What if I were to tell you that there are ways to procure "cheaper" properties?

Yep! You did not read it wrongly! The solution? Undervalued properties. But before you continue on reading this article, share your thoughts in the poll below to see what others think about undervalued properties.

As Singapore continues to be the most expensive in terms of private property prices in the Asia-Pacific region for the second year, it can be challenging for homeowners and investors to discover undervalued homes at lower-than-market prices.

Source: The Straits Times (22 May 2024)

The article also stated that Singapore's public housing system, which includes our HDB resale and BTO, as the most affordable and attainable in terms of homeownership. Hence, this article goes to individuals who are choosing condo over BTO.

As the name suggests, undervalued properties are properties that have lower-than-usual market values. In other words, they are priced lower than the bank's indicative market value or their actual valuation. As a general rule of thumb, an undervalued property is considered to be at least more than 10% in discount than the market valuation, which means that a condo that is marketed at $3 million would see up to a $450,000 reduction in value!

Another way to look at undervalued properties is comparing the average transacted price of prime location with less prime ones. If the transacted property price of less prime areas is on-par or higher than the prime ones, it can be viewed as undervalued properties.

There are several situations that can lead to the surfacing of undervalued properties, such as developers rushing to sell their units before their ABSD deadline or homeowners looking to get rid of their homes urgently. Nevertheless, as the saying goes, one man's problem is another man's opportunity; those situations are ideal opportunities in finding a steal deal.

Discovering an undervalued property up for grab involves more than good old luck, it involves experience. With adequate research and the following tips, which we will share below, you will definitely be able to score an undervalued property successfully.

You have to compare the prices of the surrounding properties or the average of similar properties to help you know if your targeted property is actually undervalued. If you are looking at resale private properties, the RCR is a good place to look for undervalued properties.

Quarterly trend of resale private properties (2014-2024)

Source: PropNex Investment Suite

At the time of writing, the average psf of resale private condos and apartments in the three regions is $2,142 (CCR), $1,767 (RCR), and $1,428 (OCR).

Quarterly trend of new-launch private properties (2014-2024)

Source: PropNex Investment Suite

At the time of writing, the average psf of new-launch private condos and apartments in the three regions is $3,110 (CCR), $2,536 (RCR), and $2,170 (OCR). The RCR properties are located at the city fringe, which means they are not too far from town, yet offer increased affordability, serenity, and exclusivity, bringing you the best value for what you are paying for.

One thing to note is that the price gap between the three regions is closing significantly. This can be associated with URA's decentralisation strategies; many RCR and OCR amenities are on par with CCR. This was proven in 2009 when an international brand like Uniqlo chose to open its first store in Singapore in Tampines 1, a mall in OCR.

Finding an undervalued property is not about finding "cheap" or ulu properties. In fact, you might be surprised to know that you might find undervalued properties in popular areas. Without further ado, here are eight tips to get you started.

1. Begin by examining saturated areas first

You can always start with areas where there are many different properties of varying ages within a radius of 1 km.

If we take Aljunied MRT and look at its 1 km radius, you will find 184 projects. Of course, we will not be looking at all 184 projects. So, let us take six projects of varying ages as examples.

Here are some things we can learn:

If you are willing to live in older projects, you may consider Central Grove, which is only $5 psf more expensive than Simsville even though they are three years apart. It is also important to note that Central Grove is 400m from Aljunied MRT while Simsville is twice as far. On the other hand, Arena Residences, a newer project, is significantly more expensive. It was developed after the pandemic, which contributed to increased cost of raw materials and delays in construction. However, like most newer projects, you get smaller unit sizes than older projects. That being said, for the price you are paying, Arena Residences has a freehold status as compared to Central Grove, which has a 99-year leasehold status.

There are many factors that can affect the property value, such as location, property size and condition, convenience, design and architecture, tenure, as well as supply and demand. That being said, using such a comparison method is harder in areas with lesser developments. For example, if we look at a 1 km radius of Woodlands MRT, there are only seven projects, a shy cry from Aljunied's 184 projects. Hence, it would be harder to compare property prices accurately based on the number of units in a development, distance from the MRT station, and price differences.

