The Pros And Cons Of Purchasing Landed Property And Condo For Investment

Have you heard of the "chasm gap"? And what does this mean for me as a homebuyer or homeowner? Find out how it impacts the market and whether it's a better idea to invest in a condo or landed property.

Ever since the pandemic, the property market has been sizzling hot. Home prices have been on the rise, but the cooling measures that kicked in in December 2021 have caused price trends to increase at a slower rate.

But what does this mean for you as a homebuyer? Is it advisable to wait it out till you upgrade your home to private property? And how about if you're selling your house? Should you strike when the iron is hot?

We'll also dive into the pros and cons of purchasing a landed and non-landed property for investment, to see which is a better bang for your buck.

Have you heard of the “chasm gap”?

The chasm gap (originally coined by the Property Lim Brothers) refers to the disparity between the price indexes of landed and non-landed properties in Singapore that has been happening for the past 12 years since the cooling measures kicked in.

Before the various cooling measures were introduced, the prices for landed and non-landed properties were moving in tandem, where the price indexes were quite similar. But ever since 2010, the landed property price index diverged from the non-landed property price index, and the trend has remained as such ever since. 

Because of the extended period of time that this phenomenon has been sustained, this suggests that it is a permanent trend and is likely to be kept consistent. Property experts also speculate that it might even widen further in the future and eventually result in landed properties becoming an asset class on its own.

Related to this topic:
How Much Do You Really Need To Afford A Landed Property In Singapore?
Buying Condo Penthouse vs Landed Property
Upgrading from HDB to Private Property

Why is the chasm gap happening?

Limited availability of landed property

It has been a largely known fact that landed properties are a better store of value compared to condos and apartments, and the landed property market has been quite strong recently. Because of this, owners of landed property who have bought it earlier on would be more inclined to hold on to it in hopes of fetching more profits in the future when prices appreciate. This decreases supply in the resale market.

On top of that, there is limited availability of landed stock. The government has already cut down on releasing huge amounts of land for landed property development and hence new launches have to come from developers themselves. This is why the supply of new landed property in the market is very low.

At the same time, the number of non-landed stock launches has witnessed a gradual increase, with en blocs and government land sales (GLS) being more common than new launches of landed property. The difference in the supply of both landed and non-landed property thus leads to a wider contrast in the price indexes.

Increase in construction price

Since the onset of COVID-19, the cost of construction has increased significantly, because of the rise in salary for labour, cost of materials, cost of shipping and levies. This makes building the product more premium because it is more costly to build new landed property developments. 

This then reduces the supply of available landed properties in the resale market, making the asset class more coveted and rare, causing the price of landed properties to increase at a faster rate than non-landed properties.

Rise in demand due to market conditions

Recently, the demand for a large and spacious properties like landed property has been in demand, especially since the pandemic where working from home has become the new normal.

In the environment of low interest, buyers are also taking advantage of it and purchasing more high-value properties like landed property at a cheaper price if they take out a loan. So when the demand for landed property increases while the is maintained the same, the price will be inflated. 

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How will this development impact property investors?

As mentioned earlier, property experts suspect that the price index will continue to diverge until landed properties become an asset class of their own.

This makes it a prime opportunity for buyers to take advantage of the strong landed property market now and purchase it in a low-interest environment. Because landed properties are known to hold their value better and appreciate, homeowners who purchase landed properties are likely to make profits when they sell them in the future.

But with all that said, that doesn’t mean that all homeowners of landed properties will definitely make profits once they lock one down. It is important to future-proof your property to make it desirable in the next five to ten years when you eventually sell it. And also consider if the premium price you are paying is worth it.

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Checklist before you purchase a landed property

In order to future-proof your home, it is important to go through this checklist before you commit to one:

• Check the URA master plan or with SLA on future developments in the neighbourhood
• Timeless facilities — some common facilities that most would look out for are swimming pools and gyms that some developments offer

• Minimum 5 bed-rooms — this is especially important since homebuyers looking for landed properties are most likely buying it for the space for bigger families
• Large parking spaces — so relatives and multi-generational families are able to park their cars with ease
• Attractive interior design and architecture – one that is modern and simplistic that will not lose its appeal for at least a decade 

Investing in landed property compared to condos

Pros

• Space

One of the biggest appeals of landed property is a large amount of space compared to condos. Landed properties are great for bigger families or multi-generational families that want to live under the same roof. It is also especially appealing for families with pets and requires garden space to run around.

This also gives you the option of renting out rooms if you want extra passive income.

• Steady appreciation

Though condos have an arguably higher appreciation rate, landed properties are known to hold their value well. Though the appreciation rate won’t be as fast, landed properties have a steady appreciation and homeowners generally will be able to make profits when they sell them.

• Higher demand and low supply

Because of the limited supply of new landed properties in the market, there are lesser options for landed properties in general and even in the resale market.

Coupled with the rising demand for landed properties in recent years, you can expect to hold some bargaining power and can probably sell your property at a relatively high asking price.

Cons

• More expensive

The most obvious disadvantage of a landed property compared to a condo is the premiums you’ll have to pay in exchange for the bigger room area. This is when you’ll have to see if the premiums you pay are worth it, and can be offset by the potential profits you make when you sell.

While you get to skip out on the monthly maintenance costs that condo homeowners have to foot, you’re liable for any repairs on top of monthly utilities which can rack up to a sizeable amount if you’re not careful

• Inaccessible locations

Landed property enclaves require a lot of space to build, and hence they are usually located in inaccessible areas far from amenities like shopping malls or MRT stations. This makes it harder to commute around, especially if you don’t own a family car.

• Lesser facilities

Though some landed properties have on-site facilities, you can expect the facilities to be less extensive than condos. The biggest selling point of condos is their wide range of facilities, ranging from the basic swimming pools and gyms to the more luxurious karaoke booths and pool tables, so of course, you’ll be missing out on that.