The title would invoke thoughts with regards to the recent 5 room flat in Pinnacle @ Duxton which transacted at a record breaking $1,028,000. I agree that the price is exorbitantly high and such buyers are far and few between. However, if we were to take a look from an investment standpoint, a 5 room flat in the vicinity could fetch a rental of approximately $4,500 per month. Let’s then assume that the average 5 room flat transactions are in the region of $950,000 rather than making the price of more than a million Singapore dollars a norm. This translates to a rental yield of 5.68%. This is in contrast to many property owners who are getting yields in the region of 2 to 3% for their residential purchase. Yes the flat at the Pinnacle was bought at a price which should never have happened if common sense prevailed. It would be more prudent to wait for a similar unit to appear on the market that would be commanding a lower asking price. So why did the transaction happen?
1) The location of the Pinnacle is extremely prime. Right smack in the middle of Singapore’s central business district (CBD). If the new owners were working in the CBD, they could save loads in terms of transport costs. If they intended to rent it out once they have fulfilled their minimum occupation period of 5 years, they could do so with ease if they priced it correctly. The worst thing for a landlord is to have no takers for his property even at a low price. This would mean zero to negative yields (since he would still have to pay property taxes and maintenance fees) on his investment.
2) The uniqueness of the project. Many of us are drawn to the uniqueness of things. Which is why many people pay high prices for flashy cars, clothes, bags and watches. The Pinnacle is unique in it’s design and construction. There is no government subsidized housing which is similar. There is a sky bridge which can be accessed by the residents and the public.
3) The unit is located on a very high level. It is located above the 40th floor. This is another unique feature which would give the unit a very nice view of the city.
Which then brings me to what I think is overpriced in Singapore.
Flats in non mature estate such as Punggol and Sengkang.
The Straits Times ran an article about falling non-mature estate flat prices. You can read about it here
Prices in Punggol have been transacting in excess of $550,000 in some parts of the estate. This is extremely expensive based on a few factors.
1) The location is extremely inconvenient. Even if the property is close to the Punggol MRT, the fact that you are at one end of the train line tends to signal the fact that every train ride is going to be a long journey. Transport costs have to be and should be included in the decision to purchase a property in Punggol. Eventually if the flat were to be rented out, the pool of tenants would also be tenants who do not mind the long commute. Thus if they were sacrificing time and cost on a daily basis, they would allocate a lower budget to pay their rent.
2) There is nothing so distinctly unique about any flat in Punggol with regards to it’s design. Almost every flat is created similar. The estate was meant to provide affordable housing to families. The space created by developing and clearing the vegetation which once existed meant that loads of housing could be built to help alleviate the chronic problem of flat shortages. Eventually if the flat owner decides to rent the unit out, the mere fact that there is a glut of housing options would mean that his unit would be facing stiff competition from many other landlords.
3) The estate has been around for a substantial period of time. It has been herald as a place for scenic waterfront living. However, it is still far off from overtaking places like East Coast for places where families can gather for a relaxing weekend. With the development of the Marina area, there are more prime scenic locations to compete with. Amenities are spread out sparsely throughout the estate as compared to matured estates like Ang Mo Kio, Clementi and Bedok. This also would affect the rental demand for the properties in Punggol.
4) The government is still releasing more land for the development of even more government subsidized and private housing. This will inadvertently affect the ability to rent and sell current properties in the estate.
Which do you think is more overpriced? Flats in a good location with high demand and little or no new supply or flats in places like Punggol with tepid demand and abundant supply in the pipeline?
To me the fact that a flat in Blk 648 in Punggol was transacted for $585,000 (Jan 2014) should be ringing louder alarm bells than the one in The Pinnacle which went for $1,028,000.