Do landed homes trump condos as investments?
Photo by: ST FILE
27 July, 2021
IN DENSE Singapore, many aspire to own a private landed home.
Over a 20-year period to the second quarter of 2021, prices of private landed homes rose 101 per cent, outperforming the 77 per cent jump in prices of private non-landed residential property based on data from the Urban Redevelopment Authority (URA). However, over a 10-year time frame, prices of non-landed homes rose more than landed homes.
For convenience, landed homes cannot top condominiums that are part of integrated developments with direct connectivity to a shopping mall plus the MRT station. But as the MRT network expands and amenities such as offices, shops, healthcare facilities and schools are built in suburbs, it is becoming less inconvenient to live in landed homes in areas distant from the city centre be it Sembawang in the north or Changi in the east.
From an investment angle, private landed homes may be inferior to condominium units as the latter generally fetch a better yield. Gross yield can exceed 2 per cent for some condominiums while one may struggle to get such a yield with a landed home.
Based on precedents, owners of condominiums, whether freehold or leasehold, may reap windfalls from successful collective sales, while landed homes owners are unlikely to cash in on collective sales.
Selling en bloc is fraught with uncertainty and the en bloc journey can be tedious but individual owners may potentially enjoy premiums of over 20 per cent from successful collective sales compared to selling units individually in the resale market.
If Singapore's appeal as a safe haven grows, could foreign buying interest in homes here lead to condominiums outperforming landed properties? Foreigners face restrictions in buying landed homes except in Sentosa Cove while being free to purchase condominium units.
For owner occupation, one may balance having the extensive and impressive facilities available in some condominiums with perhaps having one's own private garden in a landed home.
One can creatively re-do the interior of an apartment and possibly change the configuration by combining rooms. But a landed property offers greater scope for makeovers, subject to regulatory guidelines, in order to get a home that is tailor made to the needs of occupants. The entire structure can be torn down and rebuilt as a unique home.
While absolute sums required can be less for buying condominium units compared with landed homes, local buyers, who can afford a few million dollars, may be drawn to landed homes because they are typically cheaper per square foot of buildable area.
Spending S$4-5 million on freehold residential property in Katong can buy a new-built condominium unit with about 2,000 square feet of space or a new-built terrace house with possibly twice the amount of space.
Impact of pandemic
With the Covid-19 pandemic, people may desire the greater space typically provided by landed homes as they spend more time at home. People may also wish not to share common facilities as in condominium living.
In countries like the United States and the United Kingdom, the pandemic led to some people moving out of small apartments in city centres to landed houses with more built-in space and ample grounds in the suburbs.
Landed homes here have seen strong price performance coming out of the pandemic. Prices of landed properties are up by more than 12 per cent from a year ago, based on URA's data for Q2.
Whether landed or non-landed homes see better price gains may hinge on two forces, which pull in opposite directions.
Relative scarcity will help support prices of landed homes. Amid government land sales and en-bloc sales of private residential sites that are predominantly focused on the non-landed segment, the proportion of landed homes has been falling.
Up to the late nineties, among resident households residing in private property, more lived in landed dwellings than in condominiums and apartments.
By 2010, the number of resident households living in condominiums and apartments was 132,000 or double that of the 64,900 resident households living in landed homes.
Last year, among resident households, 220,100 lived in condominiums and apartments, which is 3.2 times that of the 68,400 who resided in landed properties.
Between 2010 and 2020, the stock of private non-landed homes grew by 61 per cent from 188,500 to 302,767 versus the 5 per cent growth in private landed homes from 69,743 to 73,273.
Among the private residential sites in the government land sales programme for the second half of 2021, all four sites on the confirmed list and the six sites on the reserve list are for non-landed homes.
Few developers, with the notable exception of Bukit Sembawang, have any land bank for building landed homes here.
In a recent research report, DBS Research dubbed Bukit Sembawang the land bank king and estimated that the group has a 240,000 square metre land bank slated for "coveted" landed homes.
Shrinking household size
The force pulling in the other direction is shrinking household size, which could reduce demand for landed homes. Smaller households may have less need for the larger space provided by landed homes.
Average resident household size has been decreasing from 3.7 in 2000 to 3.5 in 2010 to 3.22 in 2020.
The number of one and two person households has risen from just over 30 per cent of resident households in 2010 to close to 40 per cent in 2020.
Average household size in landed homes was 4.38 versus 3.29 for condominiums and apartments in 2020.
The latest census data in Singapore shows growth in the proportion of singles and couples without children as well as a falling fertility rate, which may imply that average household sizes could shrink further.
Would those without children opt to live in landed homes? How will a greying population, where the proportion of over 65s has gone from 7.2 per cent in 2000 to 9 per cent in 2010 to 15.2 per cent in 2020, impact the type of homes needed?
Perhaps young families want to live close to elderly parents but not together. The HDB has grants and priority schemes for example to encourage extended families to live close to one another that have proved popular.
Fundamentals such as economic growth, rising household income, improving infrastructure and political stability can drive the long term performance of all segments of the residential market here.
Conversely, property cooling measures can adversely impact both private landed and non-landed homes.
People need homes even as they adopt more digital savvy lifestyles. Preferences though will evolve according to household size, lifestyle priorities, and household composition. Whether a purchase is for owner occupation or investment also matters.
These preferences will shape whether those who are eligible to buy private landed homes and can afford them go down the landed or non-landed path.
For many, buying a residential unit, which is a big ticket item, differs from buying other types of property or other investments.
Whether the landed or non-landed unit offers better capital upside over time matters, but so does the emotional connection to the home.