Are Items With Increased Flooring Higher for Profitability ?, Cash Information

Did you know that not so long ago living in a tall building in the UK was considered the opposite of luxury living?

But that’s slowly changing.

Increasingly, tall buildings are a sign of luxurious accommodation. From the breathtakingly tall and slender 432 Park Avenue to our very own Wallich Residence, the higher you go, the more money you have to pay.

It is for this reason that common real estate agent wisdom and sales pitches relating to the purchase of property draw consumers’ attention to units on higher floors.

With attractive grounds like more privacy and views that are likely to be unobstructed – a definite draw, especially in a concrete jungle like Singapore. In return, your prospective buyers will likely pay you more for this exclusivity – or so some will say.

How true are these claims?

Undoubtedly, this question is on many people’s minds. So we did the numbers to figure out the appreciation of the units to see the difference between the ground floor and the upper floors. To find out which one gives you the better value for money, read on!

methodology

Before we present our results, we would like to highlight a few points for performing this analysis:

• The scope of the data includes 362 developments and 3,569 transactions. They included units bought after January 2013, after the Total Debt Servicing Ratio (TDSR) was introduced, to remove the speculation that existed in the real estate market before the TDSR came into effect.

• In the analysis between bedroom performance / property type and floors, we narrowed our sample down to 25 developments that recorded 1,394 transactions. The reason for this is the lack of data available. We believe this sample size is sufficient given the number of transactions as the comparison would not be location specific. We have also ensured that developments of at least 200 units have been selected for this analysis to ensure that there have been numerous recent transactions that reflect prevailing market prices.

• Floor categories (ie “ground floor”, “low”, “medium” and “high”) for structures with different building heights have been adjusted accordingly (z unit on the same level in a low building is categorized as “mid” Units above the traditional 1st floor (e.g. 4th or 5th level for integrated / mixed developments) adapted accordingly.

Main results

From the insights we gained from the data, we have gathered some important insights and summarized them as follows:

1. Ground floor and low-floor units don’t necessarily result in poor returns, but can outperform their counterparts on higher floors.
2. The returns of units in the Outside Central Region (OCR) increase better.
3. The size of the units (i.e. based on the number of bedrooms) determines the profitability of the units.
4. The type of development (e.g. integrated, mixed, pure living) does not have a major impact on the returns from the first floor to the upper floor.

Ground floor and low floor units can generate just as good returns as higher floor units

Contrary to the belief that ground floor and basement units should be avoided as they are more susceptible to dust, noise, pests, and privacy intrusions (making it harder for owners to unload them and get decent returns), showed our results differ from those shown in Figure 1.

Market segment floor Low center High average Outside the central region 10.8 percent 13.4 percent 13.8 percent 12.5 percent 13.2 percent Rest of the central region 10.6 percent 10.8 percent 8.3 percent 7.7 percent 8.9 percent Central region 7.1 percent 7.4 percent 4.9 percent 4.0 percent 5.5 percent average 10.3 percent 11.4 percent 10.4 percent 9.6 percent 10.4 percent

Figure 2A: Average appreciation by region (source URA)

As mentioned in the previous section, the lower floors (excluding the floor units) saw better returns in the OCR. This could be the case as they are financially more affordable for buyers who are likely to be upgrades.

The trend continues as with the rest of the Central Region (RCR) and Core Central Region (CCR) where we observed that the low floor units outperform the middle floor units, which outperform the high floor units in terms of capital appreciation. Notably, we found that the middle to higher floors in the CCR are not doing well compared to the lower floors in the same region.

We’d need to look into this more closely, but that’s likely because entry prices on the middle to higher floors could have been steeper as early as day 1 and would have canceled out much of the potential gains.

The size of a unit influences its appreciation

In addition to the location, another interesting trend that we have been able to observe is the direct relationship between the size of the units and their respective appreciation.

Table 1 : Average appreciation by unit (Source: Edgeprop, SRX, URA)