Is it still worth investing in a condo given the high psf?

I was looking at some regrets on getting a condo on a Reddit thread lately, about whether a condo is still a good investment. 

You can see it here. And reading through it, I noticed a few good points, but also several common half-truths and almost-right statements. 

Here's the top-voted comment, and rightly so:

"I think the location matters more than anything."

But the next few became very debatable, the first of these is over the literal nature of leasehold vs freehold land:

"Yeah, which is why, to me, it's either HDB or FH private. LH private is the one that really doesn't make sense. Price very close to FH private (80 per cent?) which makes the lease decay much more painful."

In a moment, I'll show you why leasehold still makes sense for some people. But I would point out, as an aside, that some landlords avoid buying freehold. 

Buying freehold properties usually translates to a worse rental yield, because (annual rental income/total cost of property) x100 = gross rental yield. So:

Assume a rental income of $48,000 per year for two condos in the same location: One leasehold ($1.5 million) and one freehold ($1.725 million). 

Notice the annual rental income is the same, because tenants do not pay more for freehold properties; it's irrelevant to them. 

The gross rental yield for the leasehold property is 3.2 per cent, while the yield for the freehold counterpart is 2.78 per cent. 

And ultimately, it's not about whether it's freehold or leasehold, it's about whether it is the right property from an investment standpoint. 

As a very simple example, if you were to buy a freehold condo in an already mature area, as compared to a leasehold condo in an area where there's future upside - which do you think would do better? 

It's not so much about the tenure, but about the actual value.

Here's another: 

"If you don't get FH, you lose one per cent each year. It takes 10-15 years to make the premium worth it. That's not a very long time in terms of properties and generations."

One per cent each year is dubious. Here's a snapshot of the appreciation of leasehold condos versus freehold condos (excluding Executive Condominiums) over 15 years: 

On average, the freehold condos underperform leasehold ones, even over a 15-year period. 

Of course, this can be very subjective on the age of the property that you are comparing. But let's say if you were to buy a new freehold vs leasehold condo, it's definitely not accurate to say that you will lose one per cent each year. 

(We've done a study of freehold vs leasehold new launches since 2014 which you can read more here). 

Let's look at a few other things:

"Depends on the condo. Not all condos are the same.

New launch condos are very not worth it. $2k psf for shoeboxes? Come on. $1,800 psf for Pasir Ris 8? That kind of psf price can buy a condo in river valley. And almost all 99 years.

Look a Ki Residences. Unit sizes from 700-1300 sq ft. 999 years, $2k-$2.4k psf.

Clementi Park across the road - units start from $1.1k sf all the way to $2,000 plus psf. Prices from $1.4k-$2k psf. Freehold.

Fresia Woods abit further away similar story.

If u got two million now, you can buy a 1,065 sq ft Fresia Woods condo, or a $1.4k sq ft Clementi Park condo. You can only buy a 965 sq ft Ki Residences condo.

If you can deal with one bedroom, then $1.5 million will get you a 1,039 sq ft Clementi Park condo apartment. $1.6 mill will get you a 750 sq ft apartment at Ki Residences.

Obviously we can see Ki Residences is not a great deal.

Look abit further to Pandan Valley, you have 2000+sq ft condos going for $1.5k psf or lower!

So honestly, IMO, the older condos, yes, worth. Newer ones… No."

Of which, there was a comment directly below that said it right: "Can't just look at the prices/psf alone and make a blanket statement."

I've said it before, but price per square foot isn't always the best or most practical indicator of value. For starters, price psf tends to increase as a unit gets smaller and more affordable, but decrease as the unit gets larger and less affordable. 

If you were to buy a bungalow, for example, you could be looking at about $1,600 to $1,700 psf; but for a 7,000 sq ft detached home, that's $11.9 million. 

On the other hand, a $3,000 psf one-bedder, at 500 sq ft, is only $1.5 million. 

There's also the matter of changing regulations over the years. 

Comparing price per square foot makes sense if all the variables were the same, but when older condos have inefficiencies such as planters and bay windows, comparing it solely by psf would not be fair. 

Rather than look at price per square foot, it's really best to focus on the quantum, which also impacts:

• Your stamp duty rates
• Your loan amount, and hence interest paid over the decades
• How stretched your finances become after the purchase 

Price per square foot is useful in a few specific circumstances, such as when you have two very similar layouts and sizes to compare; then it can give you a sense of better value. 

It becomes less useful when comparing across very different property types, like HDB and private condos, or versus landed. 

"HDB is definitely more worth it, even if the resale price is over one million! I regret everything about the condo except for the one fact that it is right across the rd from an mrt station. Still, not many choices for new places with combined income around 20k, not allowed to buy BTO/EC and can't afford landed property…"

Anyway, if you make $20k a month and really want a resale flat, no one will stop you buying one. There's no income ceiling for resale flats. 

