To discourage this reader from proceeding to purchase a unit, I actually forgo my commission.

Why?

Because I did not agree with his choice of what he thought was an undervalued freehold property.

My analysis and my past experience tells me it is NOT the undervalued property he thinks it is.

There is a reason why some undervalued property remains “undervalued” for some time.

But this reader did it anyway and went ahead to purchase the property.

Let’s explore his decision-making process and what were the errors he made.

Undervalued Freehold (FH) Property Does Not Always Mean What You Think It Is

This reader has been following Second Property Investors for awhile. He has also been doing his own research for quite some time on what he thinks are “undervalued” properties.

In this particular area which he narrowed down, he found that there was a few new launches.

But these new launches were selling at $1600-$1700 psf. More expensive.

Not only that, these were 99-year leasehold developments.

Not too far away, there is a freehold development that was selling at $1500 psf.

Obviously, it seems that the freehold development is the undervalued property. Right?

He asked for my advice on whether he should proceed with the freehold property.

My advice was NOT to proceed with the FH choice.

Instead, I encouraged him to consider the new launch developments.

Yes, they are 99-year leasehold developments.

But my experience and analysis tells me, the potential for growth in prices was more likely in the LH developments than the FH development.

He did not take my advice and proceeded anyway with his FH choice.

As I didn’t agree with his choice, I did not help him with the transaction.

What did he buy?

And what did I try to encourage him to buy instead?

I won’t reveal the exact one.

But it is one of the 3 examples below.

Example #1: Stirling Residences (99-year LH) vs Alexis (FH)

Stirling Residences is a 99-year LH development that was launched for sale back in June 2018. The TOP date is expected to be in June 2022.

Not too far away, you can see Alexis condominium – a freehold development consisting of 293 units that was completed in 2014.

Both are not too far away from Queenstown MRT station.

Below is the price movement and PSF prices of these 2 developments.

As you can see, the PSF prices of Alexis has been relatively stagnant – ranging from $1500 to $1700 psf.

But Stirling Residences which was sold at $1700psf in the early days – has now transacted to as high as $2500 psf as the TOP date approaches.

This is part of the TOP effect that I wrote in an article here.

This is an example where a FH development is cheaper than a LH development – and creating a perception that it is undervalued.

But undervalued can also mean the possibility of stagnant prices. Waiting for prices to increase?

It might not be worth the wait.

Stirling Residences owners who bought a unit in 2018 are now sitting on significant 6-digit paper gains in 2022.

The best part?

2022 means those 2018 buyers will have passed the 3-year Seller Stamp Duty period and they can cash out very soon.

Example #2: Park Colonial (99-year LH) vs The Tre Ver (99-year LH) vs One Leicester (FH)

Park Colonial was launched for sale in June 2018. There are about 800+ units in the development.

The Tre Ver was launched for sale in July 2018 – it has about 700+ units.

Both of these are 99-year leasehold developments are going to hit TOP somewhere in the 3rd quarter of 2022.

One Leicester is a 124-unit freehold development completed in 2009.

You can see the historic PSF price trends of these 3 developments in the past few years.

These 2 new launches added another 1500+ units in the area.

The perception right now, it would seem that freehold units are currently limited.

So that should push their prices up right?

And yet, the PSF price trends of One Leicester remains relatively flat and stagnant.

The early buyers of Park Colonial and The Tre Ver are now sitting on significant paper profits as the developer has now increased prices even higher as the developments are now nearing completion.

As the TOP date approaches in the year 2022 – where the supply of new homes are now limited – there is a good chance and opportunity for these early buyers to cash out if they wish to.

Example #3: Parc Esta (99-year LH) vs the Millage (FH)

Parc Esta was launched for sale in Nov 2018. The average PSF price of the units when it was launched for sale was $1680.

Personally, I thought it was quite high back then especially when I considered the location.

This is quite a big development with more than 1300+ units. It is scheduled to hit TOP during the last quarter of 2022.

The Millage is a small freehold development consisting of only 70 units. It was completed back in 2016.

You can observe the historical PSF price trends of the Millage when compared to Parc Esta.

The freehold development which is already quite small – has limited transactions and units changing hands.

So the prices are relatively stagnant.

Parc Esta has its PSF prices kept relatively consistent by the developer. As it nears completion, the prices are now trending upwards.

The last few units of Parc Esta sold will likely to become the most priciest units in the entire development.

Conclusion

These are the few examples where resale units in the freehold developments were selling at prices that was cheaper than new launch developments.

And it has created a perception amongst the average person – that these freehold units are a good deal in the market as they appear undervalued.

But if you just peel back a few more layers, you will realize that these freehold units might not always be the best choice.

This is especially so if your goal in entering the private property segment is about making good gains and returns for your money.

I can safely say that those early buyers in 2018 who made a decision to select a leasehold new launch development versus a “cheaper freehold resale unit”…

They are sitting quite comfortably and can easily take advantage of the low property supply situation in 2022.

In the end, it is those who bought a unit from the developer during that period will stand to benefit.

And the selling prices of the resale freehold units continue to remain stagnant.

For those who do investment research on what type of properties to buy, always be aware in what context do you make conclusion.

Are you being driven by:

• the emotional appeal of owning a freehold unit?
• the cheaper selling price of the resale freehold unit?
• a decision that is clouded by both emotions and numbers?

Yes, the freehold developments are small and affords greater privacy – so it seems.

Plus it is cheaper than the 99-years leasehold condo developments.

But the truth is those who buy the “freehold and cheap” reasoning – they will be caught in the “freehold and cheap” position when they wish to exit.

Exiting from such freehold developments is not as straightforward as you think.

Have questions on your next property choice?

Unsure of what to do next?

I invite you to contact me to arrange a no-obligation discussion session.

We usually do these sessions over Zoom.