Why Some Condos Depreciate While Others Appreciate: Key Factors

Not All Condos Are Created Equal

One of the biggest misconceptions in Singapore property is that all condos appreciate over time. The reality, drawn from my 15 years of experience analysing thousands of transactions, is far more nuanced. Some condos have delivered exceptional returns while others have left their owners underwater after holding for a decade or more.

Understanding what separates the winners from the losers is perhaps the most valuable skill any property investor can develop. Let me walk you through the key factors that determine condo price trajectories.

The Lease Decay Factor

This is the single most important factor that many buyers underestimate. Singapore’s leasehold system means that most condos sit on 99-year leases, and as the lease shortens, the property’s value is affected in ways that are not linear.

The Critical Lease Thresholds

• Above 70 years: Banks generally lend normally, and CPF usage is unrestricted. Value impact is minimal.
• 60 to 70 years: Some banks start to restrict loan tenures. CPF usage may be limited. The pool of potential buyers begins to shrink.
• Below 60 years: Significant financing restrictions. Many banks will not lend, and CPF usage is severely limited. This dramatically reduces the buyer pool.
• Below 40 years: Most banks will not finance. Essentially a cash-only purchase, which eliminates most buyers from the market.

The practical implication is that a 99-year leasehold condo purchased new will typically appreciate for the first 15 to 25 years, then face increasing headwinds as the lease shortens and financing becomes more difficult.

Location Quality and Transformation Potential

Location is a cliche in real estate, but what specifically about location drives appreciation versus depreciation?

Factors That Drive Appreciation

• New MRT stations: Properties near newly announced or completed MRT stations consistently outperform. The Cross Island Line announcements have already shown this effect.
• URA Master Plan improvements: Areas earmarked for rejuvenation or development in the URA Master Plan tend to see accelerated appreciation.
• School proximity: Properties within 1km of popular primary schools maintain premium valuations.
• Employment centres: Properties near major business districts like the CBD, one-north, or Jurong Lake District benefit from sustained rental demand.

Factors That Drive Depreciation

• Oversupply in the immediate area: Multiple new launches in the same district can create competition that suppresses resale values
• Deteriorating neighbourhood quality: Changes in the surrounding environment such as increased noise or reduced amenities
• Loss of unique selling points: A sea view unit that loses its view due to new developments next door
• Industrial or undesirable neighbours: Proximity to facilities that reduce residential appeal

Development Size and Management Quality

The size of a condominium development and the quality of its management have a surprisingly large impact on long-term value.

Smaller Boutique Developments

Developments with fewer than 100 units often face challenges:

• Higher per-unit maintenance costs due to fewer units sharing common expenses
• Fewer comparable transactions, making it harder to establish market value
• Less appealing for en bloc sales due to smaller site size
• Limited facilities compared to larger developments

Larger Well-Managed Developments

Developments with 300 to 800 units in prime locations tend to perform well because:

• Economies of scale keep maintenance fees reasonable
• More transaction data supports stable valuations
• Better facilities attract a wider range of buyers and tenants
• Larger sites have stronger en bloc potential

The management corporation’s effectiveness in maintaining the estate directly influences long-term property values. A well-maintained 20-year-old condo can outperform a poorly maintained 10-year-old one.

The En Bloc Premium

One of the most significant upside factors for condos is en bloc (collective sale) potential. Developments that are attractive to developers for redevelopment can command significant premiums over their market value.

Key factors that increase en bloc potential:

1. Low plot ratio utilisation: If the existing development uses only a fraction of the maximum allowed gross floor area, developers can build more units
2. Good land shape and size: Regular-shaped plots of 15,000 sq ft or more are more attractive to developers
3. Ageing development: Older buildings in good locations are prime candidates
4. Zoning changes: Properties that have been rezoned to allow higher density development
5. Location in transformation areas: Developments in areas undergoing major urban renewal

Product Quality and Layout Efficiency

The physical product itself matters. Condos with efficient layouts, good ceiling heights, and quality finishes tend to hold value better than those with awkward floor plans or poor construction quality.

• Efficient layouts: Minimal wasted space in corridors and odd corners
• Good natural ventilation and lighting: Cross-ventilation units with north-south orientation are preferred
• Ceiling height: Units with at least 2.8m ceiling height feel more spacious and command premiums
• Quality fittings: Branded kitchen appliances and bathroom fittings signal quality
• Storage space: Adequate storage is increasingly valued by buyers

Market Timing and Entry Price

Even a good condo can be a bad investment if you buy at the wrong price. The entry price relative to the market cycle significantly impacts your returns.

Signs You Might Be Buying at a Peak

• New launch prices have been consistently rising for more than three years
• Resale volumes are declining while prices continue to rise
• Government has recently introduced cooling measures
• Developers are bidding aggressively for land at record prices

Signs of Better Entry Opportunities

• Developer discounts and early bird promotions are being offered
• Transaction volumes are stabilising after a correction
• Government has relaxed some cooling measures
• Rental yields are improving relative to purchase prices

How to Assess a Condo’s Appreciation Potential

When I evaluate a condo for clients, I use a systematic framework:

1. Check the remaining lease and project when financing restrictions will begin to bite
2. Review the URA Master Plan for the area to identify upcoming changes
3. Analyse the development’s transaction history for price trends
4. Compare the asking price against recent comparable sales
5. Evaluate the supply pipeline for the district over the next 3 to 5 years
6. Assess the management quality through site visits and maintenance fee levels
7. Consider the en bloc potential based on site attributes

Frequently Asked Questions

Q: Are freehold condos always better investments than leasehold ones?

A: Not necessarily. While freehold condos do not suffer from lease decay, they typically come with higher entry prices. The key comparison is total returns relative to capital invested. Some well-located leasehold condos with en bloc potential have delivered superior returns compared to freehold properties in less desirable locations.

Q: How much does the floor level affect a condo’s appreciation?

A: Higher floor units generally command a premium of 1 to 3 percent per floor in the lower levels, with the premium increasing more significantly for penthouse or top-floor units. However, the location and development quality matter far more than the floor level for long-term appreciation.

Q: Can a condo in a bad location still appreciate?

A: Yes, if the location undergoes transformation. Areas like Punggol and Tengah were once considered undesirable but have appreciated as infrastructure and amenities were developed. The key is identifying transformation potential before prices adjust.

Q: Should I be concerned about condos built during certain periods?

A: Condos built during the rapid construction boom of 2012 to 2015 have occasionally had quality issues due to the speed of construction. Always conduct thorough inspections and check the developer’s track record regardless of the construction period.

Q: How important are condo facilities for appreciation?

A: Facilities matter but their impact varies. A well-designed pool and gym are expected in modern condos. Unique facilities like tennis courts, function rooms, and co-working spaces can add appeal. However, excessive facilities that drive up maintenance costs can actually hurt long-term value.