RCR 2 Bedroom vs OCR 3 Bedroom – Which is better for investment ?

A dilemma faced by investor working with a fixed budget

Correct me if I am wrong, this question will be a non concern if you got a slightly bigger budget ?

The main reason why we are deliberating over getting a 2 bedder in RCR vs 3 bedder in OCR is because we have got a budget constraint. From my experience that budget starts from 1.5 mil and tops out at 1.8 to 1.9 mil.

This means that you are priced out of a 3 bedroom unit in the RCR and have to make a choice between a smaller 2 bed 2 bath in the RCR vs a larger 3 bedroom unit in the OCR. 

A glimpse of pricing for 2 Bedroom RCR vs 3 Bedroom OCR

For those uninitiated, this is what you are looking at in terms of pricing. 

For OCR locations, we felt that it needs to be further subdivided into the more mature OCR estates vs the new emerging outskirt OCR districts

RCR 2 bedders in areas sought after residential areas like Queenstown, Woodleigh, Bishan, Thomson, Potong Pasir, Eunos, Aljunied and Paya Lebar would cost anything between the quantum of 1.5 mil to 1.6 mil.

For more mature OCR districts that are more centralised like Clementi, Serangoon, Bedok, Kovan and Upper East Coast, both 2 bedroom and 3 bedroom pricing would come very close to the RCR developments. We got 2 bedder pricing along the same range of 1.5 to 1.6 mil and a smaller 3 bedroom compact falling within the range of 1.8 mil to 2.2 mil.

We specifically highlighted this category of OCR locations as some of you could be wondering if you can stretch your budget for a smaller, below 900 sqft, 3 bedroom compact unit priced between 1.8 mil to 2.2 mil.

Having explicitly laid out the pricing for unit type in both RCR and OCR, it reinforces the fact that the obvious comparison revolves around a 2 bed 2 bath RCR unit vs a larger 3 bedroom OCR unit greater than 1000 sqft. 

As a side note, we recently published a dedicated research article the dive specifically into how to select 2 bedroom condo for investment, check it out if this is an area of interest.

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Breaking down this question into 2 parts

To avoid overgeneralization and jumping into conclusions, I would like to break down the question into 2 considerations.

1. OCR properties vs RCR properties – which brings about higher growth
2. Unit Type consideration – Can a 2 bedder in RCR be more profitable than a 3 bedder in OCR ?

Which location provides better appreciation ORC or RCR

I must stress beforehand that the value add of this article comes from combating the conventional assumptions that we hold and highlighting nuances that is important for us to note.

For starters, this is one common assumption that needs to be dispel.

Referencing the chart below, over the last 10 years OCR private property in aggregated has appreciated 33%, while RCR private property have appreciated only 28%.This is despite RCR being a pricier and premium location.

At first look, it is easy to jump to conclusion that OCR properties are better than RCR properties., close the case and strike out RCR developments.

But this is far from truth, adopting this assumption could result in missed opportunities 

Reasons why OCR private property growth rate could be over rated

1. New ECs propping up growth in OCR not private condos

There are significantly more new ECs in the OCR regions that are sold at subsidised price to first owners and resold at a premium propping up aggregated growth rate.

This is a point to note if you are investor that is no longer eligible for a new EC and is looking at private condos in OCR.Careful due diligence has to be exercised to select private condos that can not only provide the high appreciation that you expect, but also outcompete new and resale ECs in the area.

10 out of 20 Top performing OCR condo developments are ECs

2. Ageing condos in RCR area putting a drag on overall appreciation 

Along the same spectrum, there is a overweight in older ageing condo developments in RCR region weighing down on overall price growth.

But hidden within this aggregated stats there priced RCR developments like Jadescape, Parc Esta and Stirling Residences that have outperformed the index.

To end off this section, the point to out across is that there are gems in the RCR region to be identified and there nuances that you need to take note off as well when selecting OCR properties.

We will touch more on how to select OCR developments in later sections.

