Are 1 bedroom condos a good investment ? – Analysis of price appreciation and profitability

Are 1 bedroom condos a good investment ?

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Investing in a 1 bedroom condo is a controversial topic. It triggers the tug of war between two camps of thoughts.

Your more prudent investors will swear against it, sharing the multiple horror stories about friends and relatives experiencing difficulties in selling their one bedder unit and losing money in the process. On the other hand, there are some who have succeeded in flipping multiple one bedder units and are enjoying monthly passive income from renting out their one bedder condo.

Given that you are on the lookout for a 1 bedroom condo, which camp would you be in ?

Who are the typical buyers of 1 bedder unit

Before diving into the details it helps to have a good understanding of the buyer profile for 1 bedroom condo units.Knowing the intent and psychology of our buyers and sellers behind these 1 bedroom condo transactions will facilitate our appreciation of what makes a good or bad 1 bedder unit.

The buyers for 1 bedroom condos are mainly made up of investors, looking to own their 2nd property and a minority being single homeowners looking to purchase their starter homes.

There are generally two factors that attract them to a 1 bedroom condo.

A major factor being the low price quantum of a 1 bedroom unit which requires less burden on cash down payment and loan financing, reducing the barrier to entry to own a private condo. Next, rentability and higher rental yield of a 1 bedroom condo serves an appealing feature for investors to earn passive income while awaiting for the right time to sell the property for capital gain.

Analysing the capital appreciation for 1 bedroom condo unit

One major factor of consideration for any real estate investment is capital appreciation. When you put your hard earned money to work, you would want to reap your harvest. In 3 to 5 years time you would expect to bring back that few hundred thousand dollars on top of your capital as return.

Using past URA transaction data for 1 bedroom condos, let’s explore how much you will make if you were to purchase a 1 bedroom condo and hold across different holding periods.

Comparing price appreciation of 1 bedroom condo across different holding periods

At a high level, simply by looking at transactions of all 1 bedroom condo in singapore. If you were to purchase a 1 bedroom condo in 2018 and sell it in 2023, holding it for 5 years. Your property would have appreciated by only 16%.

Interestingly, if you were to hold it for only 3 years, making your purchase in 2020 and selling it in 2023. Your property would have appreciated more, at a rate of 21%.

1 bedroom condo price appreciation across different holding periods

Holding PeriodAverage PSF Growth Rate (%)Entry Price (Average PSF)Current Price (Average PSF)
5 yrs (2018 to 2023)16%14931729
3 yrs (2020 to 2023)21%14341729

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Time of entry matters more than the holding period.

Gleaning insights from the data, it can be inferred that the price of a 1 bedder unit tends to be more volatile than larger sized units. Hence, purchasing the property at a time when price is suppressed due to dampen demand from investors would allow you to purchase the property at a lower and more attractive entry price, facilitating exit with a higher profit in the future.

Comparing price appreciation of 1 bedroom condo across different region

Given that we hold the 5 year holding period as a constant, and break down the general price appreciation of a 1 bedroom condo into different regions. We start seeing a disparity in the rate of price appreciation, particularly for 1 bedder condos in the CCR region.

To the contradiction of common belief that smaller units are most sought after in the central regions, the data show otherwise.

If you were to purchase a 1 bedder unit in the CCR region, 5 years ago and sell it today. It would have only appreciated 0.4%, compared to purchasing a unit in RCR and OCR region you would bring in an average price appreciation of 15 to 16%.

1 bedroom condo price appreciation across different URA planning region

RegionAverage PSF Growth Rate (%)Entry Price (Average PSF)Current Price (Average PSF)
CCR0.4%22392248
RCR16%16781954
OCR15%13531551

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Paying a premium for a central location does not necessarily translate to greater price appreciation

One key factor contributing to underperformance of CCR 1 bedder condos could be the fact that the price premium that investors pay when purchasing a 1 bedder unit in the CCR region does not translate to a higher premium selling price upon exit.

Recalling the fact that investors made up the majority buyers for 1 bedder condos and price quantum is one of key factors for consideration. Hence, it is lightly that the lower resale price tag of a RCR and OCR 1 bedder condo is much more attractive than paying a premium for a resale one bedder unit in the CCR region.

Putting yourself in the shoes of a future buyer for a 1 bedder unit, would you purchase a $1.3 million premium resale 1 bedder unit in Orchard or would you rather go for a $1.3 million 2 to 3 bedder unit in an OCR region like Seng Kang, Punggol or Tampines ?

