Formula

V = The Market Value of the property you are looking to buy

NOI = Net operating income of the property (Rent Income – Property Tax – Property Insurance – Maintenance Fees – expected Maintenance and Repair – Vacancies Loss )

R = Rate of Return on Capital

You need to estimate the rate of return of capital for the other properties by finding out the current market value and NOI of the nearby units and finding an acceptable rate of return of Capital for your selected unit.

Thus, with the estimated Income rent, you can multiply it with the rate of return of capital of the surrounding units to find out the estimated market value of the unit you are planning to buy

References

Millionacres Definition of Income Capitalisation Approach

Investopedia Definition of Income Capitalisation Approach

Corporate Finance Institute Definition of Income Capitalisation Approach

You can start by looking for 3 other properties that are in the vicinity of the unit you are planning to buy. Try to find the ones with the same or very similar floor plan configuration for a more accurate calculation

1. Find the GRM of each respective units by getting the Sales Price from local websites such as property guru, SRX or 99.co
2. Estimate the annual rent you can expect to receive for the Unit you are planning to buy
3. Multiply the estimated rent with the average of the 3 calculated GRMs of the nearby properties to estimate and see if the unit is planning to sell is undervalued, overvalued or at least fairly valued. Another option is to estimate the GRM for the unit you are looking to buy at a higher or lower level due to the fact that its freehold instead of leasehold, or nearer or further to the amenities etc.

Reference

Stessa’s Definition of Gross Rent Multiplier

The Balance MB Definition of Gross Rent Multiplier

Investopedia Definition of Gross Rent Multiplier

The Comparable Sales approach compares a subject property with other similar properties that have been recently sold. After the comparison, you adjust the prices for each positive or negative feature of the property relative to the subject property and estimate the market value of the subject property from the adjusted sales prices of the other similar property

How to do the comparison?

Find properties that appear similar to the property you are thinking of buying in terms of property size, age, features, conditions, quality of construction, room count and floor plan.

1. Find out the cost per square feet of each unit and
2. Use the present value and future value of the other competition units to bring it up to the current valuation. This step is particularly important if there are large gaps in the period they were transacted. A view on how to calculate the present and future value can be found here.
3. Adjust for differences to determine the market value of the property you are looking to buy. Compare the features of the properties and add and minus as and when required and determined by you.

Property Description

Here is a list of features that might or might not influence the value of the real estate property you are looking to buy and it’s highly dependable on the owner’s preference.

Favourable features

• Location of nearby good schools
• How close is it to nearby shopping centres
• How close is it to nearby MRTs
• How close is it to nearby Bus-stops
• Following URA’s Master Plan for the particular district you are planning to buy in
• Amenities outside of Condo
• Facilities inside of Condo
• Brands used for Condo Bathrooms, Kitchen and Bedrooms
• Maintenance Fees

Unfavourable features

• Too many units or too few units?
• Too near MRT Station for noise?
• Too near expressways causing Jams?
• Not near MRT Station
• Not near bus stops

If you are interested to know the value of your home with this method, let me know and get your reports from all of these property website within 24 hours.

References

Investopedia Comparable Sales Approach Definition

Corporate Finance Institute Comparable Sales Approach Definition

Property Metrics Comparable Sales Approach Definition

Here’s a simplified table for you to see how much you are paying on a monthly basis and the difference in the interest you are paying based on the interest rate of the bank mortgage loan. If you are paying at a higher monthly mortgage, feel free to let me know so I can check with my bankers if your home loan can be refinanced.

and here’s the difference in the bank interest paid when you choose a bank loan when it’s at 1% and 2.5%.

Getting a good home loan at a favourable interest rate helps a lot in real estate investing. Even if you are not buying a home for investment, choosing a good home loan can save you money in the long run. If you’ve not refinanced your home loan for the past 3 – 5 years, it might be a good time to check out the latest rates now. Let me know if you are interested to know the latest bank interest rates.

Disclaimer

The information provided on this Datacrunch Real Estate website has been compiled for your convenience. All information (including but not limited to the property area, floor size, price, address and general property description) on the Datacrunch Real Estate website is provided as a convenience to you.

This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual.

Datacrunch Real Estate does not accept liability for any investment decision made on the basis of this information. This website does not constitute financial advice and should not be taken as such.

