![](\"http:\/\/i0.wp.com\/www.siamlandbank.com\/propertynews\/wp-content\/uploads\/2017\/06\/Property-Life-Cycle.jpg?fit=576%2C336\")
\nThe recent en-bloc sale of Eunosville made headlines after the former HUDC estate was sold for almost $766 million. (Photo: OrangeTee)\u00a0
\nBy Eugene Huang
\nProperties have life cycles, just like us. We know that property prices are largely driven by demand and supply. Today as we examine the correlation between the price and age of a property, we exclude external influences like demand, supply, inflation, immigration policies, infrastructure changes, etc.
\nLet\u2019s look at the profile of a typical 99-year leasehold or freehold condominium since it forms the majority of private residential properties in Singapore.
\nSource: Redbrick Mortgage
\nThe launch \u2013 forming of a property
\nAfter land is acquired and architecture plans are drawn, a developer will launch the property for sale. At this stage, prospective buyers do not get to see a finished product. Instead, they purchase the property based on drawings, plans, and probably a nice model of how the development looks like.
\nThe purchaser then takes up a mortgage on the property, servicing instalments as the developer calls for progressive payments. Since the property is not completed, there is no rental income.
\nYou imagine and anxiously wait for the finished product.
\nThe birth \u2013 Temporary Occupation Permit
\nAfter years of crossed fingers and eager anticipation, you finally get to see the finished product. We usually see a price increase (about 10 to 20 percent) between the launch and the Temporary Occupation Permit (TOP) because:
\n\u2013 There is no risk of the developer going bust and property not completing
\n\u2013 What you see is what you get \u2013 bask in the full glory of the physical product
\n\u2013 Instant gratification \u2013 you can use the property right away, or rent it out for income
\nHowever, I must point out that this is not the time where rental value is the highest \u2013 because there are a few hundred units within the same development that, like yours, are waiting anxiously to get rented.
\nThe aging \u2013 depreciation
\nJust like humans, properties age too. Cracks start forming on the walls, and facilities start to look worn and dated. While a resort-themed pool was all the rage 15 years ago, tenants and homeowners now prefer cantilevered infinity pools perched on rooftops. Tastes change; what was fashionable before now gets phased out by newer, more functional \/ efficient replacements.
\nRentals decline as tenants look out for newer developments, resulting in price declines on the property.
\nThe bottom \u2013 cessation of depreciation
\nLand does not depreciate. At least for all freehold land and leasehold land which the government will allow a top-up on the lease.
\nThe rejuvenation \u2013 redevelopment
\nWe know Singapore has limited land. However, Singapore has less of a limitation on airspace much like Hong Kong and many other cities around the world. The Urban Redevelopment Authority (URA) manages the Master Plan which governs land usage in Singapore.
\nPlot ratio is the magical number to determine the intensity of the land usage, or how much of floor area can be built within a plot of land.
\nAs land gets used up in Singapore, the authorities will start putting higher numbers to the plot ratio, intensifying land use \u2013 of course, first ensuring the infrastructure (roads and transportation) and amenities (shops and schools) can support a denser population.
\nSo, this results in many of the en-blocs (also known as collective sales) we are seeing today \u2013 a more efficient use of land.
\nBecause of a higher plot ratio, developers can now build more units on a given plot of land. Hence, the depreciated piece of land your property is sitting on now suddenly becomes more valuable. As new properties are sold for higher prices, the land your property is sitting on also appreciates.
\nCase study: The Bayshore vs. Bayshore Park
\nBoth developments are in District 16, right next to each other.
\nA check on the units from each of these developments would bring about similar results \u2013 an average asking price of about $800 to $1,000 psf.
\nWhen you look at the age of each development, Bayshore Park received its TOP in 1986, about 31 years ago. On the other hand, The Bayshore received its TOP in 1999, which means its age is currently about 18 years.
\nBoth developments have a 99-year lease.
\nAstute investors know that The Bayshore has maximised its gross floor area (GFA), according to its plot ratio, while Bayshore Park has more room towards its maximum allowable GFA.
\nSource: Redbrick Mortgage
\nBased on the property life cycle, The Bayshore at 19 years since its TOP, is currently in the depreciation phase. It\u2019s still set to depreciate further, and may only bottom out when the URA decides to increase the density of residents on the piece of land by tweaking its plot ratio.
\nConversely, Bayshore Park has already been through its depreciation phase and even past the bottom of the life cycle. It\u2019s currently working its way back up the rejuvenation stage, where there is more potential for redevelopment.
\nA property purchase can be an emotional process. Many a time, we choose to follow our hearts. The newer property may look more attractive, but we should look beyond face value and do our research to seek out options that will bring us the best returns on our investment.<\/p>\n