WHAT IS YOUR PROPERTY REALLY WORTH?

For most Singaporeans, a property is one of the largest purchases they will ever make.

When they try to judge whether the price is fair, most buyers reach for the same few numbers: the last transaction in the development, asking prices nearby and the bank valuation.

Singapore property veteran Roy Chang says all of those figures are useful. None of them, taken alone, tells a buyer what the property is worth.

After 28 years in the industry and more than two decades investing in property himself, Roy pays most attention to a different figure, which he calls intrinsic value.

His reasoning is simple. A transaction price records what another buyer paid. An asking price is what the seller hopes to get. A bank valuation is an important reference, especially for financing.

Roy wants buyers to take one more step before they commit and find out whether the price sits above or below the property’s calculated intrinsic value.

He came to that view partly through a case involving two almost identical condominium units.

One Property, Several Very Different Numbers

Many years ago, one of Roy’s clients was looking at a unit on the 34th floor of The Icon. The seller wanted about S$1,000 per square foot.

The only transaction Roy could find at the time was on a lower floor, at around S850psf.Heaskedabankerforanotheropinion,andthebankvaluedtheunitataboutS930 psf. The three figures differed, but not by much.

Then Roy came across a unit on the 35th floor, one level up, that the developer was selling. By his account it had the same size, layout, facing and direction, and its price was close to S$1,600 psf.

That left him with one unit valued by the bank at around S930psfandanalmostidenticalunitdirectlyaboveitonofferatclosetoS1,600 psf. Which of those numbers was the property actually worth?

Roy did his own calculation and put the unit’s intrinsic value at around S$1,350 psf, a figure none of the other references had pointed to.

For Roy, the episode showed how risky it is to lean on any single reference point. He still uses bank valuations and recent transactions and does not tell buyers to ignore them. He treats them as references, and a reference only covers part of the answer.

So What Is a Property Really Worth?

That question became central to how Roy works.

His method looks at six pricing references: recent transactions, historical price trends, the bank valuation, buyer price expectations, agent asking prices, and the prices of surrounding or comparable properties.

He does not take any one of them as the final figure. Each feeds into a wider calculation of what he calls the property’s intrinsic value.

Over the years Roy has built 26 proprietary financial calculators, five of which deal specifically with intrinsic value.

He keeps the weighting inside those calculations private, but the thinking behind them is easy to follow. The market sets the price, and Roy tries to calculate the value.

That cuts both ways. A unit that looks cheaper than the one next door is not automatically good value, and a higher price does not automatically make a purchase a mistake.

The question Roy puts to buyers is how the price they are paying compares with the property’s calculated intrinsic value.

Why the Gap Matters

Working out intrinsic value is only the start. Roy then looks at the gap between that value and the price the buyer would actually pay.

Here he borrows an idea from value investing called the margin of safety. When he teaches, he often uses buying at least S$200,000 below calculated intrinsic value as an example of the buffer he looks for, though the right margin depends on the property and on the buyer’s circumstances.

The logic is that nobody can know what the market will do after a purchase. Interest rates move, the economy shifts, new supply comes onto the market, demand rises or falls, and policy changes can alter conditions for buyers and sellers.

A buyer controls almost none of that. The price they pay to get in is the exception.

So Roy spends less effort trying to guarantee what a property will be worth later and more on understanding the numbers on the day of purchase.

A Good Deal Can Still Be the Wrong Property

There is a second part to Roy’s method. A property can look attractive on valuation and still be the wrong one to buy.

Over the years his thinking settled into what he calls the AIP Framework, which tests Affordability, Intrinsic Value and Profitability.

Affordability comes first. Can the buyer carry the property comfortably, as opposed to simply qualifying for the biggest loan available?

Intrinsic Value comes next, comparing what his method calculates the property to be worth with the price the buyer would pay.

Profitability looks past the gap between buying and selling price. Stamp duty, loan interest, property tax, maintenance and selling costs all change the real result.

A property bought for S2millionandlatersoldforS2.2 million looks like a S$200,000 gain. Roy wants buyers to count what is left once the costs of buying, holding and selling have been taken out.

Not Every Decision Has to Maximise Profit

For all his focus on numbers, Roy accepts that calculations miss part of the picture, because not everyone buys a home to maximise returns.

A couple may want to live closer to their parents. A family may choose a home for a particular school. Another buyer may simply want a place that suits the way the family lives. Roy considers all of these perfectly legitimate.

His job, as he describes it, is to make sure buyers understand the financial reality of a decision before they commit, even when they choose a home for reasons other than return.

The word he comes back to most often is clarity.

Before You Sign, Know the Number That Matters

Singapore buyers have more information today than ever. They can study transaction histories, compare asking prices, get valuations, and look into locations, upcoming developments and nearby amenities.

Roy thinks all of it is useful. His warning is against mistaking any one piece of it for the complete picture.

A recent transaction shows what somebody else paid, an asking price shows what the seller wants, and a bank valuation adds one more reference.

Before putting hundreds of thousands, or even millions, of dollars into a property, he says buyers should ask two more questions: what is this property really worth, and how does the price I am paying compare with that value?

After 28 years in Singapore real estate, the change Roy wants buyers to make is to stop comparing one property’s price with another’s and start comparing price with value.

Roy Chang

Founder & Chief Trainer, SPIN