News > Unprofitable Condos in Singapore: What do they have in common?

Unprofitable Condos in Singapore: What do they have in common?

6 October 2023

Singapore's skyline boasts an impressive array of condominiums, symbolising the city-state's unwavering commitment to modernity and urban sophistication. Owning a condo here is a coveted aspiration, promising an opulent lifestyle and potentially fruitful investments. Yet, amidst these gleaming towers, a less glamorous reality often unfolds – unprofitable condos. These seemingly attractive properties, which underperform in terms of financial returns, have piqued the interest of investors and homeowners alike.

In this article, we collaborated with Thomas Tong - an experienced and knowledgeable realtor who has been in the field of property for more than 11 years, to demystify the phenomenon of unprofitable condos in Singapore. With REA's extensive database and Thomas's deep knowledge about the industry, we will explore the common characteristics that make these condos financially challenging and offer valuable insights for prospective buyers looking to navigate this intricate landscape. Whether you're a seasoned investor or a first-time homebuyer, grasping these key factors is crucial for making well-informed decisions in Singapore's ever-evolving real estate market.

What are "unprofitable condos"?

An "unprofitable condo" is defined as a condominium project where the number of unprofitable transactions surpasses the number of profitable ones.

Unprofitable transaction refers to a transaction in which the selling price is lower than its purchase price.

Methodology

For this study, we carefully extracted a dataset of 93 condominiums across Singapore that have historically been unprofitable. This collection encompasses over 3,200 individual property transactions.

Through rigorous analysis, we aimed to uncover the shared characteristics and patterns that these condos possess, providing insights into the factors contributing to their lack of profitability.

Overall statistics of unprofitable condos

1. Average Holding Years: 7.5 years

2. Average Annual Capital Loss Percentage: 24%

3. Average Capital Loss: S$200,000

4. Average price per square feet: S$2,130

5. Average price: S$2,937,000

6. Average percentage of foreign ownership: 20%

One particularly interesting insight emerges from our analysis: a significant 20% of these unprofitable condos are foreign-owned, a striking contrast to the national average of 8% foreign ownership*. This stark disparity raises questions about the dynamics at play within Singapore's real estate market. What factors are driving this higher incidence of unprofitable investments among foreign owners, and what implications does it hold for both local and international stakeholders?

As we delve deeper into the common characteristics of unprofitable condos, we will explore the complex interplay of factors contributing to this phenomenon, shedding light on potential strategies for mitigating risk and optimising investments in this ever-evolving real estate landscape.

*Statistics are powered by RealInsight - an advanced analytical tools that leverage on REA's largest property database in Singapore, providing real estate professionals and institutions precise and timely insights of the Singapore property market.

What do unprofitable condos have in common?

After examining and analysing the 93 unprofitable condos in Singapore, we have managed to draw out some useful insights about their common characteristics as below:

1. 90% of the unprofitable condos are between 5-20 years old

An interesting trend in the analysis of unprofitable condos in Singapore reveals that a substantial 90% of them fall within the age range of 5 to 20 years. Among them, 50% are between 5-10 years old. This statistic highlights the potential challenges faced by condos as they age and underscores the need for prudent investment strategies, especially when considering properties within this particular timeframe.

2. 50% of the unprofitable condos have less than 10 floors

A notable finding is that around half of the unprofitable condos have relatively low building heights, with fewer than 10 floors. This observation raises questions about how building height may influence a condo's financial performance. This links back to our previous article regarding whether units on low floor or high floor will yield better returns. Investors should carefully consider these factors when making critical investment decisions.

3. 80% of the unprofitable condos are freehold

Surprisingly, a significant 80% of unprofitable condos in Singapore are freehold properties. This statistic challenges the conventional wisdom that freehold properties inherently guarantee better returns and prompts a closer examination of the factors contributing to this trend.

4. 60% of the unprofitable condos have small land size

The data reveals that a majority, or 60%, of unprofitable condos are associated with small land sizes. This highlights the critical role land size plays in a property's overall market appeal and investment potential, providing useful insights for prospective investors and developers.

5. Most of the unprofitable condos are located in the Central Area

This particular finding challenges a common belief among real estate enthusiasts that properties in the Central Area of Singapore can always generate more returns. In another data insight article, our data also showed that overall, the most profitable region to invest in is neither CCR nor RCR, but it is OCR that enjoys the highest annual premium for condo units.

The significant presence of unprofitable condos in this prime location highlights the complexity of the market and the need for a nuanced approach to investment decisions. It suggests that while central locations offer undeniable advantages, other factors, such as property condition, market fluctuations, and individual property management, can override geographical advantages.

Implications

For informed long-term investment strategies, this report provides essential knowledge, pinpointing the shared traits among the 93 unprofitable condo projects in Singapore, from a pool of over 2,500 developments. Characteristically, these projects tend to be 5-20 years old, low-rise buildings situated on smaller land parcels within the central region, and notably, they possess freehold tenure.

These observations challenge the prevailing assumption that properties in the Central Area invariably yield higher returns. Furthermore, they defy the conventional wisdom that favours freehold properties as legacy assets to be bequeathed across generations. It's crucial for potential investors to understand that while location and tenure are vital considerations, they are just part of a multifaceted equation. It underscores the necessity of holistic evaluations when determining property investments, emphasising that attributes such as age, building height, and land size play equally pivotal roles in influencing profitability.

Download the full report (PDF) here: Unprofitable Condos - What they have in common.pdf

To know more about our data-driven real estate solutions, contact us here.

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