But at some point the thread went off tangent, and it was more about buying for home ownership than investment. If you asked me whether it's worth investing in a condo though, I would just ask: Which condo? 

Property isn't interchangeable. When a (sane) investor buys, they don't invest in "condos" or "landed" or any such wide category. They invest quite specifically in a project, like The M or Midtown Bay or Pandan Valley or what have you. 

There are some condos I'd certainly invest in even now; but there are others I'd avoid even with huge developer discounts. 

In other serious property news this week…

Do you think it's time the $16k income ceiling for Executive Condos should go up? Weigh in on the topic. 

Price anchoring: It's when developers narrow their eyes and give dirty looks to the second mover. Here's how it matters for new launches.

How are new launch condo prices moving? We looked at 74 new launches to see how they're faring.

Living near a good school helps your property value right? Well uhh…look here's the full explanation on that. 

Weekly sales roundup (July 24-30)

Top five most expensive new sales (by project)

Top five cheapest new sales (by project)

PROJECT NAME	PRICE S$	AREA (SQFT)	$PSF	TENURE
LENTOR HILLS RESIDENCES	$1,181,000	484	$2,438	99 yrs (2022)
THE BOTANY AT DAIRY FARM	$1,198,000	506	$2,368	99 yrs (2022)
GRAND DUNMAN	$1,251,000	452	$2,767	99 years
THE MYST	$1,388,000	678	$2,047	99 yrs (2023)
THE ATELIER	$1,458,000	549	$2,656	FH

Top five most expensive resale

PROJECT NAME	PRICE S$	AREA (SQFT)	$PSF	TENURE
RIVER VALLEY ROAD	$11,750,000	2110	$5,569	FH
PEBBLE BAY	$9,000,000	6114	$1,472	99 yrs (1994)
ORANGE GROVE RESIDENCES	$5,400,000	2390	$2,260	FH
CAIRNHILL PLAZA	$4,500,000	2293	$1,963	FH
FLORIDIAN	$4,080,000	1830	$2,230	FH

Top five cheapest resale

PROJECT NAME	PRICE S$	AREA (SQFT)	$PSF	TENURE
PARC ROSEWOOD	$640,000	431	$1,486	99 yrs (2011)
MOUNTBATTEN LODGE	$650,000	334	$1,948	FH
CASA AERATA	$658,000	431	$1,528	FH
ISUITES @ MARSHALL	$659,000	355	$1,855	FH
SUITES @ GUILLEMARD	$685,000	388	$1,768	FH

Top five biggest winners

PROJECT NAME	PRICE S$	AREA (SQFT)	$PSF	TENURE
PARC ROSEWOOD	$640,000	431	$1,486	99 yrs (2011)
MOUNTBATTEN LODGE	$650,000	334	$1,948	FH
CASA AERATA	$658,000	431	$1,528	FH
ISUITES @ MARSHALL	$659,000	355	$1,855	FH
SUITES @ GUILLEMARD	$685,000	388	$1,768	FH

Top five biggest losers

PROJECT NAME	PRICE S$	AREA (SQFT)	$PSF	RETURNS	HOLDING PERIOD
ECO	$888,000	635	$1,398	-$45,546	11 Years
EDELWEISS PARK CONDOMINIUM	$780,000	710	$1,098	-$40,000	11 Years
REFLECTIONS AT KEPPEL BAY	$2,430,000	1550	$1,568	$6,300	16 Years
KINGSFORD WATERBAY	$945,000	689	$1,372	$15,463	6 Years
SIXTEEN35 RESIDENCES	$830,000	538	$1,542	$17,000	5 Years

Transaction breakdown

Some other interesting links of the week:

Renting a studio (bathroom) in London

Now I have no idea if this is real, but if this doesn't incite a chuckle out of you, I don't know what well. 

Is this the fate that will reach us sooner rather than later in Singapore?

Buy one floor, get one free in China

If there was such a tagline for a property in Singapore, this would definitely be one of the most well-received advertisements. 

We don't have this issue here, but it's still a good reminder to see what would happen if our real estate market was left to its own devices. 

With half-built or abandoned housing projects, developers in Tongling, a city in China have had to resort to such desperate sales tactics in order to move units. 

According to the article, a local resident shared that monthly salaries averaged around three to 4,000 yuan. So even at that price point of $1.45 million yuan (S$270k), this was still unaffordable for most people. 

Not accounting for mortgage interest, and taking their entire salary to pay for the home, this would take residents 30 years just to pay it back. 

ALSO READ: 32 cheapest resale condos you can buy for $800 psf or less in 2022/23

This article was first published in Stackedhomes.