Summary
When your property gets older, it is important to renew the investment before the price declines further.
En bloc potential and rental yield are overly emphasised by investors when they are not very important in reality.
The most important consideration for capital gains is the long-term demand for the property.
Article
Many Singaporeans do not confront the fact that their property is ageing and the prices are declining. For new launch property, prices will increase rapidly leading up to the TOP date, followed by further increments in the next 5 years. When the property reaches around 15 years of age, prices start to stagnate and even plateau. This is the time to renew the investment - selling the old one and buying a new property. Waiting for further means running the risk of further property price declines and hence lower capital gains.
Why en bloc potential is not that important
Some would bring up the topic of en bloc potential. Historically, the percentage of condos which actually undergo en bloc is extremely low. Realistically, the developer should see potential in the land. In fact, most condos do not undergo a successful en bloc on the first try; they will usually only be successful on the 3rd to 5th time. Everyone wants to command a higher price during an en bloc until the developer feels that it is not worth it to buy.
Agents selling old houses usually have nothing else to market other than “en bloc potential”. This is common practice. Instead, you should determine the realistic value of the property.
It is not easy to sell off old property. People usually do not want to purchase an old property because they also have to incur additional renovation costs. There will be some ownstay buyers who feel that the unit is bigger or have caregiving needs, and as such may consider purchasing an older property. Still, the chance of selling off an old property is much lower.
Why rental yield should not be the main focus
Singaporeans are not renting private property or HDB flats. Much unlike countries like China and Japan, the majority of tenants are PR and foreigners. Hence, there will only be a decent rental yield when Singapore is flooded with foreigners. While rental yield relates to capital gain in other countries, this fundamental does not fully apply to Singapore. In Singapore, more Singaporeans buy houses than rent houses; in other countries, renting is the norm. Every Singaporean has a chance to purchase a house in Singapore. Rental yields in Singapore are thus relatively low, averaging 2% with little upside potential. The older the property, the more difficult it is to rent it out.
Why demand should be the most important focus
Demand is a more important factor than rental yield in influencing capital gain. With HDB prices dropping, rental yield should not be the main focus. Instead, buyers should assess demand for the property by considering micro factors like amenities and location. It is also important to figure out who is your target buyers, especially since foreigners do face an ABSD of >20%.
Finding a good agent will allow you to determine which growth stage your property is at. By analysing the room for property growth, you can make a better investment decision.