to it 🙂

Danny
Danny

Why do Mr Tan need to pay the ADSB of $108K? He can simply avoid it by selling his Levelz condo first before buying Alex Residences. Am I missing something?

Stacked Homes
Stacked Homes

Hi Danny! Mr Tan is buying a property for investment which would make it his 2nd property as he is staying somewhere else which is his 1st property. As mentioned, The Levelz is his 2nd property already so selling it and buying Alex Residences would also make it the 2nd property.

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