Taking learnings from this, it is important to consider your current entry price, factoring in a reasonable 10- 20% price appreciation, and consider how appealing your target exit price would look like from your future buyer’s perspective. If it crosses a certain affordable price point or if it cuts too close to the price of a 2 bedder condo then you could possibly experience challenges selling down the road.

Comparing price appreciation of 99 year leasehold vs freehold 1 bedder condos.

Similar to the case of 1 bedder condos in the CCR region, the premium paid to purchase a freehold 1 bedder unit does not translate to a greater price appreciation.

Price appreciation of 99 year leashold vs freehold 1 bedroom condo – 5 yr holding period

TenureAverage PSF Growth Rate (%)Entry Average PSFCurrent Average PSF
Leasehold – 99 years20%14201703
Freehold8%18091954

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Giving credit to the absence of a lease decay factor for a freehold condo, we extended the holding period to 8 years. Even then we still see 1 bedder unit with 99 year leasehold status outperforming freehold units in terms of price appreciation.

Price appreciation of 99 year leashold vs freehold 1 bedroom condo – 8 yr holding period

TenureAverage PSF Growth Rate (%)Entry Average PSFCurrent Average PSF
Leasehold – 99 years22%13911703
Freehold20%16271954

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Comparing price appreciation of 1 bedroom condos against 2 and 3 bedder units

Putting aside the price quantum, let’s compare 1 bedder unit against its larger sized counterparts.

1 bedroom condo versus 2 and 3 bedroom condo price appreciation

Unit SizeAverage PSF Growth Rate (%)Entry Average PSFCurrent Average PSF
1 Bed Unit (less than 500 sqft)16%14931729
2 Bed Unit (500 – 1000 sqft)22%13061595
3 Bed Unit (1000 – 1500 sqft)22%12091476

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From an average price growth perspective, the convention that larger units bring about greater capital gain still holds true. We see the 2 and 3 bedder units enjoying higher price appreciation across a 5 year holding period.

Diving deeper – Analysing the profitability of 1 bedroom condo within specific developments

Diving one level deeper, let’s examine the performance of 1 bedroom condos in specific developments to gain further insights on factors that makes or breaks 1 bedroom condo as an investment.

Factor #1 – Entry price is priority

We dug deeper down the rabbit hole, sieving out 1 bedder units in development situated in different districts, reviewing the no of profitable transactions versus unprofitable transactions.

The insights further reinforce that point that paying a premium for a 1 bedder unit in a prime location does not translate to greater profitability.

Profitability of 1 bedroom condo in prime district

DevelopmentAreaTOPAverage PSFNo of profitable Transaction% ProfitableNo of unprofitable Transaction% UnprofitableAverage gainAverage loss
OUE Twin PeakOrchard20152,33027%2893%159,379-223,180
The Scotts TowerNewton20162,08000%5100%0-856,052
IconTanjong Pagar20071,7984260%2840%263,539-64,991
AltezTanjong Pagar20141,9913280%820%154,708-260,598

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Profitability of 1 bedroom condo in city fringe and outskirt

DevelopmentAreaTOPAverage PSFNo of profitable Transaction% ProfitableNo of unprofitable Transaction% UnprofitableAverage gainAverage loss
Waterbank at DakotaDakota201317435091%59%172,400-14,778
Sims Urban OasisAljunied2017170894100%00%91,3650
Bartley ResidenceBartley201515833294%26%68,037-12,500
Coco PalmsPasir Ris2019142940100%00%121,2340

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Referring to the data above, when we compare the profitability of 1 bedder units in developments located in prime districts like Orchard, Newton, Tanjong Pagar against developments located in the less central regions.

We noticed a greater percentage of unprofitable transactions in prime districts and a greater percentage of profitable transactions in less central districts. Entry price seems to be a major contributor to this disparity in performance.

Taking OUE twin peak as an example, out of 30 transactions for 1 bedder condo, 28 are unprofitable transactions with an average loss quantum of -$223,180. The average entry price of buyers for these units ranges from $2,500 to $3,260 psf.

From a quantum perspective, a 549 sqft unit was initially bought between a price of $1.3mil to $1.7mil. To make a 10% capital appreciation, the property would need to be sold at least $1.5 mil, this seems to put the property out of investors favour, as the price quantum falls out of range.

On the contrary, if we examine the profitable transactions of Bartley Residence, you would notice that the entry psf is significantly lower at $1,383 to $1,512 psf, costing the buyer between $640,329 and $700,056.To make a reasonable profit the seller can still market the property below $1 million to future buyer.

