By Getty Goh
In recent weeks, the potential of a bi-election at Punggol East Single Member Constituency (SMC) seems to be a very hot topic among Singaporeans. Hence it is not surprising that this topic came up during one of the year-end gatherings I recently attended.
During the discussion, there were some views that Singaporeans, being a practical bunch, would likely vote for the incumbent party as they do not want to run the risk of having a potentially untested opposition party to run the ward. The logic is that a poorly run estate could potentially lead to a drop in property prices in that particular location.
At this juncture, I want to highlight that this is not intended to be a political discourse. However, property investing is about “location, location, location”. Since investors and homebuyers look out for things like being close to good schools, MRT stations, amenities, etc., this made me wonder if property prices in opposition wards do better or worse than property prices in wards held by the incumbent parties. To do this, we will look at how profitable private properties in Hougang SMC are, as compared to private properties across Singapore. The reason why Hougang SMC is used is because it is a long time opposition ward (since 1991). Apart from that, there is also a lack of alternatives – Potong Pasir was lost by the opposition in the General Election in 2011 while Aljunied GRC was recently won by the opposition party and may still be too early for any discernable trends to be developed.
What are the private properties located in Hougang SMC
At present, the following private property developments located in Hougang SMC are Rio Vista, The Florida, Evergreen Park, The Florentine, Parc Vera and Naung Residence. These 6 developments were identified based on matching the boundary for Hougang SMC onto a map provided by www.Streetdirectory.com as at end Dec 2012. The overview of the different developments is shown in Figure 1.
Figure 1: Overview of the different developments (based on caveats lodged from 2009 to Aug 2012)
Source: URA and Ascendant Assets Pte Ltd. In doing this analysis, Naung Residence and Parc Vera were omitted due to the small sample sizes.
A repeat sales analysis was done based on the caveats lodged for the following developments. To illustrate, if #01-01 at Rio Vista was purchased after 2009 and sold before Aug 2012, it would constitute a repeat sale. If owner of #01-01 sold the unit for more than what he bought it for, it would be considered as a profitable deal. On the other hand, if the owner sold it for a loss, that particular transaction would be considered as an unprofitable deal.
Analysis - are there profitable deals?
Based on Figure 1, we can tell that all 4 developments had profitable transactions during the period of observation (from 2009 to Aug 2012). Of all the owners who flipped their properties, only one sold it for a loss. Hence, this shows that even within opposition wards, there are profitable private property deals as well.
Apart from this, another question is how well did these projects do compared against other non-landed properties in general.
Based on the same repeat sales approach, we found that there were about 9,609 non-landed private property owners (across Singapore) who flipped their properties from 2009 to Aug 2012. Using this set of data, the average profits and the average returns for all the non-landed transactions work out to be $266,384 and 27.27% respectively. Average profits is derived by working out the average difference between sales and purchase price while average returns is derived by finding the difference of the sale and purchase price as a percentage of the purchase price.
If we compare the individual performance of the 4 developments with the overall average, there seems to be no strong evidence to suggest that private properties in opposition wards are more unprofitable. Although some observers may comment that the highest average profits of $209,416 for Rio Vista is about $60,000 lower than Singapore’s overall average profit of $266,384, the average returns of Rio Vista and Evergreen Park are almost on par and above the Singapore average returns of 27.27% respectively.
Based on this simple analysis, it would not be too wrong to conclude that there is no strong trend to suggest that private properties are not profitable in opposition wards. In fact, the maximum profit ever achieved in Hougang SMC was $340,000 for a level 13 unit in Rio Vista (the owner made returns of about 47.9%). In other words, it would also not be too wrong to infer that buyers and investors of private properties do not really consider a location’s political representation in their buying decisions.
However, I must highlight that this analysis is only limited to private properties and the situation for HDB flats may be different. This is because there are many fundamental differences between the private and HDB property market. At the heart of it, the responsibility to manage and upkeep a private property development lies with the development’s management committee, while the responsibility to upkeep housing estates and public facilities falls under the town councils that are headed by the elected Members of Parliament (MPs). Hence it would not be accurate to use this data when analysing the HDB market.
Unfortunately, we are not able to do a detailed analysis for HDB flats due to the lack of data for the HDB resale market. Nonetheless, private property owners in opposition wards would be relieved to know that politics is not a significant consideration and factors such as proximity to amenities like transport modes, schools, etc. would have more influence on buyers.
Mr Getty Goh has a Masters in Real Estate and a Bachelors in Building from the National University of Singapore. He conducts frequent talks on the topic of property investing. To sign up for his next sharing, please visit www.BuyByeProperty.com. For those who wish to know more about what are some of the factors that would impact the profitability of a development, please drop him an email to find out more.