The Financial Network

Buying Property For Investment? Avoid Trophy Homes At All Costs!

On and off, we come across news reports of properties transacted at record prices, such as an unit in The Marq On Paterson Hill which sold for $20.5 million, approximately $6,840 per square foot (psf) in 2011.

Most people will question the rationale behind the premium prices paid for such seemingly overpriced properties. However, we think that this is no different from what we observe in other types of goods such as luxury sports car (such as Ferrari) and luxury handbag (such as birkin) that can cost 10 to 100 times other cars and handbags of lesser known brands. In our opinion, properties can broadly be classified under 2 categories – Trophy Homes and Investment Homes.

Trophy Homes, as the name suggests, is for “show” and are purchased for “bragging rights”. Case in point is the record-breaking The Marq On Paterson Hill unit that was sold for $6,840 psf in 2011, and remains the record 10 years on. Investment Homes, on the other hand, is for investment and making money. Hence, it is important for buyers to consider their entry price and avoid overpaying. 

For illustration, we zoom into 2 projects along Martin Road which is close to the Robertson Quay area. The 2 projects are Martin No.38, a Luxury project developed by renowned luxury developer SC Global, and a neighboring condominium, The Inspira by Meadows Bright Development (a subsidiary of TA corporation). 

Both projects are freehold and located side by side – the side gates for both developments open up to the same side road (Narayanan Chetty Road). They were launched for sale around the same time period of 2008-2009. However, Martin No. 38 was marketed as a high-end development and priced much higher as can be seen from the chart below. As a result, the direct buyers (from developer) paid a much higher psf for this project. 

To gain insights into their market performance, we analyze the resale transaction data spanning 2008 to 2023, and examine how these 2 projects performed over the past 15 years.

Looking at the data, Martin No.38 experienced a modest 12% growth over 15 years, contrasting with The Inspira’s massive 100% growth. This suggests Martin No.38 is not a worthwhile investment for the owners, while The Inspira proved to be extremely profitable.

Despite the lackluster financial performance, luxury properties, or trophy homes like Martin No.38 attract buyers due to its distinctive architecture, exclusive amenities and the developer – SC Global. Buyers of Trophy Homes often prioritize status and personal enjoyment over profitability. In short, making money is not their main objective.

However, for those whose main objective when buying a property is to make money, the focus shifts to ensuring profitability. Adhering to the principle of “buy low, sell high,” these buyers prefer properties with(higher) potential for appreciation, making the higher psf entry price of trophy homes unappealing. After all, in property investment, you make money when you buy, not when you sell. This means your entry price will determine the probability of making a profit in the future.

Considering these factors, it is crucial to align your property purchase with your objectives. If luxury living and personal enjoyment take precedence over future profitability, luxury homes may be suitable. However, for those aiming to turn their property purchase into a lucrative investment, do be mindful of your entry price and avoid trophy homes.   

Regardless of the type of property you want to go for, securing the best possible packages for your mortgage/ home loan will never go wrong. You can get in touch with one of our mortgage experts for a free and unbiased consultation via the link below:

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