Factor 2 – Supply of 1 bedroom condo in the area

While rental demand is important and proximity to the CBD is often touted as a selling point for a 1 bedder condo. Surrounding supply of 1 bedder units catering to these demands is often overlooked.

Our data suggest that there is little value in owning a 1 bedder condo is an area of high rental demand but swamped with an oversupply of competing 1 bedder units.

To put things into perspective, let’s look into the developments within the Marina Bay enclave.

Supply of 1 bedroom condo in Marina Bay district

DevelopmentAreaNo of 1-Bedroom UnitsProportion of 1 Bedder in Development
The Sail @ Marina BayMarina Bay43039%
Marina Bay ResidencesMarina Bay12629%
Marina OneMarina Bay45444%

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From the table above, you can see that the 3 major developments in the area feature a high proportion and number of 1 bedroom units with focus on addressing the high rental demand in the financial district.

And for this investors pay a premium for the location and rentability that comes with it. Now let’s examine the profitability of these 3 developments in the following table.

Profitability of 1 bedroom condo in Marina Bay District

DevelopmentNo of profitable Transaction% ProfitableNo of unprofitable Transaction% UnprofitableAverage gainAverage loss
The Sail @ Marina Bay4459%3141%366,191-167,474
Marina Bay Residences418%1882%220,978-211,043
Marina One1257%943%92,073-106,085

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In the table above, all 3 developments situated in the Marina Bay area display a high percentage of unprofitable transactions, with at least 50% of the transactions falling into the unprofitable range.

On the contrary, let’s look into a development situated in the Jurong area, serving the rental demand of Jurong Innovation District. From the map below, you can see that it is one of the few new condo developments. With greatest proximity to MRT, serving the nearby commercial development.

A review of its profitability shows a healthy performance of 98% profitable transactions with gains averaging $106,660.

Profitability of J Gateway

DevelopmentNo of profitable Transaction% ProfitableNo of unprofitable Transaction% UnprofitableAverage gainAverage loss
J Gateway5398%19106,660-9,400

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Factor 3 – Rentability and rental yield

To balance the discussion, taking away some heat from the downside of investing in 1 bedder units in the CCR districts. Rentability is a factor that one bedder units in central location trumps over 1 bedder units in the outskirts of Singapore.

Taking this point of the table. From a rental yield perspective, OCR 1 bedder units, due to its lower purchase price surpass that of both its RCR and OCR counterparts.

Rental Yield for 1 bedroom condo in different region

RegionRental PSF Per Month (2023)Average PSF (2023)Average Unit Size (sqft)Rental Yield
CCR8.322248500.004.44%
RCR7.591954500.004.66%
OCR6.681551500.005.17%

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But from a rentability perspective, the equation is flipped, the higher rental demand for 1 bedder units with proximity to commercial centre is reflected in the higher volume of rental transactions recorded in CCR and RCR 1 bedder units than in OCR region.

Rental demand for 1 bedroom condo in CCR

DevelopmentAreaRegionAverage Monthly RentRental YieldTransaction
The Sail @ Marina BayMarina BayCCR4,985.004.70%12
Marina Bay ResidencesMarina BayCCR5,802.004.40%4
Marina OneMarina BayCCR5,400.004.00%3

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Rental demand for 1 bedroom condo in RCR

DevelopmentAreaRegionAverage Monthly RentRental YieldTransaction
Waterbank at DakotaDakotaRCR3,588.004.20%8
Sims Urban OasisAljuniedRCR3,697.004.60%17
Bartley ResidenceBartleyRCR3,152.004.80%5

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Rental demand for 1 bedroom condo in OCR

DevelopmentAreaRegionAverage Monthly RentRental YieldTransaction
Parc CentroPunggolOCR3,065.004.90%3
Water TownPunggolOCR3,355.004.30%16
La FiestaSengkangOCR0.000.00%0
Coco PalmsPasir RisOCR3,100.004.90%2
North Park ResidencesYishunOCR3,346.004.10%8
The SantoriniTampinesOCR3,003.004.80%3

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Summarising Important factors to consider when investing in a 1

bedroom condos

As a summary, let’s recap the important factors to consider

  • Time of entry
  • Entry price
  • Surrounding supply
  • Rentability

Final Words

If you are on the hunt for your second investment property, consider the following article on how to avoid ABSD when purchasing your second property and consider checking out dual key as alternative to purchasing a single property with a option to enjoy rental income.

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.