With property prices falling like a coconut above your head, you may be lured into thinking that any deal is a good deal right now.
Whether you're looking for property that offers the greatest value for money right now or are concerned about future rental yields, you need to know just how having an MRT station nearby affects the price you pay now, and how good an investment the property will turn out to be later on.
1. Expect to pay at least 10 per cent to 15 per cent more
If your new property is located up to 400m from an MRT station that's about to be built, in general you can expect the price to get jacked up by about 5 per cent to 15 per cent.
The stage at which you purchase the property also affects the price you pay, as homeowners tend to increase their prices in two stages:
Once URA announces the new MRT station, homeowners in the vicinity generally immediately increase their their prices by 5 per cent to 10 per cent. Between the time the MRT station is announced and when it's almost completed, many sellers will lower their prices if demand isn't high.
In the year before the MRT station is completed, prices rise again by 5 per cent to 10 per cent.
Be especially wary of new developments, as developers are likely to have paid a huge sum to secure the land and will be only too happy to pass on the cost to you.
If you're looking for a property close to an MRT station, you'll want to pick one that's close to a future MRT station that is still rather far from completion as prices will be at a premium if the station is going to be up and running in 6-12 months.
2. High prices don't necessarily translate to high rental yields
Many people rush into buying property near impending MRT stations thinking that if the prices are high, this must be a good investment, right? Well, yes and no.
You have to understand that price increases are set by private sellers and developers before the MRT station is built, as a result their guess is as good as yours as to how much rents will actually increase.
Unfortunately, there's no formula for determining exactly how high your rent will go. In general, rents tend to fall during the construction phase, because an expat who's in Singapore for 2 years is not going to pay more to hear drilling and endure congested traffic for the entire duration of his stay.
You will generally see an appreciable increase in rent only once the MRT station is completed. Even then, the actual premium landlords enjoy will vary.
Many factors can work to lower the rent tenants are willing to pay, including:
- Distance from the MRT:
Anything that's more than a 400m walk away is usually considered too far, especially given the wonderful weather here
- MRT line to workplace:
If your tenants have to change lines twice just to get to work at Raffles Place, the MRT station beside the property isn't actually adding a lot of convenience to their lives
- Socioeconomic factors:
Your area and property type will influence the type of tenants you get, some of whom will not be that thrilled that they're close to an MRT station.
If you're renting out a massive penthouse on prime land, your buyers will be more concerned about whether there's somewhere to park their Ferrari than the fact that there's an MRT station nearby.
As a general rule of thumb, the greater the public-to-private housing ratio in your area, the more likely property prices will be affected by proximity of MRT lines.
- Noise pollution or loss of privacy:
Sometimes, being too close to an MRT station can be a curse rather than a blessing.
If the tenants are forced to listen to "Doors closing, please stand behind the yellow line" every second of their waking lives or subject themselves to the prying eyes of commuters staring into their homes, don't be surprised if they prefer to pay more to stay one block behind.
3. Know which areas are good
Analysts have high hopes for properties close to stops on the upcoming Thomson-East Coast Line such as Bayshore, Marine Parade, Amber and Bedok South.
However, price increases are unlikely to be as sudden before, due to the fact that there are now far more MRT stations than there were when the North-East Line and Circle Line were first announced, as well as the URA having allowed for lots of breathing space with its 10-year timeline.
This article first appeared in MoneySmart
Source: AsiaOne (24 Apr 2015)