Dual Key Condo – Is it really a good investment ?

Dual Key Condo

Table of Contents

There are many articles out there that articulate the pros and cons of a dual key condo very well.
Instead of replicating what is already out there, we will seek to cover the gaps.

In this article, we will focus specifically on evaluating dual key condos from the perspective of a property investor, considering whether it is wise to invest in a dual key unit or is better to simply invest in a regular one bedder or two bedder unit.

What is a dual key condo ?

To get everyone initiated. A dual key condo is a condo that is developed with two segregated self contained living spaces. It normally comes with a main unit that is larger in size, and a sub unit that is normally a studio.

A 3 bedder dual key will comprise of a 2 bedder main unit and a 1 bedder studio, while a 2 bedder dual key will comprise of a larger 1 bedder main unit and a smaller studio as a sub unit.

A dual key unit is normally 5-10% larger than a regular unit with the same number of bedrooms.
You will see that much of this extra square footage will go towards the building of common foyer walkway, extra kitchenette and living space for the studio sub unit.

The different layout of a dual key unit

Before we begin, it is important to get acquainted with the different layouts of a dual key unit.
As we run through the different layouts out there, you would realize that layout plays a pivotal difference in determining the value proposition of the dual key unit.

For starters, most dual key units will come in the following layout.
It will come with a common walkway that leads into 2 separate doors and a separate kitchen and bath room for the studio unit.

This is the layout that is most ideal for an investment property.
It fulfils the selling proposition of having the larger main unit as a living space for the owner, while maintaining sufficient privacy for the smaller subunit to be rented out.

8 Riversuites 3 Bedroom Dual Key Floor Plan – with Separate kitchen
8 Riversuites 3 Bedroom Dual Key Floor Plan - with Separate kitchen 

From a privacy standpoint, this layout lies on the other end of the spectrum.
This 3 bedder dual key in Botanique at Bartley does not have a separate kitchen setup for the sub unit. The developer’s intent behind this dual key is more tilted towards that of providing a multi-generation living concept for a large family.

Botanique at Bartley 3 Bedroom Dual Key Floor Plan – Shared Common Living Room and Kitchen
Botanique at Bartley 3 Bedroom Dual Key Floor Plan - Shared Common Living Room and Kitchen

So if you are an investor looking at dual key condos as potential investment, you will need to pay extra attention to the layout of the units that you are evaluating. Getting a unit with a layout that fulfils the criteria that your future exit buyer is looking at, could make a lot of difference in the sellability of your property.

What defines a good investment property ?

Are dual key condos good investment properties ? Is it better to invest in a regular 3 or 4 bedder unit or would you reap bigger returns buying a dual key unit ?

To get things going, let’s first define what makes a good investment property

  • Profitability – the ability to generate good returns via capital gain
  • Liquidity – ease of selling property
  • Rental yield – the ability to provide cash flow when holding property
  • Capital requirement – the amount of capital you need to purchase and maintain property
  • Compelling proposition – an appealing selling proposition for future exit buyers

Are dual key condos profitable ?

The first port of call for any investment is that it has to be profitable.
And specific to real estate investment, the ability to generate capital appreciation matters a lot.

You could be smiling when you are collecting passive rental income monthly. But after a couple years, if you realize that you are only generating a couple percent capital gain or worst case making a loss upon your exit. You would be missing the forest for the tree.

Developers normally price dual key units at a premium. Compared to a regular unit, a dual could cost 5% to 15% more. This brings about two points to be considered.

Firstly, when purchasing a new launch dual key from a developer, it is important to ensure that the unit is not priced at great disparity from a regular unit.

Here’s an example of the differences in premium being priced in for dual key units across different developments

Next, from a capital appreciation standpoint, knowing that your entry price is 5-15% higher than a regular unit. You would need to be conscious of the fact that your future exit buyer must be willing to pay for that 5-15% premium, on top of the usual capital appreciation of a regular unit, in order for you to make the same capital appreciation as a regular unit.

