Investing in Geylang Properties – What to look out for???

It has always been a myth on buying a property in Geylang, whether its the Red light district concern or the myth that banks do not LOAN to buyers buying geylang properties. This post serves to address some of the myths and issues that are always dangling on investors mind when purchasing in this area.

Geylang properties generally has been categorized into a few areas. its easy to differentiate the areas looking at the Map attached below

MAP Picture, Courtesy from OneMap.sg

If you were to take a quick glance at the map, you will notice 4 distinct areas there.

Namely the ODD and EVEN Lanes,
EVEN lanes has 2 zones, 
Lorong 4 till Lorong 22 and 
Lorong 24 till Lorong 42

ODD lanes also has 2 zones, 
Lorong 3 till Lorong 21 and 
Lorong 23 till Lorong 41

Banks favour the ODD lanes, especially lanes starting from Lorong 23 onwards till Lorong 39, its safe to invest in. As mostly its residential properties area. All local banks support up to 80% financing.

For EVEN lanes, properties located from Lorong 24 onwards is generally safe. Lorong 4 to Lorong 22 is classified as the RED LIGHT DISTRICT. 
Financing in this area(Lor 4-22) will be difficult in a sense that only Maybank and Hong Leong Finance can loan depending on case by case basis. The percentage of the loan amount will differ as well. (Mostly up to 50% to 70% financing here by Maybank and Hong Leong)

Lorong 24 onwards will be slightly less stringent. However, local banks like UOB, DBS and OCBC are quite conservative about this lanes as well. Thus loans also is on a case by case basis.
As for Lorong 40 and Lorong 42 thou on EVEN lanes, its a all clear zone, all banks support financing for this lane. (3 Popular major developments lies here, Waterina, Sunny Spring and Aston Mansion)
However, with the recent new launches(Mickey Mouse units) banks are opening up to loans in even lanes.

End of the day, its important to double check with your banker on the financing before committing in EVEN lanes. 

4 Major Factors to look out for!

1. Tenants Pool and Demographics

What are the type of tenants residing in Geylang?
Mainly expats from UK, America, France, Australia, New Zealand.
Another class of expats are from China, mainly students and some working professionals
You will be surprise to know that a lot of the properties bought over these 3 years were by expats and they mainly bought the properties here for own stay due to the proximity to town. Some bought for investments due to the large pool of tenants available here.


2. Location!!! – Near MRT

Is it near MRT? Aljunied MRT or Paya Lebar Circle Line interchange MRT
Very importantly, choose properties that have a close proximity to MRT stations here, most of the tenants like Geylang is because its only 4 MRT stations from Aljunied MRT till City Hall Interchange. From Paya Lebar Circle Line interchange, its merely a few stations away as well. Expats here seldom drive, thus the mentality is that they would rather pay a lower rental to stay here, which is so convenient, than paying so much higher to stay in Orchard or River Valley. The properties here mainly caters to expats with a budget of $3k to $4k budget range for a 2 bedder or 3 bedder apartment or condo. 
Thus choose a project near to MRT for easy rentability and to avoid any lag time while searching for new tenants when u bought over the property.


3. Does the project has facilities?

To cater for faster speed of rentability after you bought the apartment, its important to choose a development with facilities like Gym, Pool and Security. a Balcony will be a plus point (Alcove, Sims Green, Waterina, Atrium Residences have balcony layouts)


4. What is the “Right Price?” and Rental Yield in the development?

Do some homework on the past transactions preferably at least past 3 to 6 months. And also the median rentals going rates at the area. However, when some buyers are out looking for properties in the market, they tend to offer prices based on the past transactions which end up not being to purchase one as the psf price range in Geylang is still inching up month by month. Thus Sellers tend to price their properties here slightly higher than the last transacted prices of their neighbours. 

A better approach to make a decision on making an offer for a property will be using the comparative approach, which is to compare the price according to the other similar properties in the same development that are currently for sale to give you a gauge if the price you are offering is too high. 
However this is not all to it in making your decision, it depends on a couple of other different factors as well namely;

a. Level of the unit; High flr, low flr?
b. Facing of the unit: Facing MRT track? or unblock or pool view?
c. Condition of the unit? Do u need to spend a lot to touch up the unit before putting up the unit for rental after buying it?
d. Is the unit rarely available? Eg. 2 bedrooms are more rare than 3 bedrooms unit in this area.
e. What is the indicative bank valuation of the property?

Are you getting a reasonable amount of Rental Yield, it is advisable to check the ongoing asking rental rates in the development as well to work out the rental yield that u might be receiving.

Geylang Properties – a Hot spot for investors

Small 1 Bedroom and Studio units gaining popularity in Geylang. Many investors are drawn to the lower quantum properties and seemingly low downpayment and also good potential rental yields.

From what we seen with the few projects which has obtained TOP Status like Casa Aerata and Centra Studios, both rental transactions in the projects are fairing pretty well with transactions between 2200 to 2500 for the 1 bedroom units. Compared to the initial purchase price of $450K to $550K, the 1st hand investors are fetching very good rental yields of between 4% to 5% yields.
Geylang a Growing Hot Spot for Investors

Calculating Rental Yields, 2 Approaches

Method 1: Basic Rental Yield calculation

Illustration
Monthly rental received – $3500
Purchase price of property (Eg. a 3 bedroom unit in Sunny Spring – $900k)
Annual Rental received – $3500 x 12 = $42000

Basic rental yield will be – 42000/900k x 100% = 4.6% per annum


Method 2: Rental Yield based on leveraging calculation after rental expenses (A more accurate approach in my opinion, in short ROI, Return on investment approach)

Monthly rental received – $3500
Purchase price of property (Eg. a 3 bedroom unit in Sunny Spring – $900k)
Annual Rental received – $3500 x 12 = $42000
Downpayment on property(Based on 80% loan and 20% downpayment)
20% downpayment of $900K = $180K
– Stamp Duty – $21,600
 – Legal Fees – $2500
Monthly instalment for 30 years based on 1% for 1st year = $2315/mth
Passive income per month = $3500 – $2315 = $1185.

Total Investment Outlay = $204,100

Expenses of investing for the purpose of renting out the property
 – Maintenance and Sinking Fund – Assume $300 per month, 1 year = $3600
 – Property Tax – 10% per annum of annual rental income = $4200
 – Agent’s commission (Eg. 1/2 month comm for 1 year lease = $1750)
 – Cost of furnishings and repairs = Eg. $1500 per year
 – Cost of interest payments for Property for 1st year – $7100(Based on 1% interest rate for 1st year Fixed)

Total expenses = $18150

Net Surplus(Annual Rental income minus expenses) = $23850

ROI (Return on investments) = ($23850)/($204,100) x 100% = 11.68% per annum






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