Is there relative value with suburban landed homes?

Feb 21, 2023

PRIVATE homes in Singapore are expensive. Still, savvy home buyers may find relative value in certain segments. Could a suburban landed home be a good buy?

In 2022, private home prices rose 8.6 per cent, after having increased 10.6 per cent in 2021. Prices of private non-landed homes and landed homes rose 8.1 per cent and 9.6 per cent respectively last year.

In recent years, condominium prices in the suburbs have generally risen faster than in prime areas. Between Q4 2017 and Q4 2022, prices of private non-landed homes in the Outside Central Region (OCR) or the suburbs rose about 40 per cent, versus a 14 per cent rise for non-landed homes in the Core Central Region (CCR), which covers districts 9, 10 and 11 as well as the downtown core planning area and Sentosa, going by data from the Urban Redevelopment Authority.

A hot new condo launch in the suburbs last year was 99-year leasehold Lentor Modern in Yio Chu Kang, which sold 512 units during its launch month in September at a median price of S$2,108 per square foot (psf). The said median price of Lentor Modern is 19 per cent below the median price of 20 new sale transactions of S$2,589 psf in Q3 2022 of 99-year leasehold Fourth Avenue Residence in the Bukit Timah area.

Pricing gap

In contrast, among transactions of freehold semi-detached houses in 2022, the median price of homes sold near Lentor Modern of around S$1,250 psf of land area is about 46 per cent below that of around S$2,300 psf of homes sold near Fourth Avenue Residence. The sample group for houses near Lentor Modern includes units at Lentor Vale and Lentor Way, while that for houses near Fourth Avenue Residence includes units at Fir Avenue, Namly Place and Namly Drive.

Price psf of land area of landed homes can vary according to factors such as built-up area, building age, plot shape and terrain. Nonetheless, relative value might be found with suburban landed homes.

Many suburbs have experienced big improvements in recent years, which have supported strong demand for suburban condos. Travel to many parts of Singapore is more convenient with an expanding MRT network. Childcare, healthcare, retail and recreational amenities as well as office buildings have come up or are being built in various suburbs.

Yet, a large pricing gap exists between landed homes in the suburbs and prime areas. Based on transaction data for 2022, the median price of land area of freehold/999-year leasehold resale detached and semi-detached homes in district 10, which covers Bukit Timah, Holland Road and Tanglin, was about S$2,100 psf and S$2,170 psf respectively.

In comparison, the median price of land area of freehold resale semi-detached homes in district 17, which encompasses Changi and Loyang, was about S$1,150 psf.

If one snared a new 99-year leasehold semi-detached house in Bukit Sembawang Estates : B61 -1.32%’ Pollen Collection in Seletar Hills for S$4.4 million, this translates to a fairly palatable price of about S$1,000 psf on estimated floor area. This compares to an average of about S$2,000 psf on floor area that new suburban condo launches now fetch.

Buying landed homes here is restricted to Singapore citizens. A permanent resident can buy a landed home, subject to receiving approval from the Singapore Land Authority, which reviews applications on a case-by-case basis. While demand for landed homes may be constrained by restrictions placed on foreigners buying such homes, unlike with condos, landed homes can command a scarcity premium.

As at Q4 2022, there were 73,295 landed homes comprising 10,730 detached, 22,331 semi-detached and 40,234 terrace units. The total number of landed homes was almost the same as a year earlier. Meanwhile, there were 317,903 private condominium and apartment units, up 2.9 per cent from a year earlier.

Between Q4 2017 and Q4 2022, the stock of non-landed private homes excluding executive condos grew 9 per cent, while that of private landed homes rose 0.7 per cent.



As households get smaller, maybe demand will drop for the typically larger living space provided by landed homes versus condos. Still, some families, who opt for multi-generational living under one roof, may choose landed homes. Also, some people, who work from home, may be drawn to landed houses. Moreover, landed homes may offer greater privacy as well as flexibility for rebuilding to one’s remit.

Savings matter

The lower cost of buying an OCR landed home versus a CCR one may matter more to home buyers amid higher interest rates. This can result in smaller monthly loan repayments or having more funds available for investing.

One may need to spend S$2 million or more to rebuild a landed home with built-up area of around 5,000 square feet. One may also have to factor in possible cost overruns when rebuilding a home. Thus, it may make sense to buy a suburban landed home instead of one in a prime area, so one can better fund rebuilding costs.

A homeowner should be mindful too of the higher property taxes for owner-occupied homes with annual value of over S$30,000 that kicked in this year and will rise further in 2024. As property tax rates are progressive, a semi-detached home in the CCR will generally bear a much larger tax burden than one in the OCR.

But while suburban landed homes are more affordable than those in prime areas, one may need to budget around S$6.5 million for a freehold rebuilt semi-detached unit, comprising purchase price of the resale home of S$4.5 million and rebuilding costs of S$2 million. This excludes Buyer’s Stamp Duty, which went up on Feb 15, and amounts to nearly S$210,000 on a S$4.5 million home.

A budget of S$6.5 million is over 17 times the annualised average monthly household income from work, including employer Central Provident Fund contributions, of S$31,430, of the top decile of resident employed households in 2022.

Still, for the year of assessment 2021, among tax residents, there were 18,859 persons with chargeable income of more than S$500,000 and up to S$1 million, and 6,165 persons with chargeable income of over S$1 million. Some of these individuals could find a S$6.5 million landed suburban home attractive.

Likely, larger suburban landed homes will draw demand from high income earners who may sell their existing homes for a profit and trade up to a dream landed home.

https://www.businesstimes.com.sg/opi...n-landed-homes