5 Best property type to consider after decoupling

Introduction

The fact that you have ventured this far meant that you have been taking concrete steps towards decoupling.

Backtracking slightly, if we were to recall, the whole point of decoupling is to facilitate us in purchasing our second property without incurring ABSD. And the ultimate goal is to walk away with a healthy capital gain or rental income by selling or renting out the second property.

As specialist in decoupling, helping over 50 clients thus far in decoupling their properties. We realised that there is ample attention being placed on the decoupling process. But little emphasis on what we need to do to ensure success in selecting the second property after decoupling.

In this article, we will focus specifically on 5 different property types that are most suited for couples that have just decoupled their property.

Factors to consider

Before diving into the different property types, let’s set the context by evaluating the different factors that we should consider when evaluating options for our second property

Life stage

The life stage that you are in form an important backdrop for the type of investment property that you will be looking at.

If you and your spouse are looking to work towards retirement in the near term. You would be looking at purchasing an investment property with maximal passive rental income.

To achieve this, you would want to minimise interest expense and maximise rental income. The property that you would be looking at should be priced at a quantum that you can pay mostly using cash and cpf.

On the other hand, if you and your spouse are relatively young in age and are working towards asset growth. You would be looking to purchase an investment property with maximal growth potential.

In this case, leverage is your ally, you would be looking to maximise loan tenure and take up adequate loan financing to acquire a property that will bring about the optimal capital appreciation.

Budget

Your budget is another important factor of consideration. Taking inventory of how much cash and CPF you or your spouse will have after decoupling and adding up the additional cash and CPF that you will be willing to add on will be important.

In fact, many couples made the mistake of making poor property selection due to budget constraints after decoupling.

Risk appetite and exit strategy

Planning ahead for the second property’s exit strategy with consideration of your risk appetite and your understanding of the exit buyer’s profile would be important in assessing the property type that you would consider.

Broadly speaking, if you are a family with a young child, and have been living in the OCR region for sometime, you would have a much better understanding of what a family will be looking for in an ideal home stay property.

In this case, you would tend to have an edge in knowledge when its comes to selecting 3 bedder OCR properties versus selecting luxury properties in the CCR region.

And from a risk perspective, the OCR properties tend to provide a less volatile risk exposure due to stable demand from homestayers.

On the other hand, if you have got knowledge of the market dynamics at play for RCR and CCR investment properties, then your preference could also be swayed towards developments in these regions.

Lifestyle needs

To provide more holistic considerations, we should also consider potential lifestyle or family goals that you may want to achieve with the second property.

You could be decoupling to purchase a second property within 1km from your child primary school to facilitate school registration or you could be looking to relocate to a location nearer to your parent’s place.

With the factors to consider when evaluating our second property established, we are now ready to move to discuss the different property types to consider when decoupling.

#1 – New launch development

One of the main benefits of decoupling is that you get to keep your existing property that you are currently living in.

With your homestay property settled, you will have the option to consider new launches. This is a competitive edge, as most homeowners that need a place to live in, will not have the privilege to consider a new launch development that requires 3 years to be completed.

A new launch development brings with it several benefits.

First, New Launch Developments Are Paid For In Accordance With A Progressive Payment Scheme, Meaning You Will Only Need To Pay As Construction Progresses.

This limits your exposure to the current high interest rate. Instead of subjecting the full loan amount to the high interest rate, you will only need to pay interest on the amount that is dispersed according to the stage of completion of the development.

On the contrary, if you were to purchase a completed resale condominium, the full loan amount will be subjected to high interest rate from day 1 of purchase.

Second, From A Capital Appreciation Perspective, New Launch Developments Offer Greater Potential For Capital Appreciation Due To The Following Reasons.

The TOP effect. Buyers are often attracted to the idea of purchasing a brand new unit that is completed but has not been lived in before. This allows buyers to build their dream home from scratch. As compared to a resale unit, in the absence of a major renovation, buyers may have to make do with some of the interior design that is inherited from the previous owner.

This “TOP effect” serves as a key factor that drives capital appreciation for owners of new launches.

The other factor is the “herd mentality”, this refers to the idea that most new launch buyers bought into the property to make a capital gain and they will work in aggregate to protect the sale price, ensuring a higher chance for capital gain.

As compared to resale condominiums, in which there is a mix of buyers buying in at different price points. Buyers that bought into the property earlier than you and at a lower entry price, could be selling the property at a lower price point, hampering your plans to exit at your optimal sale price.

Here Are Some Example Of New Launches That Have Shown Healthy Price Appreciation Upon Achieving Its TOP Status

#2 – TOP developments with more potential new launches to be launched around its vicinity

Given that brand new properties and newness in terms of lease life is often sought after by buyers, another property type to consider after decoupling would be properties that have just achieved its TOP status.