Latest Update: 24th January 2022

The latest Cooling Measures on 15 December 2021 was overdue for a long time. I believe it would have happened earlier if Covid didn’t happen. A quick summary as follows

• Additional Buyer’s Stamp Duty (ABSD) rates for 2nd property onwards will be raised.
• Total Debt Servicing Ratio (TDSR) rates was tightened from 60% – 55%.
• HDB LTV (Loan to Value) Ratio was reduced from 90% – 85%.

Also, I think there are several other cooling measures that will happen within the next ten years. The previous set of cooling measures (a total of 28!) started from September 2009 and lasted all the way till July 2018.

So what are the other types of cooling measures that the government can think of implementing? Here are a few.

Extend the minimum occupation period (MOP)

Update: Prime Location Public Housing (PLH) has been introduced for newly built HDBs in prime locations. The minimum occupation periods for these BTOs were increased to 10 years, certain subsidies have to paid back if they are planning to sell in the resale market and they are not allowed to rent the full unit after the MOP.

This is more for those interested in buying a new BTO in a prime estate. Don’t think it will affect those buying HDB Resale and definitely not the private property purchaser.

Impose minimum size for each dwelling unit, or increasing the minimum average size for each project.

Update: No change.

Actually this has already been done from 2019 onwards. For all new properties, the minimum size for all houses has been revised to 85sqm or 915 sqft. For areas such as Telok Kurau, Kovan, Joo Chiat as well as Jalan Eunos, the minimum size is 100 sqm or 1076 sqft

What the government is trying to do is reduce the number of small shoebox unit. What they don’t want is another Hong Kong situation. Check this link for more details

https://www.ura.gov.sg/Corporate/Guidelines/Circulars/dc18-06

What does that mean for you as a first time private property buyer? The good thing is that your first home would be bigger in size. The bad thing is you probably need to fork out more for your first property purchase.

If you own a property that is smaller than 85sqm. Congratulations, your property will naturally increase in value because those that cannot afford the newer larger properties, will look for your property so that they can afford a property of their own.

Imposing a capital gains tax or increasing higher ABSD (Additional Buyer’s Stamp Duty) rate

Update: They have already increased the ABSD from the 2nd property onwards for Singaporeans, PRs, Foreigners and Entities.

More for seasoned investors, they can introduce a tax on your profit that you gain when you flip your property (The Singapore government doesn’t do that for now) or they can just increase the additional buyers stamp duty if you already own one private property and plan to buy more (currently the highest tax rate goes up to 20% for foreigners, check with me to see which category you are in)

Lowering LTV (Loan to Value) rates, TDSR (Total Debt Servicing Ratio) or Mortgage Servicing Ratio (MSR)

Update: From 15th December 2021 onwards, LTV was lowered for HDBs from 90% – 85%. TDSR was lowered from 60% – 55%. MSR remains unchanged 30%.

Probably affecting all aspiring property owners. They have already done it once before. LTV was reduced from 90% (20 Feb 2010) to 80% to 75% (6 July 2018).TDSR was introduced in 29 June 2013 to capped home loans to 60% of your income and where they introduced the MSR for Executive condominiums on 9 December 2013

For a more comprehensive timeline check out

https://www.srx.com.sg/cooling-measures

Extend five year deadlines for developer

Update: No change.

More for the developers. Slow down the rate of new launches and space themselves out. Personally, don’t think this will work because where the new launches enters in the real estate cycle is important. Launching just before the cycle starts to go into recession is probably not the best idea.

Regulate agents commissions

Update: No change.

Hmm. Might or might not work. Leave it up to the agents and the buyers to discuss among themselves. But what is a good thing that could come out would be agents introducing properties that are suitable for their buyers instead of just pushing them to those developers who give the highest commissions.

Increasing Government Land Supply

Update: They have already discussed this on 16th December.

Good idea! Increasing supply will allow more property to be purchased at a better pricing which leads to better new launch prices! This is a win win for all!

The link to the original article from the Business Times Singapore is here

Anyway, these are just my personal thoughts. Let me know if you have any questions or would like to know further about how this or any upcoming cooling measures might affect you in purchasing your next property.

Disclaimer

The information provided on this Datacrunch Real Estate website has been compiled for your convenience. All information (including but not limited to the property area, floor size, price, address and general property description) on the Datacrunch Real Estate website is provided as a convenience to you.

This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual.

Datacrunch Real Estate does not accept liability for any investment decision made on the basis of this information. This website does not constitute financial advice and should not be taken as such.