Is 1 Bedroom Condo In Singapore A Worthwhile Investment?
Updated: Nov 11, 2022
Are you constantly searching for the newest real estate news? You would be aware of the fact that one-bedroom apartments in any new development sell like hotcakes. Look no farther than the most recent launches! 90% of the one- and two-bedroom condos at Midtown Modern at Tan Quee Lan Street were sold during its weekend opening. Similar to this, the one-bedroom with study and two-bedroom units at One North Eden at Buona Vista, which sold 85% of their units at launch, proved to be the most popular and were immediately sold out at 10 am on the first day of sale. In addition, one of the questions my clients ask me the most is whether they should invest in a one or two bedroom.
If you're driven to one-bedroom apartments because they have modest entry requirements, like many other buyers of real estate, you could be too self-conscious to ask specific questions about this investment choice. Fortunately for you, we think there are no silly questions, especially when it comes to making a significant financial decision like buying a home.
Today, we examine one-bedroom apartments to particularly respond to these questions:
Should I concentrate my search on one-bedroom apartments in desirable and central locations?
Are one-bedroom apartments more profitable to rent out?
Do returns improve with increased holding times?
Which is preferable, freehold or leasehold properties?
DO I NEED TO PAY SPECIAL ATTENTION TO ONE-BEDROOM UNITS IN PRIMARY AND CENTRAL AREAS?
The answer to this question entirely relies on the purpose behind your purchase. Apartments in prestigious and convenient locations like District 9 or 10 would be quite alluring to tenants who are looking to rent from abroad. In addition to rentability, you might want to think about the one-bedroom unit's profitability. One-bedroom apartments in central locations are reported to have the lowest percentage of profitable transactions when it comes to profitability:
According to the table above, 37 out of 48 purchases in District 1, which includes places like Marina Square, Suntec City, and Raffles Place, were not lucrative. In a similar vein, 34 out of a total of 52 deals in prestigious District 11, which includes neighborhoods like Newton, Bukit Timah, and Novena, were unproductive.
If you're paying close attention, you would have observed that District 7, which is arguably in a prime location with districts like Bugis and Beach Road, managed to achieve a profit margin of 100%. The legitimacy and applicability of this conclusion are underscored by the fact that just nine transactions were documented, despite the possibility that this points to something bigger.
When seen collectively, none of Singapore's top 10 districts with the most profitable transactions are located in the country's core central region (CCR). Only two districts—7 and 20—come from the Rest of Central Region (RCR), whereas the remaining districts all originate from outside the CCR (OCR).
The enhanced potential for appreciation that one-bedroom units in the OCR get to enjoy because of their reasonable pricing and low quantum could be one explanation for this. While it is simple to find a one-bedroom apartment in OCR for around $750,000, the same cannot be said for one bedrooms in prime areas. However, keep in mind that rental yields must be considered! When your rental revenue is factored in, a less expensive one-bedroom flat in the CCR will unquestionably outperform those at other locations in terms of overall returns.
ARE ONE-BEDROOM APARTMENTS MORE RENTABLE?
For the uninitiated, a private residential unit's usual gross rental return ranges from 2% to 3%. One-bedroom apartments frequently command higher rental yields than other private property units. This "rumor" appears to be real, according to the data:
About 53% (1,812 units) of the roughly 3,400 one-bedroom apartments examined managed projected gross rental returns of 3% or greater. Only 15 of the total apartments have rental returns that were less than 2.5%, all of which are one-bedroom units.
As a result, landlords that enjoy collecting rent favor smaller homes like one-bedroom apartments.
AFTER LONGER HOLDING PERIODS, DO RETURNS GET BETTER?
No is the simplest response to this query. Contrary to popular belief, returns can actually deteriorate with increased holding times, as seen in the table below:
Only 72.46% of one-bedroom apartments that were held for more than five years were profitable. On the other hand, that number increased to 82.58% for one-bedroom apartments that were kept for three to five years. Units with a holding tenure of fewer than three years exhibit the same outcome, with 81.82% of them being profitable.
While there may be a number of causes for this occurrence, it is generally accepted that it is a result of the rising real estate prices in Singapore in the years preceding 2013. Due to the booming real estate market, buyers—even those with low resources—were eager to buy property. Due to the fact that one-bedroom apartments are the most cheap alternative, many of them chose to buy them. These buyers probably paid exorbitant rates for their one-bedroom apartments and hung onto them for more than five years in the belief that they might weather the downturn. This argument might explain the large number of unsuccessful transactions. Additionally, some consumers might have given up waiting for the storm to pass and decided to sell off their unit at lower prices.
WHICH IS BETTER FOR ME: FREEHOLD OR LEASEHOLD UNITS?
Some people might be surprised to learn that, when comparing leasehold and freehold properties, leasehold properties typically outperformed freehold properties, as seen in the table below:
Generally speaking, leasehold properties saw 13.68% lucrative transactions compared to 8.6% for freehold properties. The simple explanation for this is that freehold units generally have premiums that can reach 20%. You would be shocked, nevertheless, if you anticipated a big shift in this tendency when holding durations were taken into account. 63% of deals for a one-bedroom freehold apartment are lucrative, even if owned for five years. Contrarily, a considerable increase in lucrative transactions is shown when leasehold properties are owned for more than five years; 82.7% of these deals are profitable.
This statistic is very revealing since it indicates that choosing a leasehold one-bedroom apartment would be a wiser choice even after accounting for the lease decay of leasehold properties.
ONE-BEDROOM UNITS' FUTURE
When you look at the statistics as a whole, there are a lot more profitable one-bedroom trades than unprofitable ones. This means that your search for a one-bedroom apartment can potentially be a smart financial choice for you.
What are the results then?
Because they are more inexpensive than CCR, one-bedroom apartments in OCR offer superior returns.
One-bedroom apartments have higher rental yields than those with two to three bedrooms. In the future, it might be more difficult to sell them.
Freehold returns are always inferior to leasehold returns.
One-bedroom apartments may be less desirable despite their high rental return and inexpensive quantum due to a few important developments. First, HDB upgraders frequently seek out larger apartments. This means that one-bedroom units are too tiny for their needs.
In addition, there aren't many international tenants interested in your one-bedroom apartment because of the constant lockdowns that nations throughout the world are experiencing.
All of this suggests that even though one-bedroom apartments continue to be in high demand during property launches, it might be challenging to sell off in the near future. But if lets say you really have budget constraints in mind and larger apartments are too much for you to finance, as presented in the above, you might want to consider a 1 bedroom with good locations and with huge facilities for rental yield in certain part of Singapore for rentals.
Brian Loh CN
MSc. Applied Finance, University of Adelaide, Australia
Registered Real Estate Salesperson by CEA Singapore