You can consider this as a “second mover” advantage with initial new launch buyers as first movers.

The crux to this is two fold. Firstly you want to look out for development with good fundamentals and have got upcoming new launches scheduled to be launched in the area surrounding it.

The idea is that if you manage to purchase the unit at a reasonable entry price. The higher priced new launches to be launched surrounding it will serve to push up the price of your unit.

The appeal to your future buyer is that they will be able to purchase a relatively new property at a much more affordable quantum and psf.

An example of this would be both Lentor Modern and Lentor Hills Residences situated around the Lentor MRT area. Lentor Modern is currently transacting at an average price of $2094 psf and Lentor Hills Residences is transacting at an average price of $2102 psf.

With the upcoming new launch Hillock Green to be launched within the same vicinity at a later date. Assuming launch price is higher than that of both Lentor Modern and Lentor Hill Residences.

Owners of Hillock Green will be looking to sell their units at a higher psf pricing than Lentor Modern and Lentor Hills residences, this would indirectly become a catalyst to push price up for the latter two lentor developments.

#3 – EC that have just MOP

EC is a interesting class of property to consider. From the onset, the first buyers of EC purchased it at a discount from HDB.

It is generally priced 100 to 200 psf lower than comparable private condo.

As the EC passed its 5 year minimum occupancy period. You may be able to inherit this price advantage if you are able to purchase it at a reasonable price from its first owner.

This psf price difference gives an edge when you are able to market a larger sized unit at a more affordable price compared to comparable private condominiums.

An example for this would be Hundred Palms EC. It achieved its TOP status in 2019 and will be fulfilling its 5 year MOP period by 2024.

The first buyers of Hundred Palms Residences purchase their units from HDB at an average price of $850 psf in 2017, and it is currently transacting at an average price of $1502 psf.

Affinity at Serangoon is a new launch that recently TOP within the same Serangoon North area. It is currently transacting at an average price of $1769 psf.

The healthy $300 psf price gap between Hundred Palms Residences and Affinity at Serangoon provides an interesting appeal to future buyers considering a unit in that area. With a similar or lower budget, they could be able to afford a larger unit at Hundred Palms Residences.

Other options includes EC that have MOP in Seng Kang, within 1km radius from the popular Nan Chiau Primary School.

We wrote a seperate article to specially discuss the profitability of buying a resale ec, check out article inline.

#4 – 1 Bedder units with good location

Budget constraint is one of the key challenges faced by couples when decoupling. Specifically for these couples, a one bedder private condominium is often the go-to option as the second investment property.

A one bedder unit tends to be more affordable from an overall quantum perspective. With a budget of 1.1mil and above, a couple would have a decent array of one bedder units for selection.

Due to the size of a one bedder, its future buyer pool is often limited to investors and singles. There are instances whereby owners of one bedder make minimal capital gain or even make a loss, when a suboptimal one bedder unit is selected.

When selecting a one bedder unit after decoupling, it is important to consider the following factors

• Competing supply of 1 bedder unit in the area
• Proximity to MRT station
• Proximity to commercial centre
• Historical records of high rental volume and high rental yield

Examples of one bedder unit in good location as follow

• Waterbank at Dakota
• Bartley Residences
• Sims Urban Oasis
• J Gateway

#5 – Old developments with opportunity for Enbloc

A note of caution, this is a riskier approach that is not often adopted. A couple that have just decoupled their property, may consider looking into old ageing developing with a dual purpose view of deriving rental income from the property and potentially exiting for capital gain via an enbloc sale.

Why older developments ?

Older developments that have passed its 30 year mark in terms of lease life tend to experience a plateauing in price. Hence compared with a newer development in the same district, the older developments tend to provide a more affordable entry price point.

Assuming the older developments are situated in an ideal location, it may bring about a higher rental yield due to its lower entry price. This makes it an ideal property to generate passive rental income.

An opportunity for enbloc

Applying the right selection criteria, the couple can select a development with an enbloc sale opportunity. This provides a chance for the couple to exit for decent capital gain in the future.

A Broad Overview Of Selection Criteria For Enbloc Developments Will Be As Follows

• Older developments sitting on a plot of land with high land value
• Developments with low plot ratio, meaning fewer units on a plot of land
• Size of developments, smaller developments with smaller number of units

Examples Of Development With Enbloc Potential

• Apollo Gardens
• Melville Park
• Emerald Park
• Parkshore
• Villa De West

Final words

This sums up our article on 5 properties to consider after decoupling. We hope this article helps you form a general framework for the property types you can consider after decoupling.

It is important to note each property brings with it its own strengths and weaknesses, hence it is important to proceed with caution.