The median price gap between CCR and RCR homes has narrowed to 14.9% from the 10-year average of 42.7% (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - When it comes to property investing, buyers will want to seek out undervalued properties so that they can maximise their potential returns.
This can be in the form of properties selling below market prices, freehold properties selling at leasehold prices, and better located or more central properties priced below properties that are further away from the center of Singapore.
Property prices have increased by 3.5% in 2Q2022, driven by prices in the Rest of Central Region (RCR) which went up by 6.4%. Two major non-landed private residential projects in the RCR, Piccadilly Grand and LIV@MB may have contributed partly to the price gains. Piccadilly Grand sold 77% of its units at an average of $2,150 psf on launch day while LIV@MB moved more than 75% of its units at an average of $2,387 psf on the first day of launch.
In fact, some price anomalies have appeared in the property market as early as April even before the launch of Piccadilly Grand and LIV@MB. These have presented an excellent opportunity for investors to take advantage of such arbitrage opportunities.
The property market is broadly segmented into the Core Central Region (CCR), Rest of Central Region (RCR) and the Outside Central Region (OCR).
Homes in the CCR typically cost more than homes in the RCR and OCR. In the past ten years (2012 to 2021), the median price per sq ft gap between CCR and RCR non-landed new homes is around 42.7%.
This price gap started narrowing in April to 25.7%. The gap further closed in August to 14.9%. Some buyers realized the narrowing gap and bought new homes in the CCR. Developers sold an estimated 199 homes per month from April to August, 66.7% more than the monthly average in 1Q2022.
Developer sales in the CCR made up 50% of total sales in August, the first time since October 2017 that sales in the CCR exceeded 50% of monthly sales.
The median size of new non-landed homes in the CCR and RCR has remained relatively stable in 2022. The median size of new non-landed homes in the CCR is 73 sqm (786 sq ft) as of August which is equivalent to a two-bedroom unit. In the RCR, the median size is equivalent to a three-bedroom unit.
This is where things get interesting.
With the increase in price psf in the RCR since June, the median price paid for a new non-landed home has exceeded that in the CCR. As of August, buyers paid $2.472 million for a new non-landed home in the RCR, 10.8% more than the CCR.
For buyers with a budget of up to $2.472 million, the CCR also has three-bedroom options for them to choose from.
This has definitely caught the eyes of some buyers who are looking for opportunities to trade up to a better location with the same budget.
Don’t miss the CCR boat
A rare window has opened in the CCR where buyers can buy a similar-sized home with the same budget for a RCR home.
In today’s market, affordability is all about the purchase price. After all, buyers borrow up to 75% of the purchase price, not the price psf.
With recent project launches in the OCR like Sky Eden@Bedok achieving an average price of $2,100 psf and Lentor Modern going as high as $2,538 psf, buyers have accepted that $2,000 psf or higher will be the norm for OCR projects moving forward.
Homes in the CCR may not be as pricey as one thinks. With prices in the RCR and OCR closing the gap with the CCR, it is a matter of time before homes in the CCR are repriced upwards.
Currently, the median price gap between CCR and RCR homes has narrowed to 14.9% from the 10-year average of 42.7%. If the price gap between CCR and RCR homes returns to 40%, it means the median price for CCR homes will potentially increase to $3,400 psf from the current price level of $2,801 psf. This is an upside of more than 20%.
As they say, the early bird catches the worm. In this case, the early entrant catches the upside.
Lee Sze Teck is senior director (research) at Huttons Asia