Does Factoring the Price Per Square Foot (PSF) Really Matter When Buying Property?

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When it comes to buying property, size always matters. After all, property isn’t exactly something you can “return” if you decide a few months later that it isn’t spacious enough. Unfortunately, HDB doesn’t have a 100-day return or exchange policy like IKEA.

 

Even a rundown place like this can have an astronomical PSF value if it’s in the right location.

Once you take up the proverbial ball-and-chain called a “home loan,” it stays with you until you pay it off. And unlike a certain horror film, it isn’t something you can SAW your way out of.

With so much riding on your home buying decision, is it wise to factor the price per square foot (PSF) into your home buying decision?

 

PSF Is Important – But “How” Important Depends on What Property You Buy

There aren’t many things in this world that cost more per square foot than Singapore property. At the lower end of the property totem pole, you can expect to pay up to $500+ PSF for a Build-to-Order (BTO) flat. At the top, that number jumps to well over $5,000 PSF for a property located in the Core Central Region (CCR).

Factoring PSF into your purchasing decision for BTO flats and Executive Condominiums (EC) isn’t nearly as important as it is for private condominiums. Why? Because control over the PSF value of new BTO flats and ECs (not resale) rests with HDB – not property developers.

Private condominiums are a completely different story because control of the PSF value lies with the developers.

Some of you are probably thinking “well, what’s keeping them from just charging whatever the hell they want?” The simple answer is government intervention. In fact, the latest property “cooling measures” did such a good job at bringing down property prices that developers have seen their returns shrink by 50%.

Using PSF to Gauge the Price of Private Condominiums

For property development, the Urban Redevelopment Authority (URA) divides Singapore into three different areas. As you’ll see, the PSF values for each of these regions isn’t very surprising when you consider their locations.

Here they are:

  • The Core Central Region (CCR): This area encompasses much of Singapore’s prime real estate ranging from Orchard Road to Holland Road. It also includes the Central Business District (CBD) and Sentosa. The PSF ranges from $2,000+ to $5,000+.
  • The Rest of Central Region (RCR): This area encompasses everything inside Clementi Road to the West, Ang Mo Kio Ave 1 in the North, and Still Road in the East. The PSF ranges from $1,300+ to $2,000+.
  • The Outer Core Region (OCR): This area encompasses everything that remains in the far reaches of Singapore (Bedok, Tampines, Paya Lebar, Jurong West, etc.). The PSF ranges from $900+ to $1,300+.

If you’re looking to either upgrade in the near future (2-3 years) or purchase an investment property, factoring PSF into your purchase of a new private condominium will definitely help if you look at how much developers paid for the site.

Factoring the PSF Developers Paid for a Plot of Land Can Help You Estimate a Property’s Sale Price

If you have the time to do a little research, check out the URA website to research the land sales made. This is where you’ll find the latest data on plots of land URA has sold to developers.

By checking out award tenders, you can factor the PSF price that the developer paid for the land (just keep in mind many tenders are in Per Square Meter (PSM) so you’ll need to do some math to convert to PSF).

For example:

The 15 Jan 2014 tender of a residential site in Upper Paya Lebar Road had a Maximum Gross Floor Area (GFA) of 56,218 square meters (605,125.52 square feet).

The developer paid $392,300,000 for the site, meaning it paid a PSF value of $648.30 for the site.

Although not an exact science, you can roughly speculate that based on the PSF the developer paid for the site, the sale price of the property will be at least TWICE that amount (to cover the cost of construction and profit markup) – so expect the PSF of this property to be in the $1,300 to $1,400+ range, depending on what amenities are near the site.

Final Note: If you’re looking to invest in another property or upgrade from your existing home in 2-3 years, factoring the PSF a developer paid for a plot of land can give you a better idea of what you can expect to pay. That’s important considering a difference of $100 PSF for a 1,000 square foot condo is no small amount – that’s $100,000!

Whether you’re looking for a place to settle down in, or rent out, make sure you visit Smartloans.sg so you can get the best home loan deal in Singapore!

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