How To Spot An “Undervalued Property” In Singapore In 2024: 6 Simple Tips
Undervalued properties have become a lot harder to find in today’s market. Unlike in the past, when the market was more opaque and dependent on word-of-mouth or the classifieds, the internet allows everyone to compare prices with a few taps of their phone. Nonetheless, there are still cases where sellers go under the market rates; and if you’re quick enough, you might spot them before someone else snaps up the deal. Here are some good ways to start looking:
1. The newer the launch, the wider the price gap
New launch condos will always be priced higher than existing resale counterparts; so if you see an area with upcoming new launches – or even a site that was just tendered and sold – there may be an opportunity there.
Getting a resale condo in that area could be cheaper than the upcoming launch; but in subsequent years, the new launch (or new launches) will also have an effect on the surrounding resale prices. You would, nonetheless, have gotten in on the ground floor: buying a unit at the location before average prices in the neighbourhood started to climb.
While it’s ideal to do this with upcoming launches, you can also do it where new launches or recently completed projects have appeared. There will be a brief period when the surrounding resale property prices have yet to catch up with the new property.
As a related factor, do pay attention to whether the upcoming project also improves the neighbourhood. Sometimes a development brings in much-needed amenities, which could cause existing resale prices to rise as well. One example of this was The Poiz Residences: prior to its arrival, there were few retail options in the surroundings. Seneca Residences is another example: it’s an integrated development that brings a much-needed commercial element to Tanah Merah Kechil Link (we mentioned this in an earlier article).
2. Premium pricing may not be too far off the normal pricing
Developers will price a stack or a unit higher if they feel it has certain advantages, like a better view, better access to facilities, etc. However, the size of the premium is sometimes more than justified.
Making this decision does require a degree of experience and acumen though. Does having a greenery view instead of an inside-facing view justify a $50,000 difference? Does a difference of $75,000 pay off, if you opt for the unit with the private lift instead of the regular ones? There’s no single answer and each project has to be analysed on its specific merits – you can reach out to us on Stacked if you need a comparison.
We’ve done some comparisons for this before in developments with a premium on certain facings versus those without (you can read more here).
In general, however, finding a premium that’s too small for the unit’s advantages is a reliable way to get an undervalued unit.
A smaller premium difference is often also caused by one-time developer promos, such as when the developer sells units on multiple floors (e.g., first to fifth floor) at the same price. These sorts of “flash” deals tend to last for very short periods, sometimes less than a day or two; but they can be a way to underpay if you get the timing right.
3. Striking deals at property auctions
Some sellers put up a property for auction instead of going through the normal sales route. This does not mean they’re desperate by the way: sometimes buyers choose to use auctions for various reasons, such as if there are zero recent transactions in the project, or if they’re trying to sell a special unit like a penthouse, for which there’s no precedent.
If the auction is truly a mortgagee sale, these will usually be made clear by the agency running the auction. You do have a much better chance of finding an undervalued unit at mortgagee sales, versus the other types of auctions.
Also, don’t be surprised if the unit isn’t sold during the actual auctioning, but during private negotiations later. We daresay this happens most of the time. Watch the auction to get a sense of what others are willing to pay; and then approach the sellers with a private offer later if it isn’t sold.
You can register to attend auctions on various property agency websites, like KnightFrank, ERA, and so forth.
4. Look out for foreign sellers in prime areas
This may be a bit tougher to find as of 2024, as foreigners have a tighter grip on their properties today. If they were to sell, their replacement property would now come with a 60 per cent ABSD.
Nonetheless, foreign sellers – especially in prime areas – sometimes let go of their properties at below valuation, when they’re in a hurry to move back home. It’s no coincidence that the biggest recorded losses tend to come from foreigner-heavy areas like Sentosa, or Districts 9 and 10.
In general, foreigners who are in a rush to get home may be less penny-pinching, and more focused on speed. If they can close the transaction with you right now, they might prefer that than wait around for better offers.
The downside is that foreign ownership is much rarer in mass-market, OCR condos; so these opportunities are rare among the more affordable projects.
5. Boutique properties/low transaction volumes mean price volatility, which also means opportunity
Some properties, such as walk-up apartments or boutique properties with fewer than 50 units, tend to have few transactions. There may only be one or two transactions every few years, so the last transaction – if it happens to be unusually low – will skew the average downwards (we go into some detail on this here). This could impact the valuation and end up being priced lower than expected.
This is a double-edged sword though, as a low transaction volume can also work against you. When it comes time for you to sell, for example, the resulting resale gains can be much less predictable.
6. Use the “worst house in the best area” principle
This approach emphasises the value of the location, over the current value of the specific property. An example might be buying the oldest condo close to Bayshore MRT (Bayshore Park, built in 1986), to capitalise on the new Bayshore Estate. Prices at the older condo are likely to be lower than neighbouring options, but will still pick up as Bayshore Estate is developed.
The underlying principle here is that properties can be improved with renovation, refurbishing, etc., whereas location can’t be changed. So to find something undervalued, just focus on the best locations first, then buy and overhaul the cheapest properties in that location.
Be careful not to oversimplify the concept though: you still need to consider factors like how much it might cost to renovate the property, or the effect of lease decay after your holding period.
If you think you’ve found an undervalued property, but you aren’t sure, you can always reach out to us at Stacked for a consultation.