Analysis of dual key condo vs regular condo capital appreciation

Setting the context. There are currently 93 developments with dual keys out in the market. But not every development has transactions for dual keys. So to ensure statistical significance, we filter out those developments with greater than 5 transactions for dual key units and use that as a base for making further observations.

Mapping the average capital appreciation for dual key vs regular units, we got the following table.

Observation 1 – Dual key condo in area of high rentability tends to do better

Referring to the two tables below.

You would realise that the duals key situated in areas such as Sengkang, Pasir Ris and Hougang, which are predominantly meant for local Singaporean dwelling did not fare as well as their regular counterpart.

It would be logical to infer that homestay buyers and HDB upgraders are mainly looking for a property for their family’s residential needs. Space that a regular unit offers would be a priority over generating rental income.

The next table features dual keys located in areas of higher rentability. Common characteristics include proximity to town central, proximity to international schools and areas that white collar expats normally reside in.

These are areas in which dual key condos appreciate better or on par with regular condos. It seems investors have a greater appetite for dual keys in these areas. They could comprise of smaller family units with one or no child and are comfortable living in the main unit of the dual key, while renting the studio sub unit out for rental income.

Observation 2 – Layout affects capital appreciation

Within the list of RCR dual keys, there are two outliers that perform worse off then regular units. The dual key units in City Gate and Urban Vista both perform 6% poorer than their counterparts in terms of capital appreciation.

Upon taking a closer look, we realise both units have layouts that differ from that of a regular dual key layout. Both dual key feature bedrooms with an elevated loft and a stairway that leads up to the platform where the bed is to be placed. Buyers in the market don’t seem to fancy such out of the norm layouts.

Urban Vista 3 Bedder Dual Key Floor plan, with elevated loft

Ease of selling – Are dual key condos easy to sell

For an investment property, ease of selling is an important factor to consider.
Putting it simply, would you want to wait 10 years to make $200,000 or would you want to make multiple $200,000 gains across several 3 year time frames ?

Looking into the transaction volume of dual keys vs regular units.
You can see that there are much more transactions for regular units vs dual keys.

The property buyer market today is still dominated by buyers purchasing for their own stay.
Investors and multi generation families that a dual key unit appeals to forms a minority in the buyers market.

Logically speaking, it would be harder to sell a dual key unit than a regular unit.
The low transaction volume of dual keys has another impact on price appreciation.
Pricing for real estate is often established by past transactions of similar units.This forms the origin of the saying that “larger developments with more units are always better for price appreciation”.

To illustrate the truth behind this saying.

Imagine, today a regular 3 bedder in a development is valued at $1.4 million, and if there are 3 transactions that came along for these 3 bedder units, the price could be pushed up in the following way. (Assuming all transactions are capital appreciative)

  • Transaction #1 – $1.45 million
  • Transaction #2 – $1.5 million
  • Transaction #3 – $1.55 million

Now when you want to sell your 3 bedder you could be positioning for within the $1.55 million range using the past transaction as proxy pricing for your property.

On the flip side, if you are owning a dual key unit valued at $1.4 million, and there was only 1 transaction made last year at $1.45 million or even worse selling at a loss at $1.3 million

You would either have to price your property around the $1.45 million dollar range or wait for the right buyer to come that is willing to pay a premium for your property.

Rental yield

Having good rental yield is a great feature to have for an investment property.
Depending on your monthly mortgage payment, the rental income could be used to cover your interest payment or even better, generate positive cash flow every month.

Dual key condo provides higher rental yield

The rental yield of a regular unit ranges between 2% to 3%. Which is not great.
The nett rental yield, the nett cash that you would be receiving monthly after deducting non owner occupied property tax and condo maintenance fee makes this an even smaller number.

This is where a dual key unit trumps a regular unit.
From a rental yield perspective, using Waterbank at Dakota as an example.

Assuming you were to rent out both the main and subunit, a dual key condo will bring in a higher rental yield of 4.3% vs that of 3.6% for a regular 3 bedder unit.

Dual key condos are more tax efficient

For the dual key condo, assuming you were to live in the larger main unit and rent out the smaller unit.
From a nett rental yield perspective, the dual key unit could be more cost effective vs the option owning a regular 3 bedder investment property.

