This article was first written in September 2014.


Introduction

LTA announced the Thomson-East Coast Line recently, since then, many media articles had written on the potential capital appreciation of properties near the new stations. Although property prices will eventually go up, prices may not rise throughout the construction period. Having to wait for 10 years, the property market may have already gone through 1 or 2 cycles. If this happens, then, owners will face great opportunity cost. Apart from that, based on what has happened with the downtown line, some properties may face price decline throughout the process as well. Therefore, it is important for owners to understand the Pros and Cons of holding on to homes nearby the new MRT Stations so as to make an informed decision, whether to wait it out, or consider cashing out and re-investing elsewhere. In this exclusive report, I will be discussing on the factors affecting these decisions.

1.When will prices go up? 

Prices of properties within ~500m of the new MRT station are likely to move up at two juncture:
1. Just after the MRT station locations are announced
2. After the completion of the MRT line (Seen from Circle Line)
Looking at what happened after the initial Thomson Line was announced (see image below), it can be seen that prices generally move up after the announcement before the prices soften (Thomson 800). Prices could also remain stagnant (Seasons Park & Gardens at Bishan) and only move up after the MRT is operational. Owners will have to decide whether it is worth the wait, I will be covering more on this in the later parts.
2.Will there be effects of station construction?
Upgrading of infrastructure will result in heavy construction work over the next decade. It is common for noise concerns to surface, however strict measures are in place to ensure that any noise resulting from the construction has to be within a certain limit so as not to affect the resident lifestyles. What will effect residents are the possible traffic diversion which may cause traffic delays for residents who drive. Adding on, for tenants and home owners who live near the MRT sites will have to endure dusty environment for the period of construction. This may affect tenant’s decision whether or not to renew their tenancy. On a backdrop of rising interest rates, what landlords do not want is to have to lower their rents to attract potential tenants. This is a risk that owners will have to face should they hold on to their units.
3.The decade wait, is it worth it? 
It is known that the Thomson-East Coast Line will only be completed in 2023 or 2024. This means that owners will only see the MRT operational after 10 years. Over the past 10 years, the Singapore Property Market has been through 2 cycles (see chart below). It is highly likely that over the next decade, we will go through another 1 or 2 cycles. Bearing this in mind, owners should consider the possibility of opportunity cost should the prices soften further before going up. This would be an opportunity to have a review on your property portfolio.
There are a few strategies, which will allow investors to take advantage of this to cash out their current properties and re-invest in properties that provide higher potential growth. If you wish to find out more, feel free to contact us.

 

 

4.Aging property, is it an issue?

One of the considerations that property owners have to consider is the age of the property after the long wait. This affects majority of the leasehold properties near the new MRT Stations. As the property age closer to 20 years or more, its price appreciation is likely to be slower than a newer development as seen from the chart below. All 4 projects compared are near the upcoming Bedok Reservoir MRT, Waterfront Key and Waterfront Waves are newer projects which are around 5 years old while Baywater and Clearwater are close to 20 years or older. From the chart, you can see that the price appreciation for the newer project is higher by 10-15%. Therefore, this will be a concern as you would wonder if your property will underperform the market.

5. Will your property outperform inflation over the next 10 years?

Data from Tradingeconomics.com and Statistics Singapore has shown that Inflation rate in Singapore has averaged at 2.8% for the past 40 years. Although it is known to many that property is a hedge against inflation, it is important that your property does appreciate with inflation and do not underperform the market. Therefore, choosing the right property to hold for the longer term is important. Looking at opportunities around whereby properties have good catalysts for price growth is essential in ensuring that your property will eventually be an asset for you.Based on the few consideration points mentioned before, assuming you have a property that underperforms the market due to its age or as the land lease is decreasing, your asset could actually be depreciating with time. Take for example, you leave your money in the bank where interest is only 1.5% while inflation is 2.8%. Your money would have depreciated by 1.3% (2.8% less 1.5%). This could be the case for your properties as well, hence it is important to determine the potential price growth of your property. Once you have analyzed your current property position, only then should you decide what you should do.

6.Buying the future?

As an investor, growth potential of the property is one of the most important factors. There are a few areas which are being strongly developed by the Government such as Marina Bay. These three areas not only have one catalyst (Upcoming MRT) but a few catalysts that will boost property prices. Being developing commercial hubs and future waterfront lifestyle hubs, the chances of price growth for residential units are much higher. Investors who want to reduce their investment risk and maximize their returns can consider looking at units with attractive pricing within these areas.

7.The future of properties near MRT

As seen from the Info graphics on the right, the Land Transport Authority (LTA) had announced in their 2012-2013 report that by 2030, 8 out of 10 households will be within 10mins walk from a MRT station. Hence, in the future, MRT will be a necessity and common among most private residential units. In order to ensure that your property has a higher potential price growth, there needs to be more catalysts as mentioned in the previous section. Such catalysts can include upgrading or construction of new retail malls nearby, as well as lifestyle additions such as water sport facilities. In addition, more commercial offices can also add demand for tenants and home owners. When investors are “buying the future”, these are important factors that will affect price growth. With all more MRT lines and construction in progress till 2030, it is crucial that investors make the right decision and re-look at their current property portfolio.

Our Views

Taking into consideration of all the factors discussed thus far. I believe that it is important for property owners who have units near the new MRT line to understand the effects of the Thomson- East Coast Line as well as understand the options available. Many things can happen within a decade and the property market may go through 1 or 2 cycles. Hence, investors should decide if the decade wait is worth it or should they look to cash out and move on to another opportunity. The window of opportunity has opened for owners who re-look their property portfolio and want to achieve a better price growth potential. With the new MRT announced, there may be renewed interest for developments with low sales transaction volume and this presents an opportunity.With many developments with higher potential price growth, I strongly believe that opportunities are plenty.

This is the time to review your current properties and take action and invest in developments with a few catalysts for capital gain (buying the future).If you have any enquiries on what has been discussed in this article, please feel free to contact me.