A Time for Prime

Michelle Tan’s article in today’s Business Times highlights a trend that I’ve been mulling over the past few months – New suburbans now at prime resale prices.

Real estate pundits often have differing views that will adjust and vary as market situations unfold, but the familiar mantra “location, location, location” is a cardinal rule that transcends practically all differences of opinion and changing market sentiments.

So why is it that buyers have been snapping up brand-new homes in the suburbs or non-core districts, and paying more for these mass-market leasehold units than they’d necessarily pay for a freehold prime district property in a more mature development? I put it down to Singapore’s obsession with the bright, new and shiny.

I am hard-pressed to think of another country as enamoured with “newness” as Singapore. Where else is it a norm for cars to be scrapped by the time they turn 10? And I dare say Singapore must be the only place in the world where people look at an old building and are more likely to think “can enbloc or not?” rather than marvel at how well the architecture has withstood the test of time.

Singapore even has its own drama series revolving around an enbloc, that’s how mainstream this real estate phenomena is!

This disposable, throw-away culture is rather disturbing. And it’s not just the sentimental, tree-hugger side of me that’s talking here. From a logical investor’s point of view too, it doesn’t pay to place too high a premium on newness. Newness is a depreciating asset quality, since it diminishes with each passing year. Location on the other hand, is not. In fact, given the limited supply of prime land, versus the flood of mass-market Government Land Sales, location is a scarce and thus a definite appreciation catalyst. Furthermore, while a tired old condominium can be remedied by investing a little extra cash into renovation work (and more mature developments will naturally have accumulated sizable sinking funds for upgrading/refurbishment works as compared to newer projects), no amount of additional capital outlay is going to teleport your apartment in the boondocks to a more desirable prime location.

Of course, market mispricing like this presents a good opportunity for smart investors to buy an undervalued prime property and wait for the market to recalibrate. Are you primed for an acquisition yet?

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