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How to calculate a 20 year old freehold property pricing to that of today's pricing for fair comparison to a new launch in the same area?
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To calculate and compare the pricing of a 20-year-old freehold property to today's pricing, especially in the context of a new launch in the same area, you need to consider several factors:
Adjust for Inflation and Market Trends
Adjust the historical price of the 20-year-old property for inflation to bring it to today's dollar value. You can use the Singapore Residential Property Price Index or other inflation indices to adjust the price.
Consider Appreciation Rates
Freehold properties generally appreciate over time, but the rate of appreciation can vary. Historically, freehold properties have seen significant price growth, with average unit prices increasing by 188% from 2001 to 2021, compared to 206% for leasehold properties.
PSF Price Premium
Look at the PSF (price per square foot) price premium of freehold properties over leasehold properties. For example, the PSF price premium for freehold landed properties increased significantly over the years, from $28 in 2001 to $514 in 2021.
Age and Condition of the Property
Older properties may require adjustments for depreciation due to age and condition. However, freehold properties tend to retain their value better than leasehold properties, especially if they are well-maintained.
Proximity to Amenities
The proximity to essential facilities and amenities such as MRT stations, schools, and shopping malls can significantly impact property prices. Ensure that both the old and new properties are compared based on their relative locations and access to these amenities.
Current Market Conditions
Compare the adjusted historical price of the 20-year-old property with the current market prices of new launches in the same area. This will give you a fair comparison of how the property's value has appreciated over time relative to new properties.
Example Calculation
If a 20-year-old freehold property was purchased for $800 per square foot, you would adjust this price for inflation and market appreciation. Assuming an average annual appreciation rate of 5-6%, the adjusted price would be significantly higher. For instance, if the property has appreciated by 200% over 20 years, the adjusted price would be around $2,400 per square foot. Compare this with the current PSF prices of new launches in the same area to get a fair comparison.
By considering these factors, you can make a more accurate comparison between the pricing of an older freehold property and a new launch in the same area.
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