Although the annual growth rate is not used in the various real estate investing formulas used for calculating the market value of a real estate, it’s often used as an indicator on whether or not, a real estate is a worthwhile investment to add in your portfolio or if it has the potential to increase in value after you purchase the home.
Here’s a brief description on what these percentage numbers means for the home you are looking at.
0 – 0.99%
Most probably this property was bought at an overvalued price. Try to avoid these units as much as possible unless you really really really love it or you absolutely have to live in it.
I don’t see any benefit in staying in such a unit because the same unit can be bought in 6 – 10 years time with perhaps just a slight increase in the purchase price (<20K – 80K).
Meanwhile, you could be staying in another property which will give you much higher returns and return to buying this overpriced unit when the initial buyers start to sell their units at a lower price than they paid for.
A win-win situation for you.
1 – 1.99%
The minimum you should be looking out for if you are buying a unit not aimed for real estate investing but because of several other factors like
- you really liking the location or unit
- the amenities and/or facilities
- The location within 1 km of the school you are looking to get your kids into (For parents, of course)
Nothing against these properties, it’s just that there are probably some other properties with the same features in the vicinity which will give you better returns at a better price.
2 – 3.99%
The average returns for a well-selected property. A good new launch condo priced right for its location, facilities and amenities will tend to give out these numbers. From this point onwards, the popular advice on how investing in real estate will always make you money and be a constant hedge against inflation from real estate agents and well-meaning friends will hold true.
At a 3% annual growth rate for an 800K priced property held over 5 years, your paper capital gain from your property will be SGD 2166 every month (on average) and will increase the longer you hold it due to the compounding effects of an increasing market value for your property.
Best bought during the recession period of a real estate cycle (not to be confused with the economic cycle) or the beginning recovery period to allow time to work in your favour.
4 – 7.99%
The holy grail of real estate investing properties. At these annual growth rates, you can look into doubling your investment in ten to fifteen years. Very possible if you do your maths and invest in a redeveloping district with growing job opportunities which would allow a general rise of asking rent every year.
These properties will usually be used as shining examples on why you should be investing in real estate. Especially in a land-scarce country like Singapore.
If you are in purely for real estate investing and nothing else, I would advise you to start looking to sell as these numbers usually signify the beginnings of a housing bubble. Sell the property and wait for the prices to go down to a more reasonable price before jumping back into the real estate market to start the whole process again.
If this is your home, at this point, it would probably be the highest you can ever sell your home for at least in the next 10 years. Nothing wrong to continue staying if you have fully paid for this property and like your home. But if you are looking to downgrade for whatever reasons, this is probably a very good time to do it.
Due to the cooling measures implemented by the Singapore government since 2010, the property market looks to be in good shape and unless something drastic happens that causes the Singapore government to remove these cooling measures, a housing bubble crash like the one that happened between 2008 and 2012 will hopefully be replaced by one with just a slower growth rate with a longer recovery period before things start picking up again.
This will be the best news for home owners and real estate investors alike.
Hopefully these numbers will be a good gauge for the new launch or resale property you are looking at buying.
If you are looking at a new launch, these numbers will not be available for you to check out, mainly because they haven’t been built yet. But you can look at the properties surrounding this location and compare it objectively. Use the real estate investing formulas to determine how much is the market value of these new launch condos and then you can decide or not whether they are a good choice for your needs.
If you are looking at a resale condo or apartment, use the existing property transaction records to your advantage. The more transactions this development has been through, the more accurate you will get with your calculated numbers.
If you are looking at landed properties, the transactions are usually much fewer in numbers due to the fact that these owners are buying and holding the property for longer periods of time and not for real estate investing reasons. This is when using the sales comparison approach from Urbanzoom or SRX will help. Ultimately, the price is largely determined by the negotiation between the buyer and seller.
If you have any questions or are looking for someone who can assist in your real estate journey whether or not you are buying or selling, let me know how I can help!
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