Singapore's property market is known for its dynamic and innovative developments, tailored to meet the needs of its diverse population. One such innovation is the dual-key unit. Introduced in 2009, dual-key units have captured the interest of property buyers for their flexibility and potential rental yield. Despite their benefits, the supply of dual-key units remains relatively limited. This blog post delves into the reasons behind this, explores the demand and trends, and evaluates the financial performance and potential for capital appreciation of dual-key units in Singapore.
Understanding Dual-Key Units
Dual-key units consist of two self-contained living spaces within a single property, sharing a common foyer. Typically, one unit is a larger apartment, while the other is a smaller studio. This unique configuration offers several advantages:
Flexibility for Multi-Generational Living: Families can accommodate elderly parents or adult children while maintaining privacy.
Rental Income Potential: Owners can live in one unit and rent out the other, offsetting mortgage costs.
Investment Opportunities: Dual-key units appeal to investors seeking properties with higher rental yields.
Limited Supply: Why So Few?
The limited supply of dual-key units can be attributed to several factors:
Development Constraints: Developers face restrictions on the total number of units they can build. Dual-key units count as two separate units, reducing the overall number of apartments in a development.
Market Niche: Dual-key units cater to a specific market segment. Not all buyers need or want the dual-key configuration, leading developers to prioritize more conventional layouts.
Regulatory Factors: Urban Redevelopment Authority (URA) guidelines and policies influence the type and number of units developers can build, impacting the supply of dual-key units.
Demand and Trends
Despite the limited supply, dual-key units have carved out a niche in the market. Here's an overview of the demand and trends:
Steady Demand: There is consistent demand from investors and multi-generational families. Investors appreciate the dual-income potential, while families value the flexibility.
Rental Yield: Dual-key units typically offer higher rental yields compared to single-key units due to the ability to rent out two separate spaces.
Trend Towards Flexibility: As the demand for flexible living arrangements grows, dual-key units are becoming more popular among young professionals and expatriates who prefer co-living arrangements.
Financial Performance: Profit or Loss?
The financial performance of dual-key units has varied, influenced by market conditions and location:
Rental Income: Dual-key units generally command higher rental income, contributing to positive cash flow for investors.
Resale Value: The resale value of dual-key units has been relatively stable, though it can be affected by broader market trends.
Profitability: Transactions involving dual-key units have shown both profit-making and loss-making instances. The key factors influencing profitability include location, market timing, and property condition.
Profit-Making Transactions
Many investors have found dual-key units to be profitable, particularly those who purchased properties in prime locations or during favorable market conditions. Here are some key insights from past transactions:
Location Matters:
Central and City-Fringe Areas: Dual-key units in prime locations like the Central Business District (CBD), Marina Bay, and city-fringe areas such as Tanjong Pagar and Bugis have seen significant appreciation. These areas attract expatriates and professionals willing to pay a premium for convenience and lifestyle.
Emerging Growth Areas: Properties in areas undergoing development, such as Punggol and Woodlands, have also appreciated as infrastructure and amenities improve.
Market Timing:
Pre-2013 Boom: Investors who purchased dual-key units before the 2013 property cooling measures often saw substantial gains. For instance, dual-key units in developments like Duo Residences and Marina One Residences, launched before the measures, experienced strong capital appreciation.
Post-2017 Recovery: Following a period of market stagnation, the market started recovering around 2017. Investors who bought during the trough benefited from the subsequent uptrend.
Property Condition:
New Developments: Dual-key units in new, well-maintained developments generally fetch higher prices. Developments such as The Trilinq in Clementi and North Park Residences in Yishun have shown profitable transactions due to their modern amenities and strategic locations.
Case Studies of Profit-Making Transactions
Duo Residences (Bugis):
A dual-key unit purchased in 2013 for approximately SGD 2.5 million was sold in 2018 for around SGD 3.2 million, yielding a profit of SGD 700,000 (approximately 28% appreciation).
The Trilinq (Clementi):
A dual-key unit bought in 2014 for SGD 1.8 million sold in 2020 for SGD 2.1 million, resulting in a profit of SGD 300,000 (around 17% appreciation).
North Park Residences (Yishun):
Purchased in 2015 for SGD 1.5 million and sold in 2021 for SGD 1.9 million, the owner made a profit of SGD 400,000 (approximately 27% appreciation).
Loss-Making Transactions
While many dual-key unit transactions have been profitable, some investors have experienced losses. The common factors contributing to loss-making transactions include:
Overpriced Entry:
Investors who bought at peak prices, particularly during market highs, often found it challenging to sell at a profit. The cooling measures introduced in 2013, which included Additional Buyer's Stamp Duty (ABSD) and tighter loan-to-value (LTV) ratios, further exacerbated this.
Seller's Stamp Duty (SSD):
Properties purchased between January 14, 2011, and March 10, 2017, were subject to a Seller's Stamp Duty (SSD) of up to 16% if sold within the first year. For properties purchased on or after March 11, 2017, no SSD is payable if the property is sold after holding it for more than three years. This change in SSD regulations has impacted the profitability of transactions within those periods.
Location Challenges:
Dual-key units in less desirable locations or areas with slower growth have struggled. For example, units in far-flung suburbs or regions with limited amenities and infrastructure have shown weaker performance.
Market Downturns:
Periods of economic downturn or property market corrections have also impacted the profitability of dual-key units. For instance, the market downturn between 2013 and 2017 led to some investors selling at a loss.
Case Studies of Loss-Making Transactions
Parc Life (Sembawang):
A dual-key unit purchased in 2016 for SGD 1.2 million sold in 2020 for SGD 1.1 million, resulting in a loss of SGD 100,000 (approximately 8% depreciation).
La Fiesta (Sengkang):
Bought in 2014 for SGD 1.3 million, a dual-key unit was sold in 2018 for SGD 1.2 million, yielding a loss of SGD 100,000 (around 7.7% depreciation).
Potential for Capital Appreciation
Despite the mixed results, the potential for capital appreciation in dual-key units remains strong, particularly under favorable conditions:
Strategic Locations: Properties in central or developing areas are more likely to appreciate.
Market Recovery: Buying during market lows and selling during recoveries can yield significant gains.
Quality Developments: Investing in well-maintained and highly sought-after developments increases the likelihood of appreciation.
Advantage of Dual-Key Units: ABSD Mitigation
One of the compelling reasons for considering dual-key units is the high Additional Buyer's Stamp Duty (ABSD) imposed on second properties. Dual-key units allow owners to effectively own two rental properties within a single title, thereby mitigating the impact of ABSD. This unique advantage makes dual-key units an attractive option for investors looking to expand their property portfolio without incurring hefty stamp duties.
Conclusion
Dual-key units in Singapore present a unique investment opportunity with the potential for high rental yields and capital appreciation. While past transactions reveal a mix of profit-making and loss-making instances, strategic investment decisions based on location, market timing, and property quality can enhance profitability. As the trend towards flexible living continues, dual-key units are poised to remain a valuable asset in Singapore's dynamic property market. Additionally, the ability to mitigate ABSD makes dual-key units an appealing choice for savvy investors.
Want to know more about dual-key units or to download the listing for new dual-key units in the market, please click here.
Comments