Nevertheless, it is a good point to start from, but certainly not sufficient to help you make the decision on the purchase of an undervalued property.

2. Compare the prices between a prime and less prime location

Comparing property prices between prime and less prime locations is a valuable strategy for identifying undervalued properties, whether in high-demand areas or emerging neighbourhoods. Prime locations, known for their proximity to amenities and central districts, typically have higher prices. However, undervalued properties can still be found in these areas due to factors like distressed sales, auctions, or properties needing renovation. By understanding the market value in prime locations, you can spot these rare opportunities where the price is below market expectations.

In less prime areas, where prices are generally lower, there's often more room for value appreciation, especially in up-and-coming neighbourhoods. Comparing these prices with those in prime locations can help you identify areas that are currently undervalued but have the potential for significant growth as they develop.

This comparison also aids in balancing risk and reward. While prime locations offer stability, less prime areas may offer higher returns, albeit with more risk. By analysing price discrepancies, you can diversify your investments, securing undervalued properties in both stable and emerging markets, ultimately maximising your return on investment.

3. Consider the "worst property" in the "best location"

We did not mean that when we say "worst property".

A common belief that many property buyers have is that they can find undervalued properties if they search for rundown or stigmatised properties in desirable locations. However, this type of approach might benefit you should you be investing in a property for the purpose of renting it out. A lot of tenants are willing to rent in prime locations, even if it means living in an older home.

However, you require a lot of conscious thinking should you want to follow this type of approach. Procuring the "worst property" in the "best location" does not necessarily mean a value purchase, especially if the area has certain stigmatisation.

For example, Geylang is known as a red-light district. It is also located on the city fringe, making it an ideal location for individuals looking to be near the city. However, because of its "less-than-ideal" association, it MIGHT impact your exit strategies, making it harder to sell in the future. It may not be true for all situations but it has to be kept in mind.

Just because the property is older and located in a prime location does not necessarily indicate that it will be undervalued. Additionally, there are other considerations when purchasing an older property, such as its potentially high renovation costs that might add on to your financial burden.

4. Look out for motivated sellers

There are many reasons why homeowners are motivated to sell their property. They could be moving to another country, require urgent fundings for their business, or have already purchased a new home and are looking to avoid paying ABSD. As such, their sense of urgency might lead to them being more willing to reduce their asking price in exchange for a faster transaction.

There may also be sellers who have faced some sort of financial distress and are looking to liquidate their homes for quick cash. This sort of urgent situation may lead to them being open to lower offers and negotiations. You might be able to get the price reduced by approximately five to ten per cent. That being said, it is vital that you are vigilant when making such purchases. Always find out the motivation behind the sale, especially with undervalued properties, before making the final decision.

5. Look out for developments approaching their ABSD deadlines

Everybody is subjected to ABSD when purchasing a property in Singapore.

Source: IRAS

Singaporeans purchasing their first property are not subjected to ABSD. However, it kicks in if they own more than one property. However, PR and foreigners are subjected to it if they are looking to purchase a property in Singapore. This is a significant factor if you are considering the Singapore property market as foreign investors.

However, it is not just homeowners who are subjected to ABSD. Developers purchasing the land also are subjected to ABSD. According to IRAS, developers are subjected to 40 per cent ABSD if they develop more than five units, of which 35% may be remitted. However, they only remitted their 35% ABSD if they are successful in selling every unit within 5 years of acquiring the site.

Hence, developers approaching their ABSD deadline tend to throw in perks, such as huge discounts. One example is when Prominent Land, the developer of 38 Jervois, reduced the price of the remaining 16 units by 13 to 24 per cent in 2020. They managed to sell them within three days. However, do know that such deals are hard to come by.

