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How to find undervalued property?

The value of a property fluctuates over time, shifting and reacting to a constellation of factors from government investment to climate changes. At Property How Much, we resolve to avoid trying to forecast the future or make prophetic predictions.

Charles Wachter wrote in Twin Paradox, "The past is a terrible prediction for the future when it comes to complexity." The interconnected and rapidly changing nature of modern systems, such as technology, economics, and society, makes it challenging to extrapolate future developments based solely on historical data or experiences. We'd be fools to try.

Unfortunate Bets

A good example is the change of plans with the High Speed Rail that was supposed to arrive in Jurong East. It was announced with a huge dose of fanfare and unrivalled optimism. Slated to complete between 2025 - 2030, new launches pivoted the marketing messages. Older properties tried to en bloc (See Ivory Heights).

Singapore-KL High Speed Rail Announcement

In one of the biggest curveballs in recent memories, the project was terminated after failures to resolve disagreements between Singapore and Malaysia.

Ong Ye Kung announcing on Facebook the termination of KL-Singapore HSR

Many Singaporeans had been investing heavily in the region (into properties like Ivory Heights, J Gateway, Lake Grande) in hopes of reaping high returns when the HSR project completes.

Ivory Heights price change

Betting on future plans is a high risk high returns game. One must be prepared for a less than desirable outcome, even in a place like Singapore, where the government tends to follow through with its plans.

How to make better (and safer?) bets

In this series (maybe), we will be looking at tools and tactics to help us find properties that are undervalued or rather, asymmetrically valued right now. Asymmetric information occurs because, well, the world is not perfect. Imperfect information and knowledge exists.

If we had all the possible data points and information at hand, we would be able to very accurately deduce the intrinsic value of any one thing. Put simply, if we lived in that world, Chanel wouldn't be doing quite as well and branding and marketing would have less of an effect on us.

How to find asymmetric information or lobang

"Looking for a good deal" is how most would put it. Many people wear the badge of bargain hunter proudly. It is indeed a skill and sometimes and obsession.

Ok so let's talk about some examples of obvious asymmetric information in the property market. Take the J Gateway situation. If somehow, you know of the HSR project prior to its public announcement, you'd have purchase a property before and sold it at the announcement. Similarly, if somehow you got wind that the project would fall through, you'd have sold your property before the prices tanked on announcement. If all of this sounds a little shady, it's probably because this individual is probably acting on privileged insider information which is pretty much illegal.

Now that we've established that, how do we find asymmetric information legally?

How to screen for asymmetric information

Screening (or stock screening) is a common practice in the trading world to find healthy, undervalued stocks to invest in. A stock screener allows investors to sort through a large number of stocks quickly and effectively. In our years of hunting for bargain properties, we couldn't find a tool to do this so we've started Property How Much with North Star of building a full fledged screener.

Right now, we've rolled out a small subset of tools that we use daily to look for properties namely:

Each of these screeners have a specific set of filters built for easy maneuvering of the lists. Using a combination of filters will help you find interesting properties to look into.

How to use our screeners

Here's the short version of how to user our screeners:

  1. Choose from one of the above screeners
  2. Set your filter criteria and sort the data to narrow down your choices
  3. Further study each of the projects

1. Screen properties by Executive Condos

Earlier, we posted that ECs are generally very profitable because they're released at prices about 20 - 30% lower than market rates with some caveats like poorer location and special eligibility requirements. ECs cannot be resold within the first 5 years of purchase (due to MOP rules). Once it reaches 5 years, it can only be resold to Singaporeans and PRs (with caveats).

2. Set your filter criteria

At this point, because of these requirements, prices are usually still suppressed. So, how would you go about looking for this very specific category of projects?

  • Property type: EC
  • MOP: Achieved
  • Not privatised yet

You can following these steps to set up your screener:

  • Go to the Executive Condo Screener
  • Set the MOP status filter to "Achieved MOP"
  • Set Privatised filter to "Not Privatised"

Now, you should've arrived at a far more refined list: Filtered EC list

You might have notice a filter for "Rail type". As we alluded to earlier, ECs tend to be located less accessible areas and LRTs tend to indicate such. So if accessibility and convenience is important to you, you might want to filter for that.

Let's say we go ahead and do that. What we have now is a concise list of 30 condos. Now, say I want to be able to rent it out within 2 - 3 years or sell it on the open market, we'd want the privatisation year to be as soon as possible. So let's sort by that: Refined EC list

3. Further studying each project

From there it is about exploring and studying each project carefully and comparing them to nearby properties. Let's take Watercolours. Unsurprisingly, the project is transacting at about a 10% discount from its neighbors. WaterColours Condo Profile

Since MOP in 2019, prices have been steadily rising and tending towards an equilibrium with its neighbors. In fact, it has surpassed its closest neighbor Seastrand in prices on a number of categories. This could either be a sign that its overpriced or you might want to take advantage of the high mortgage rates (at time of writing) where listings aplenty and buyer few to score a good unit. WaterColours price trends

Understand the Singapore Property Market

Screening is a useful way to discover new projects and eliminate some of the biases we may carry from lived experiences when considering a property investment.

With Property How Much, you can quickly search through over 378,564 private residential transactions and explore over 3200+ condos and ECs. Try it yourself. Search for any condo or train station to get started.

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