How to Identify a Value Buy – Cashew Heights Case Study

Hello again, dear readers!

After the last two articles on how to market your property in a challenging market and case studies on how I achieved record-breaking prices for my seller clients in 2014, we finally have something for readers on the buy side! 

If you’ve been actively house hunting, you are probably familiar with and perhaps rather jaded by the marketing terms, “Value Buy!”, “Star Buy!” and its variations – these catchphrases have been overused and misused far too often. So today, I’d like to demonstrate what a true value buy should look like.

Value Buy Doesn’t Have To Mean Below-Valuation

Firstly, a sound investment doesn’t have to mean buying at a steep discount. (Although this is everybody’s ideal! ) Most buyers (and their agents) seem to think that simply checking past transacted prices for the particular development and then slashing the price by oh, say 10-20%, is The Way to getting a “value buy”.

That, my friend, is more likely to get you a rejected offer and disappointment. Sellers have access to the very same transaction data, so barring severe cashflow problems, a haunted house, or insanity, they’re unlikely to agree to getting ripped off.

A more sensible, realistic approach is to seek out properties that are undervalued, with good latent potential. This definitely takes more brain work and research, but less is left to luck and chance. So let’s get cracking!

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Cashew Heights

Nothing like a live example to illustrate a concept, so let me use an exclusive listing I have at Cashew Heights as a case study. Based on my price of $905psf for a mid-floor 1,658sft unit, I consider this a stellar example of a “Value Buy”, for reasons I shall subsequently explain.

First, a brief introduction to the development. Built by CDL in three phases during the 90’s, this 596-unit condominium sits on a sprawling 88,563 square meters of 866-year leasehold land.

Full facilities include tennis & squash courts, gyms, steam baths & saunas, playgrounds, and even retail offerings like a mini mart, childcare centres, hair salons and cafe. (The plurals are not a typo!)

Location-wise, Cashew Heights is right beside Bukit Panjang Primary School, the most popular primary school in Bukit Panjang, according to readers at KiasuParents.Com.

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Land Prices

We can get a sense of the baseline value by considering land sales in the vicinity. Eco Sanctuary at Chestnut Avenue, was transacted for $180M in November of 2011. This 99-yr leasehold plot measuring 18,699 square metres is slated to yield 483 new homes. Once construction, financing, legal and marketing costs are factored in, the breakeven cost is estimated to be $827psf ppr.

Land cost rose further in the subsequent year, with two 99-year plots in the vicinity transacted in 2012. Squarefoot Research projects breakeven costs at slightly north of $1000psf ppr.

It’s not difficult to see how Cashew Heights at $905psf presents a solid opportunity.

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Limited Supply
This may sound strange, considering the huge upcoming supply of new homes and my earlier point on land sales in the vicinity (which of course translates to ramped up supplies in the coming months.)

But if you think about the key characteristics of Cashew Heights, you will find that it is indeed a rarity that is unlikely to be replicated in the foreseeable future:-

1) Large Grounds: You can literally count on 2 hands the number of projects with land sizes greater than 900,000 square feet. Of these seven mega projects, all are 99-year leaseholds except for Cashew Heights and Clementi Park.

2) Spacious layouts:
Cashew Heights apartments are all roomy 3-bedroom homes, mostly either 1,647 or 1,658 sft, although a more compact 1,227 sft layout is also available.

You can see from the floor plan, the layout is both efficient and versatile. The kitchen walls and entrance can in fact be adjusted to carve out a fourth bedroom in the huge dining area. The ceiling height is even high enough to accommodate a loft-like feature if desired, though with the generous space, this space-saver treatment is hardly necessary.

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The emerging trend for new homes suggest a three-bedder apartment of the future would typically be around 900-1,100 sft, including aircon ledge and often other unusable spaces.

3)Freehold/999-year priced below $1,000 psf:
Scan through the lowest priced projects across the island and you’ll find that even amongst the bottom 5 for each of our 28 districts, almost half are above $1,000 psf.

Those that do fall below this price point are mostly either apartment blocks (rather than condominium projects with large grounds and facilities), 99-year leasehold properties, very old and rundown, or a combination of the 3.

Insider Trading
Unlike in stock market parlance, signs of “insider trading” within a condominium project is always a good sign.

I’m always extra pleased when I receive enquiries from buyers who have previously lived at or are even presently living at my property listings, and I’d estimate over half the viewers we have had at Cashew Heights so far have “insider” contacts, either having personal experience living there, or a close friend or relative who’s a longtime resident. Some are even existing owners looking to take advantage of the slower market to pick up an additional unit! It’s a clear vote of confidence in the comfortable living and good value at Cashew Heights.

High Rate of Owner-Occupation
This point is linked to my earlier points on limited downside risk. During market turmoil, there is always a “flight to safety”. In the FX markets, you’ll see value shifting from high-yielding currencies to “safe haven” but low-yielding currencies.

Now to explain this in the housing market context – projects with high numbers of investor-owners will tend to be a lot more vulnerable to falling rentals, growing vacancy rates and rising interest rates. On the other hand, resident owners tend to be more sheltered from market fluctuations.

Cashew Heights has a very healthy owner-occupancy rate of close to eighty percent. Absence of speculative activity at Cashew Heights, coupled with the strong support levels created by land prices in the area, mean the downside risks are minimal.

Great Fundamentals
With stock investments, you look for well-managed companies with good growth prospects. In the non-landed property arena too, we’re seeking well-managed projects with high future potential.

Cashew Heights does not disappoint in this aspect either, and I believe it’s in part due to my previous point on high numbers of resident owners – resident shareholders tend to keep closer tabs and ensure the MCST is doing its job.

I’m suitably impressed by the MCST’s work towards not just saving costs but increasing revenue generated. Owners and residents can look forward to various improvements such as a new entrance foyer, EzyLink card access to the existing 3 side gates and lift upgrading over 2015, plus an additional side gate that will allow for a 5-minute sheltered walk to the nearby MRT station in early 2016. All with no increase in the low maintenance fees (Approximately $250/mth for the 1,658 sft units.)

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I could go on listing the various indicators of value that Cashew Heights possesses, but I think ultimately a home is a highly personal, emotion-driven decision.

Happily for me, Cashew Heights appeals to both my head and my heart, and I would readily recommend it to anyone currently seeking a home that will provide both comfortable living today and withstand the market uncertainties of tomorrow.

Contact me today if you’d like to arrange to view all available units at Cashew Heights, and see for yourself whether this value buy is the right choice for you.

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