Are strata houses a good investment?

Strata landed homes offer buyers the experience of living in a landed property and the benefits of sharing communal facilities such as a swimming pool. These units are typically built as cluster housing or landed homes within a condominium or apartment project.

Strata landed homes have stayed beneath buyers’ radar with the proliferation of high-profile condos on the market. They have also suffered from the impact of the total debt servicing ratio, which came into effect in June 2013. The number of resale caveats lodged have tumbled from 318 in 2012 to 106 last year, while the average resale price has fallen more than 10% between 2013 and 2015.

Recently, strata houses have made a comeback, with several new condo projects offering these units. With prices having fallen from the last peak, it might be worthwhile for potential buyers to revisit this niche segment and review its investment potential.

In terms of price performance, landed homes in general have outperformed non-landed homes, assuming the official statistics are correct. Over the past decade, the URA Property Price Index for landed homes surged 83% from 86.8 in 1Q2006 to 159 in 1Q2016. This translates into an annualised gain of 6.2%.

In comparison, the URA PPI for private non-landed homes increased 59% from 85.7 to 136.6 over the same period, or at an annualised gain of 4.8%.

The question is whether these gains apply to strata houses or just conventional landed homes. Analysis of resale caveats lodged for strata houses indicates price gains were at least on a par with those for conventional landed homes.

In 2005, the resale price of strata houses averaged $356 psf on strata area. By 2015, the average resale price had doubled to $716 psf, reflecting an annualised gain of 7.2%.

A closer look at the caveats shows both freehold and leasehold resale prices rising strongly. Freehold prices were up 6.7% on an annualised basis, from $411 psf in 2005 to $783 psf in 2015, while leasehold prices increased 7% on an annualised basis, from $320 psf to $628 psf over the same period.

The comparison is meant for buyers who are confronted with the choice of buying strata houses and non-landed homes. It should not be interpreted as the potential gain of buying a strata house, as that would depend on the time of purchase and the price paid.

Buyers should also be aware that not all listings are priced competitively and the historical performance would be meaningless if they overpay for the units. The chart below shows the average resale price for strata terraced houses in the most active districts.

Fundamentals for strata and conventional landed homes are strong relative to non-landed homes if the entry price is right

Landed house within a condo and apartment project

Since 2011, more condo and apartment projects have incorporated landed homes in their unit mix. However, most of these homes have not been resold on the resale market and it is difficult to gauge their price performance. Transactions from older projects have also been scarce. Hence, we can only rely on anecdotal evidence.

It is obvious that the purchase price matters greatly in buying a property. It can result in opposing outcomes as illustrated by the three projects cited below.

At Ridgewood, the price gains over 10 years for its landed homes were slightly higher than for the condo units. This is because they were bought at attractive prices in 2005. A 2,852 sq ft terraced house was sold at $469 psf on its strata area in 2005. Last year, another 2,852 sq ft terraced house fetched $1,209 psf, reflecting a 158% price gain over 10 years.

Separately, two 1,744 sq ft condo units at Ridgewood were sold at an average price of $484 psf in 2005. Last year, two other 1,744 sq ft condo units fetched an average price of $1,225 psf, or a 153% price gain over 10 years. Ridgewood is a 999-year leasehold project comprising 452 condo units and 38 landed homes.

At Sandalwood on Tembeling Road, a 3,488 sq ft terraced house changed hands in 2013 at $1,061 psf, double its purchase price of $530 psf in 2004. This translates into a 100% price appreciation over a period of nine years. At Ridgewood, the price gains over 10 years for its landed homes were slightly higher than for the condo units while, a 1,184 sq ft apartment at Sandalwood was purchased for $662 psf in 2004 and resold at $1,118 psf in 2013, reflecting a 79% price gain. Sandalwood is a freehold housing project comprising 23 apartment units and 16 conservation terraced houses. The development was completed in 2005.

At Ridgewood, the price gains over 10 years for its landed homes were slightly higher than for the condo units

On the other hand, terraced houses at The Ford @ Holland were sold at an average price of more than $1,000 psf in 2006. The price gain was only 5% between 2006 and 2013’s peak, as evidenced by the sales of two terraced houses at an average of $1,218 psf in 2013. There were few transactions involving terraced houses from 2014.

In 2012, the URA ceased granting condo status to projects that contained both strata- landed homes and apartments. The rule applied to projects that had not received provisional approval as at April 2012. This meant foreigners could no longer purchase strata landed homes without approval in new non-landed developments.

Limited supply

Landed homes are sometimes seen as trophy properties or collectibles. The fundamentals underpinning their price appreciation is strong, but buyers must conduct more due diligence to ensure they pay a competitive price. Owing to the dearth of transactions, potential buyers should check out transactions in other locations, beyond the vicinity of the property they take interest in. As at end-1Q2016, there were 72,205 landed homes, comprising detached, semi-detached and terraced houses, compared with 258,098 private apartments and condo units. Landed homes accounted for about one-fifth of all private homes.

The scarcity factor is expected to safeguard the long-term capital appreciation of landed homes as long as Singapore’s economic fundamentals remain sound. Only 1,582 landed properties are due to be completed in the next five years. They account for just 3% of the 57,597 private homes in the pipeline. On the other hand, there are 56,015 non-landed homes that are being planned or under construction.

This article appeared in The Edge Property Pullout, Issue 728 (May 16, 2016) of The Edge Singapore.

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