6. Look out for individuals looking to purchase or have already bought their marital home

Source: Today Online (29 January 2024)

More young single Singaporeans aged 26 to 35 are purchasing new private properties as investments, renting them out instead of living there themselves to earn rental income. This is because HDBs have a minimum age requirement of 35 in order to own an apartment as singles. Additionally, HDB owners must fulfil the 5-year MOP before being able to rent out. As such, private properties seem to be the best investment option.

Now, if these individuals plan to enter the next phase of life: marriage, which means upgrading to a bigger home, they either be willing to pay an exorbitant 20 per cent ABSD on their second property or sell their investment property first. Most would prefer the latter approach as that means saving a significant amount, which would benefit their marriage life.

If they have already purchased their marital home but are still holding on to their investment property, they are to sell it off within six months if they want to get their ABSD remitted. Either way, you could expect such sellers to lower their asking price in order to make a successful sale.

7. Look for older listings, including rental ones

Property listing platforms, such as PropNex.com, 99.co, and PropertyGuru, are the best places to look out for undervalued ones. While it may be difficult to ascertain undervalued listings due to inconsistent listing prices, you may be able to discover hidden gems with a little research. Most sellers are willing to reduce their asking price if they have not been able to sell for a long time. However, it is not just sale listings that you can look at. You should also check out rental listings, too!

Properties that have been vacant for a couple of months or even years are worth inquiring if they would want to consider selling. Do not be disappointed if they reject you initially. You can always check back after a few months to see if they changed their mind. The landlord might have a change of mind. At this point, it might be best to engage a property agent, who can provide you with real-time transaction data to determine the list-to-market price disparity.

8. Property auctions

Property auctions are a lesser-known method to procure properties at a significant discount. They are a type of selling method when properties are offered up for bids. There are many types of property auctions. However, the most common type in Singapore is allowing buyers to submit bids, also known as an English auction (Open Ascending Price Auction). Those who are interested can offer their bids in person or online. A property firm, such as PropNex, will usually be the one to manage the auction.

Property auctions typically mean quicker transactions. As such, there is a high chance you might find affordable or undervalued units. Property firms generally conduct property auctions on a regular basis. While this method does not always guarantee undervalued properties, there is no harm in looking out for them.

Properties are typically auctioned off via mortgage or owner's sale:

• Mortgage sale: It consists of properties that are repossessed by the bank after the homeowner is not able to keep up with his/her loan repayment. As such the property is auctioned off to recover the loan amount plus interest.
• Owner's sale: In this situation, the homeowner intentionally sells his/her home via auction. There are certain reasons for doing so, such as wanting to sell quickly, divorcees looking to split their assets, or homeowners looking to broaden their sales opportunity to boost their chances.

This is important: The cheapest property by price does not equate to being a steal. You need to know why the property is being undervalued before making the decision to purchase it. Additionally, do not forget to consider future plans, such as whether it is easy to sell or rent it out, rental yield, and maintenance fees. You also want to look at growth potential, possible en-bloc opportunity, and organic demand. That being said, you can avoid making the wrong decision by engaging a property agent.

You will also want to look at the immediate surroundings. For example, does it face the traffic? What is the resale market like? Also, examine the external facade of the property to see if there are any structural issues. Looking at the government's masterplan for the neighbourhood will also help you to know if there are any beneficial developments in the next couple of years. This will really help you decide if the property is truly undervalued.

Undervalued properties are a needle in the haystack. Searching for one can be a time-consuming process. However investors and homeowners can have it easier by following some of the methods above. Of course, you can also make your life easier by engaging a property agent, who is equipped with our in-house apps, such as Investment Suite and Business Suite.

For example, Business Suite has a "spot" function, allowing them to indicate your personal preferences, such as famous schools and MRTs, allowing them to help you effectively and efficiently. Nevertheless, no matter what property you end up with, always sit down and lay out all your financial responsibility to allow better budgeting for your dream home.

Want to find out how you can save confidently? Then do join our Property Wealth System Masterclass this coming 19th and 20th of October where you will get real-life insights, strategies, and tips on achieving your financial goals! Click here to find out more!

Views expressed in this article belong to the writer(s) and do not reflect PropNex's position.