You would be paying owner occupied property tax vs the option of renting out a separate 1 bedder or studio apartment, you would be paying non owner occupied property tax. The cost saving would add to your monthly cash flow.

Using a studio apartment with an annual value of $42,000.

Annual value is the gross annual rent that you can rent your property out for

Capital requirement

When you are out scouting for an investment property, aside from looking for a property that has a compelling potential for capital gains. You would also be considering the amount of capital you have to fork out to purchase and maintain the property.

Comparing the option of owning two properties versus the option of owning one dual key unit. We look at the advantages and disadvantages that comes with owning a dual key unit.

Free from ABSD

First off, for a dual key unit you would not have to worry about ABSD. In the eye of IRAS, the dual key unit is seen as one property.

Where else to own two properties you would either have to paid ABSD or embark on strategies to legally avoid ABSD, using methods like decoupling or “sell one buy two”. Aside from hassle, both of these methods will require you to incur some transactional cost in the form buyer stamp duties.

More cash down payment required for dual key condo.

You would have thought, it would have cost less from a cash/cpf downpayment perspective to own a dual key vs owning two properties.

But because of the fact that dual key units are often priced at a premium, this has proven not to be true. You would be required to pay more cash upfront when purchasing a dual key versus getting two properties.

Using the same Waterbank@Dakota example.
Consider the option of owning one 2 bedder unit and a 1 bedder, valued at $1.3 million and $980,000 respectively.

You would require the following capital outlay
Assuming you purchase both properties under separate names, with no ABSD incurred.

2 Bedder unit.
Buyer stamp duty – $36,600
25% cash/CPF down payment (assuming 75% loan) – $325,000
Legal fee – $2000

1 Bedder unit
Buyer stamp duty – $24,000
25% cash/CPF down payment (assuming 75% loan) – $245,000
Legal fee – $2000

You would need a total cash outlay of $634,600 to make this happen

For a 3 bedder dual key, valued at $2.4 million.
You would be looking at the following.

3 Bedder Dual Key
Buyer stamp duty – $89,600
25% cash/CPF down payment (assuming 75% loan) – $600,000
Legal fee – $2000

You would need a total cash outlay of $691,600

Compelling Proposition

Like it or not we all justify our investment decisions based on a compelling narrative.
Hence when considering an investment in a dual key condo, it would be important to consider the narrative that you are going to sell to your future exit buyers vis a vis the competing options out there.

Considering some of the competing options available to your future buyers

A spacious 3-4 bedder condo in the OCR (outer central region).
It is clear that the proposition of upgrading to a spacious private condo with full facilities would be appealing to HDB upgraders and families purchasing for their own stay.

A penthouse in the CCR (core central region)
You would be positioning the property as an investment property for foreign high networth buyers.

Now consider the selling proposition of a dual key unit.
You would be positioning the property as a property in which you can live in and generate passive rental income at the same time.

The down side to this proposition is that it appeals to a very niche segment of buyers.
While the upside to this proposition could become a lot more appealing if there are further tightening measures down the road, raising the bar for ABSD or making it harder for investors to avoid ABSD.

So are dual key good investment properties ?

Summarising our analysis. Dual key units have its strengths and weaknesses as an investment property.

From a capital gain perspective, selecting the right location with the right buyer profile would be crucial to ensure optimal capital gain for your dual key. You need to go for areas that have high rentability, characterised by a good supply of expat tenants.

To mitigate the difficulties of selling in the resale market. It will be important to ensure that you manage your loan quantum properly, ensuring that the rental income derived from the sub unit covers a bulk of the mortgage or even better provide excess positive cash flow after paying monthly mortgage. This will ensure you have got the holding power to wait out for the right buyer to come.

The greatest appeal of a dual key unit definitely comes from its ability to generate good rental yield while providing a main unit for you to live in.

While a dual key condo may not be the optimal investment option for everyone. It would be most appealing to investors that are looking to upgrade to a condo, while looking to generate passive rental income.

Side note, for investors prioritising rental yield, you may be interested to check out the best place to buy a rental property in singapore, refer to article inline.

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.