When it comes to property, everyone wants to buy low and sell high. But how can you find these undervalued properties to “buy low”?
An undervalued property is akin to a diamond in the rough; its value is waiting to shine through, and everyone wants to find one. Thankfully, there are many ways to actively hunt for these hidden gems, so you don’t necessarily need to leave it to chance. But first, what exactly constitutes an undervalued property? According to Andrew Nair, Associate Division Director of ERA Real Estate, a property is considered undervalued when it is 5% to 15% lower than market valuation.
One bread-and-butter skill needed to identify whether the property you are eyeing is actually undervalued is comparing median prices of similar properties in the nearby precinct. If you’re browsing on PropertyGuru, you’ll find that our listing pages have a ‘Pricing Insights’ section where you can see the latest prices transacted and price trends. Each quarter, we also publish a Property Market Index report that shares the median asking prices in each district.
How to Hunt for Undervalued Properties
Without further ado, let jump into the main reason you clicked into this article: how and where to look for good property deals.
1. Look for Fire Sale Properties in the Resale Market
Fire sale properties are properties that are urgently looking for owners and hence tend to have a lower price than its valuation. One tip from Nair is to look for resale units. This is because for new condos, developers rarely offer undervalued units unless they are approaching their deadlines for the Additional Buyer’s Stamp Duty or ABSD (read more below).
Another big reason why resale properties tend to have higher chances of being undervalued is because owners can have a multitude of reasons for wanting to let the unit go quickly. For instance, if they are emigrating overseas and are willing to forgo the best price in exchange for a speedier transaction. When times are bad, there may also be distressed sellers looking to quickly liquidate their properties for cash, making them more open to negotiation.
However, not all fire sale properties can be considered a “good deal”, warns Nair. Be sure to find out why these properties are so urgently let go.
Related article: What’s a Fire Sale Property and Where to Look for a Good Deal
2. Watch Out for Projects Reaching the Additional Buyer’s Stamp Duty (ABSD) Deadline
There are two aspects of ABSD deadlines to take note. The first one is the ABSD deadline that developers face. They get a remission of 25% ABSD out of an initial 30% ABSD if they can complete the development and sell all the units within five years. Hence, in order to meet the five-year deadline, developers might be willing to let units go at a cheaper price.
The other ABSD deadline is for sellers who are planning to purchase a new unit and need to sell the old one. In order to avoid ABSD (implemented for the second unit onwards for sellers) for the second unit, the seller might be in a haste to let the old unit go. For example, for sellers downgrading from private property to a resale flat, the former must be sold within six months under normal circumstances.
Related article: 9 Condos To Watch For Fire Sales As They Approach ABSD Deadline in 2020/2021
3. Property Auctions
Featuring various types of properties, from private housing to industrial space, property auctions are methods of selling by putting said properties up for bids. One can stand to find undervalued properties here because sellers typically choose auctions as it promises a quicker transaction. This type of properties are called Owner’s Sale. Similar to fire sales, properties classified under Owner’s Sale are more urgently sold for various reasons.
Another type of property sold in auctions are Mortgage sales, which are properties repossessed by financial institutions after the owner defaulted on his or her loan. While such units are typically undervalued, there can be exceptions. For instance, the financial institution selling such a property may set a price that includes the principal amount still owed by the previous owner along with interest, penalties and other charges. This may negate the lower valuation, or in some cases bring it above valuation.
Related article: Property Auctions in Singapore: A Lesser Known Way To Snag Affordable Property
A Word of Caution: Look for The Right Signs
Ultimately, when looking for ‘bargain properties’, always ask: why would the seller let this property go under valuation? Understanding the reasons behind this will allow you to be eagle-eyed and spot actual prized properties, sometimes even before they hit the market.
“Most people only look at the price, thinking that if it’s the cheapest unit it’s considered an undervalued property. That’s not true. And if it’s undervalued, there is likely to be a reason for it. Before committing to an undervalued property, consider the rental yield, MCST fees, sellability (in the future) and rentability of a property,” advises Nair.
Another important factor to consider is the surrounding neighbourhood. Are the neighbours cordial? Is the afternoon filled with unbearable traffic noise or is it tranquil? Are there any loan shark issues or does the place emit a safe and secure vibe? Next, go closer into the home itself and check for structural problems like leaks or piping issues. Find out why the owner is letting the unit go at an undervalued price. Was there a sudden death in the family? Are there minor or major structural problems?
Only after establishing the reason for its attractive price tag can you decide if it’s a good deal, and if you can accept its “flaws”, if any.
Another approach is to look out for big announcements like new cooling measures or the ABSD deadlines mentioned above, which might lower the price of a property. You can also try the proactive way rather than being reactive, which is by looking at government development plans. Such plans can transform an area from quiet to bustling, albeit over a period of time. With the transformation comes value, making the property undervalued at the current price before the plan is implemented.
The next sign is a more personal one, and it works by paying attention to people who are undergoing personal upheaval such as impending jail time, emigration or divorce proceedings. In the face of such situations, they might value speed and fast cash over a “properly” valued transaction.
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This article was written by Ali Musak, who hopes to help PropertyGuru readers make wise choices. When he’s not writing, he likes to dream about big houses and read fiction.