With the recent spur in property prices since Q3 2017, most property homeowners will be very optimistic and expect prices to continue to go upwards!
Over the past weeks, we have met several of our high-end property owners, and most of them have expressed their excitement that developments or plots of land in their vicinity are being launched at new record prices.
And some of them are currently in a dilemma, and thinking if they should sell now or continue holding.
Being first-hand on the ground to experience the market, we have picked up some signals in the market that should be considered in order to sell your property at the appropriate time.
Based on conventional wisdom, when developments or plots of land are sold at higher prices, it means my property will also have the same benefit.
Is it REALLY true?
Does EVERY property in the surrounding area experience the same benefit?
Let's examine the data to see if this assumption is true.
CASE STUDY: TRIBECA BY THE WATERFRONT
Tribeca by the waterfront is a Freehold Condominium located in the prime River Valley area.
And just 200 metres from Tribeca there were 2 plots of land that were transacted at record high prices.
- The old Zouk site at Jiak Kim Street ($1,733 PSF PPR) - 5 Dec 2017
- The Pacific Mansion enbloc sale ($1,987 PSF PPR) - 20 Mar 2018
With such record high PSF PPR (per square foot, per plot ratio) prices being transacted, prices in the area will see a new benchmark.
The launches prices for the 2 sites above will be at least above the $2,700 PSF mark.
Conventional wisdom says that Tribeca should already be experiencing a price increase...
Let's examine the data, below are the historical transactions of Tribeca.
We can see that transacted prices in Tribeca are $1,888 PSF on average.
This is a summary of Tribeca for reference:
- 175 units
- Completed in 2010, immediately available to move-in
- Transacted prices $1,800~$2050 PSF
- 1 Unit sold in 2018
- 8 Units sold in 2017
Let's examine another condo nearby, Martin Modern
Below is the transactions for Martin Modern.
We can see that transacted prices in Martin Modern are $2,700 PSF on average.
This is a summary of Martin Modern for reference:
- 99 Years Leasehold
- 450 units
- Transacted prices $2,600~2,800 PSF
- 45 Units sold in 2018
With the high volume of transactions in Martin Modern, you might think that Tribeca's prices would also increase to the same degree!
What if I told you that I don't believe this would be the case? What if the data and research point to a different picture instead?
From the data, we can see that the transaction volume is significantly lower for Tribeca. (45 vs 1) Furthermore, prices have been falling since 2013 for Tribeca. Whereas, prices at Martin Modern have been going up.
Not forgetting that Tribeca is a Freehold property - conventionally this would be "buyer's choice" but Martin Modern is a leasehold. (I've written about the misconception of freehold properties in my previous blog post)
With the facts and figures to support, we can safely assume that prices in Tribeca will likely stagnate for the mid to long term.
"NEVERMIND, I'll JUST WAIT AND HOLD LA"
If you were a Tribeca homeowner, or in a similar situation, you might also be thinking of the "wait and hold strategy".
This could potentially be your downfall!
Why? Because buyers nowadays have a strong preference for NEW, NOVELTY and CLASS. Sure, there might be buyers that are looking for a cheap deal....but will that be helping you in the future?
Most buyers have turned their attention towards new launches because of the various advantages; newness, better interior design work, capital growth potential, less maintenance costs, ...etc
Still not certain?....
Lets take a look at the data again.
CASE STUDY: 26 Newton
Lets examine the developments: Lincoln Residences & 26 Newton
Below is the transactions for Lincoln Residences:
The average transacted prices in Lincoln Residences are $1,700 PSF on average.
This is a summary of Lincoln Residences for reference:
- Completed 2011
- 99 units
- Transacted prices $1,650~$1,850 PSF
- 4 Units sold in 2018
- 5 Units sold in 2017
Nearby, Chancery Court just sold for en bloc.
Based on this, the expected launch price is at least $2,200 PSF PPR.
Below is the transactions for 26 Newton:
The average transacted prices in 26 Newton are $2,600 PSF on average.
This is a summary of 26 Newton for reference:
- Completed 2016
- 180 units
- Transacted prices $2,500~$2,750 PSF
- 13 Units sold in 2018
- 68 Units sold in 2017
Once again, the newer development had a better performance compared to an older development. Buyers are now placing more value on looks and the classy appeal of newer condominiums.
So When Should You Sell A Property?
There are many reasons why people sell their property, but if you want to maximise the returns on your property and minimise costs, then there are 4 key signals you should take note:
1. Prices have been falling or stagnant for 5 years
If prices of your development or area has been falling for the past 5 years or more, this is a strong indicator that your property has most likely reached its maximum potential.
And if you continue holding, you might actually be losing more money due to various factors, such as inflation, interest rates, rising maintenance costs, low demand...etc
2. Vacancy rates are increasing
This is especially true for owners of investment properties, poor vacancy tells us two things:
- Demand from tenants is weak
- And because demand from tenants is weak, rental income is weak
- And because rental income is weak, investors (potential buyers) avoid the development
3. Better opportunities/ Return on Equity
When your current property has started to stagnate or fall in prices, it might be time to consider recycling your money by cashing out.
This is especially true if you understand that the property market moves in cycles. Understanding where your property sits in the market cycle is very important as there are opportunities to be grabbed at various periods.
4. Exit Strategy has be achieved
If you are like most homeowners, you would probably not have a CONCRETE exit strategy for your property. And this is what makes the difference between "Good" and "Great" investors.
Instead of just buying and hoping for the best (to “make money”), plan your exit strategy of that property before you invest.
Know what your goals are, what you want to achieve and what exit strategies will work for you. You exit strategy should tie in with your overall financial plan and it exists to help you achieve your goal faster.
Find the opportunity in your current property
Maybe you’ve decided you’re not quite ready to sell off if you sell you won’t make quite as much money as you would like. Most people stop there and just decide to stay put.
Robert Kiyosaki (author of Rich Dad Poor Dad) taught me that it is the INVESTOR who makes a property a good or bad investment. We know this because we will often see a great investor (like Donald Trump) turn around a bad investment, and we have also seen people buy perfectly good investments and through mismanagement they become bad investments.
By continually using your mind and looking for ways to make more money from your property you could open up doors of opportunity to leverage your current portfolio to make even more money.
Using the data and research, we have collected in the field, we've helped our clients to reexamine their portfolios, and create better, more lucrative opportunities for them.
So When Should You Sell An Investment Property?
If you are prudent and serious about your property, simply do a self-check with these questions:
Have I achieved my initial target?
What return am I getting?
What return do I think I will be going to get in the future?
What is my exit strategy? Is it realistic?
Where is my property in the current property cycle?
Could we invest our money better somewhere else?
Going through those questions will help you understand whether you should keep your property or if it is likely to be more beneficial for you to simply move on.