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If you are looking for undervalued property to invest in, you must remember this saying: ‘ pain before the gain‘. In investment terms, looking for pains is how I spot undervalued properties.
It is easy to buy what everyone agrees is a good property. Fantastic location, good amenities, easy accessibility etc. The problem is every other investor will be trying to buy the same thing, thus jacking the price up to levels that will make the property either overvalued or priced at the right level. No bargains to be had there.
How to buy undervalued property in Singapore
If I was to buy an undervalued property, I will go for properties where residents are or will be experiencing pains. What kind of pains? How about these:
- Noise pollution
- Traffic congestion
- Dusty environment
- Waking up early to avoid traffic
- Limited rental opportunity
and many many more other inconveniences.
So, where do these occur? In areas where there is massive construction, usually for a new MRT line. This is where the opportunity lies in finding undervalued properties.
Whenever a new MRT line is announced, expect short term price increase, followed by long periods of price stagnation during the construction process. Most buyers will simply avoid these areas to stay away from the noise and inconvenient. As investors, this signals the possibility of prices being undervalued as the true value of the property is being masked by the temporary inconvenience.
Avoid investing too early
However, it is also a bad investment decision to go in too early. Let’s say you buy a property near one of the new MRT station location at the Thomson line. Since it takes 10 years to be completed, you might have difficulties renting that place out to pay off your mortgage payments. In addition, 10 years is a long time when anything can happen including recession, new properties being announced, changes in interest rates etc. All these can have an adverse effect on your property investment.
The most ideal time for me is to look for new properties 2-3 years before the completion of the MRT line. Assuming that a new property takes around the same time to be completed, I will have timed my purchase such that the new MRT station will be done by the time I need to pay the full mortgage. In order words, I will have an easier time getting tenants for my property because the inconvenience that resulted from the MRT construction has now been removed.
Best of all, I will have purchase the property at a undervalued price, which allows me to enjoy the price appreciation when the MRT is completed. Don’t take my word for it. Just look at the prices of properties around the circle line and see how much they have gain. Below are some links that talk about how property prices are linked to MRT stations:
Best locations to invest in Singapore
Based on the above, I am currently keeping a watch on developments in the District 12 area. This area has very good location as it is close to the Central. However, due to the aging estate and narrow roads, there are a couple of downsides to living in this area.
In the coming future, there will be some developments that will take away these ‘pains’. Firstly, the new hotel + garden development along Balestier road will transform the area into a trendy spot. Secondly, there are construction being done for the north south expressway, thus making the area undesirable. In order ways, they might be undervalued. Thirdly, most of the properties here are free hold, which makes them more desirable relative to the 99 years condo.
To find undervalued properties, look for locations currently under construction due to new MRT lines being developed. Follow their developments and get ready to invest when they are about 2-3 years to completion. Do research to see which new developments are coming up that will coincide their completion with those of the MRT stations.