4 telltale signs of a fast moving commercial property market and how you can beat it [November Edition]

In our July Edition, we talked about how changing hands of commercial property can birth a fast moving market. 

Recap:

4 telltale signs of a fast moving market. 

• Watch out for fast transacted properties.
• Take stock of the rental yield of your chosen commercial property.
• Compare the economy vs commercial property price appreciation.
• Be aware of fast paced capital gain.

In the last edition, we discussed the circumstance of a fast moving commercial market in Singapore for the first two quarters of 2021. 

Read the full article here: 4 telltale signs of a fast moving commercial property market and how you can beat it [July Edition].

You might wonder why knowing the signs of a fast moving market can benefit you. Well, for one, it will help you to purchase a property at a competitive market value. And it is also a queue to start hunting for good assets that is worth your investment.

Today, we will discuss what it looks like in the 4 months past the second quarter of 2021: July-Nov. This will give you an idea of how the Singapore market is behaving now. And which districts or properties are now showing signs of a fast moving commercial market.

1. Watch out for fast transacted properties!

Last time, we discussed how you should steer away from fast transacted commercial properties. Because every time it changes hands, the owner tops up the price with a profit margin. 

Some fine examples given in the last edition were:

• Ann Siang Shophouse in District 1 – The shophouse changed hands twice in 7 months. This followed an increase in price by 9.17%.
• Tan Quee Shophouse in District 7 – The property changed hands twice in just 15 days!
• Club Street Shophouse in District 1 – Its price increased by 38% when it was resold in mere 10 months.

Today, one such sign of a fast moving commercial property is in District 8! 

According to Squarefoot data, a shophouse in Upper Dickson Road was sold at S$2,950,000 on Sep 21, 2021. It cost S$3,527 psf on land at that time. On Oct 8, 2021, it was resold at S$3,675,000 which translates to S$4,394 psf on land.

The property appreciated by approximately 24.5% in less than 3 weeks. 

If a commercial property changes hands too fast like this, it boosts the price of the property unnaturally. Later, if you want to sell it, you may find the market value is much below your purchase price. It would make it difficult to sell the property at a capital appreciation. 

It is time to hunt for good assets when price movement changes hands too fast like this. Because you know that the bull party has started with the musical chair in play. Just don’t be the last person standing when the music stops during the musical chair game in play. Because that’s when you are at most risk of getting a raw deal. You have to move fast to make the best property investment.

2. Take stock of the rental yield of your chosen commercial property

On average, the rental for commercial property ranges between 1.5%-2%. Owners must aim to buy a property whose rental yield is slightly above the current interest rate. Or falls in the same range as the current average rental yield.

Currently, the rental yield in the prime districts of Singapore ranges as follows:

Note: The rental yield is compared to Jun 2021 vs Oct 2021.

Commercial property rental must not exceed too much from the standard interest rate or average rental yield. If you are buying a property now, follow the rental yield of Oct 2021.

If your property’s rental yield is far more than the ones shown in the table for October 2021, it is a sign of fast moving property. I suggest not to go for such properties. Or else, tenants will find your property rent too high too accmmodate. This will lead them to move to other more reasonable choices.

Compare the economy vs commercial property price appreciation

Your property growth must not exceed the GDP growth of the country. Because a property that beats GDP growth by a wide margin is a sign of a price bubble. Soon, the Government might intervene and apply cooling measures. Leaving your property’s worth less than your purchase price.

Below, I have listed the market price of shophouses in Jun vs Oct 2021:

Note: The price shown above is per square feet (psf) of the land. And the growth is compared to Jan-Jun 2021 with Jul-Oct 2021.

Previously, the GDP of Singapore was negative. But now, advance estimates show that the economy grew by 6.5% in the third quarter of 2021. It is a much better year-on-year growth than its position at the beginning of this year.

Also, the GDP expanded by 0.8% on a quarter-on-quarter seasonally adjusted basis in the third quarter of 2021. This is a reversal from the 1.4% contraction of the previous quarters.

Looking at the prime districts of Singapore, District 2’s shophouses’ price growth is the highest in the last 4 months. Its growth even surpassed current GDP quarterly growth by a large margin. And so does District 1. Hence, shophouses in these districts bear the mark of a fast moving market.  

On the other hand, District 7 and District 8 showed negative growth in Oct 2021 compared to Jun 2021. This suggests these areas might have undervalued properties that may be valuable to you. 

To know more read: How to Find Undervalued Properties with Big Discounts from the Last Peak of HISTORICAL HIGH?

On a final note, make sure your property’s yearly growth does not exceed 6.5% by a wide margin. Or its quarterly growth must not beat 0.8% by a wide margin. If you are mindful of that, you will succeed in avoiding a fast moving commercial property.

4. Be aware of fast paced capital gain

If a property’s capital gain exceeds its rental growth by a wide margin, it is a sign of a fast moving market. Be mindful to avoid such properties as their capital appreciation is not natural.

If not careful, you will be left acting somewhat like this!

How to buy a property WITHOUT stepping into a fast moving commercial property market?

Draw up your data and listing and pit them against the 4 signs discussed in this article. The property that crosses out all these 4 telltale signs of a fast moving market is the winner!

But of course, pulling up the correct data and comparing the facts is never easy. 

What if you don’t have the resources to pull out the data needed to make the comparison?

Or you don’t find a property that crosses out ALL the 4 signs?

Or you find it but it is not available for purchase?

What you need is one short phone call away!

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