4 Categories of Condo Developments in RCR and OCR

To further illustrate the pointers made in the section above. We highlighted the best performing condo developments in both OCR and RCR.

Note that these developments are ranked top based on their annualised capital appreciation, over the last 36 months worth of transactional data.

Category 1 – Mature OCR Districts with little to no EC launches

Category 2.1 – Private Condos in Emerging OCR districts with multiple EC launches 

Category 2.2 – ECs in Emerging OCR districts with multiple EC launches 

Category 3 – Private Condo in RCR district

3 Key pointers to note

1. The best performing developments on OCR comes from OCR districts with little competition from ECs. 
2. There are gems to be identified within the RCR region that cam deliver similiar if not higher growth than RCR developments.
3. New ECs that enjoy steep capital appreciation after MOP deliver above average growth of 5% to 8%.

Unit Type Performance

Now let’s move on to add another level to our comparison.

In the sections that follow, we will compare different unit type performance in both RCR and OCR

2 Bedroom RCR vs 3 Bedroom OCR (Emerging outskirt location) – Profitability Comparison 

Addressing the crux of the question first, RCR 2 bedder vs OCR 3 bedder in affordable outskirts locations like Sengkang, Punggol and Tampines.

Facts point to 3 bedder being slightly more profitable than 2 bedroom units in RCR, with average profit being 50k higher on average compared with RCR 2 bedders.

But one point to note is the rental demand for these OCR developments, especially when looking into new launches.

Generally rental demand would be lower in OCR locations and couple of months of vacancy could eat into the 50k profit upside.

RCR best performing development 2 bedroom performance 

Performance of 3 bedroom unit in Emerging outskirt OCR locations ( Private Condo, Best Performing)

2 Bedroom RCR vs 3 Bedroom OCR (mature districts) – Profitability Comparison 

The takeaway for this section is that a 3 bedroom unit in more mature OCR districts like Clementi, Bedok, Serangoon, Upper East Coast could be a lot more profitable than OCR 3 bedders in the outskirts.

Average profit outperformed RCR 3 bedder by at least 130k.

The downside to this is that from a affordability standpoint, these developments are priced very close to your RCR developments.

RCR best performing development 2 bedroom performance 

OCR – Mature, More Centralised Location – 3 Bedroom

3 Bedroom RCR vs 3 Bedroom OCR (mature districts) – Profitability Comparison 

Throwing in some extras for those of you that have the financial means of stretching for a 3 bedder in RCR.

RCR 3 bed room units performance amongst the best performing development in RCR have outperformed all OCR 3 bedroom units amongst OCR’s best performing developments

RCR best performing development 3 bedroom performance 

Performance of 3 bedroom unit in Emerging outskirt OCR locations ( Private Condo, Best Performing)

OCR – Mature, More Centralised Location – 3 Bedroom

Summary of takeaways from profitability comparison

1. Buying into new launches or newest development in a mature district filled with ageing condo has a strong correlation with profitability 
2. For emerging OCR locations, private condo developments needs to be competitive against more affordable resale EC in order to perform well.

Bonus – Consideration When selecting 3 bedroom unit in Emerging outskirt OCR locations 

As promised, we will have a section elaborating on how to select an affordable yet high performing condo development in outskirt OCR locations.

The first point to note is that, peeling back on the rosy picture of OCR condo’s profitability. There are a whole slew of private condo developments that produce subpar performance due to their inability to outcompete more affordable ECs located in the area.

Consideration when selecting 3 bedroom unit in OCR as follow

1. Prioritise resale ECs that have just MOP 
2. Prioritise affordability as top criteria
3. Proximity to MRT takes a back seat
4. Take note of less obvious reputable school in the neighbourhood, eg your less known but emerging neighborhood primary school
5. Seek to be located 1 km within this schools
6. Floorplan efficiency, utility room, space for helper’s room is highly valued
7. If you need to go for a private condo, make sure the price gap is narrow vs resale EC
8. If you need to go for private condo, a mega development with impressive facade and facilities will help compete against ECs

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