Current news and views on the Singapore property market

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Previously, the most expensive and desired district to buy into was District 9 and District 10 (D9, D10). But now, there are another two areas that rank top favorite among investors, namely Sentosa and the Marina Bay financial area.

This is due to the upcoming Integrated Resorts (IR) there which means high potential for opportunities and growth in those areas. So far, our government has spent billions of dollars constructing the IR and resort world. This would definitely bring up the property prices there. However, those two places have not been ‘tested’ so many people are waiting with high anticipation for a living experience Sentosa and Marina Bay area could offer.

I believe these areas would be transformed into a place where people can live, work and play. We may not know whether its prices will do better than those in Orchard area, but what we must acknowledge is that its prospect is tremendous. This is our business area, where all the big banks and famous companies are located which brings forth a circle of wealthy individuals wanting to experience and be associated with this area.

Nowadays, many Singaporeans are looking forward to ‘lifestyle’ living. It is not just a shopping area but a place where you can walk along the bay and enjoy the sea breeze. This is not to say that Orchard will be losing out in terms of its investment potential. Areas such as Ardmore Park, Claymore Area, Four Season Area in the core central region are definitely still the hot favorite. Buyers of such projects are willing to pay over $3000 psf. The prestige factor is still there.

Therefore, whether it is Marina Bay, Sentosa or Orchard, all these are areas that are expected to remain in the investors’ top favorite list for a long time to come.

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Say, you have bought a property and now you need to decide how you should pay for it, what options do you have?

There are several types of housing payment schemes available, the most common being the Interest Absorption Scheme (IAS) and Progressive Payment method. There was a Deferred Payment Scheme but it has since been scraped.

For the IAS, you only need to pay the initial 20% down payment and subsequently the developers will help you pay the bank first. One crucial factor as to which payment method you should take up depends on whether you are a short-term or a long-term investor. This is because for the IAS, you will be tied up with a bank loan and should you break it before the stipulated time, you will have to pay a penalty. Therefore, unless you are willing to pay a penalty fee, you would not be able to sell off the property any time you want. Therefore for a short-term investor whose main aim is to make a quick profit by selling their property shortly after they bought it, they ought to not take up any loan, and sell as and when they like.

Progressive payment on the other hand, could be attractive to some investors. You would get an upfront discount of around 3-5% from the developers when you buy a newly launched property.

Some people do not want the progressive payment because they do not understand it well and mistakenly thought they had to make the full payment very soon. Yet this is not the case. For progressive payment, you only have to pay every time the developments completes the next building phase. Its amount could also add up to be around $100$200 each month, depending on the type of property purchased.

Therefore, do make an informed decision by looking through all options carefully and actually understand how they work, and you will find the most suitable payment package for yourself.

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When buyers consider their buying an investment property, they almost always compare it with investing in stocks. Should you buy properties or stocks?

There are many vehicles of investments, stocks and properties being one of the two most popular types. The main difference between stocks and properties is that the latter is more of a long-term investment, whereas for stocks, you can sell almost immediately as and when you want. Often, those who invest in stocks don’t want to hold the stocks too long and are satisfied with making little profits, fearing that the stock market could suddenly plunge overnight.

Properties on the other hand, take time to buy and sell, and therefore have a better appreciation for capital gains. Today, more and more people are putting their money in property because they realise that property will always be an asset. If the price appreciates, then an investor who wants capital gain could sell off the property and make a profit.

Take Ardmore Park for example. It was just $1800psf in its 1996 launch and once dropped to $1300 to $1400 psf. Yet today it goes up to $2500psf and more. The greatest advantage of property is that it is a holding asset. Even when the price falls, you could still get back passive income if Singapore’s mortgage rate remains low.

Ultimately, between property and stocks, it all boils down to

1. what kind of investor you are -short term or long term?
2. what your objectives are, and of course,
3. how good is your holding power.

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When crisis strikes and prices starts to slide, a lot of property investors just don’t believe their logical mind. They refuse to believe that prices can fall very drastically, and that it can keep falling. When a situation is created where there is a lot of supply and no demand, the price decrease could be drastic.

One of the best lessons I’ve personally learn is that when crisis strikes, cut your loss early and move on. It doesn’t matter if you can’t make a profit or suffers a loss. You want to avoid losing too much. The price could drop further during crisis situation; for instance, think about the sub-prime crisis in USA that set of a chain reaction across the world. Even though you do not know when exactly the prices would hit rock bottom, you can always re-enter the market when you feel that the price is good enough.

In this aspect, this experience is similar to investing in the stock market. I would always advise my clients to cut any loss early. Do not wait till everyone starts selling their property. There will always be opportunities to enter the market with less risk in the future again.

However if you have holding power, and your objective is more for rental yield, than capital gain then perhaps holding can be a good choice for you. In this case, when mortgage rates are lowered, you could still be earning passive income.

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There is no one best country to invest in real estates as the market is always changing and evolving. Many people invest not only locally and regionally, hoping to make some capital gains or yield through their investments. But before you start investing overseas, there are a few key things to look out for.

Difference in buying locally and overseas: So what is the difference between buying a local property, i.e. in Singapore, and one overseas? Some important factors to consider are

1. the interest rate of banks overseas,
2. the expected rental yield, and
3. currency rates, which is constantly changing.

Take for example, Australia. It’s rental rates are very enticing where it can reach 11%, but its interest rates are at a high of around 8 %. Shanghai, on the other hand, is a very promising area but its interest rate is about 6%. Therefore, in this aspect, it may be less attractive option after all, since you still have to take the currency exchange rates into consideration when computing your expected gains.

Research and planning before purchase is crucial. If you are physically in Singapore most of the time, it makes it a lot easier for you to monitor the local market, mortgage rates, contractual terms, housing laws and regulations, unlike if you are planning to purchase a property in another country. For instance, ask yourself, Do you know how much is the down payment required, or if there is a capital gain tax in the country you hope to invest in? If you do invest elsewhere, make sure you find out if you can take back your capital gains to Singapore, and if so, how much.

Also, investors tend to be more confident if they can be around to see the property physically.

Generally, as long as you put in a concerted effort in understanding the country, district or area’s market, such as the property’s historical price, resale factors, you could possibly make a neat gain from your overseas investments! Overall, weigh your cost and benefit of purchasing a property overseas as compared to one in Singapore.

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In property purchase, nobody knows where the bottom is. Even analyst and experts can be wrong on this. But you should always try to look out for some signs that the market is bottoming out.

You first have to have some knowledge on the project’s historical price to determine how much its price can drop in the future. It also gives you an idea about the potential upside of the project judging from its peak price as well as launch price, which sometimes serve as a benchmark. If you have the holding power, your risk is a lot lower than if you don’t.

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Property agents are known to market themselves aggressively. We get their flyers stuffed into our letterboxes everyday. But how do you pick the right one out of so many dolled up faces you see on the flyers? Or should you just rely on referrals?

Traditionally, people simply expect housing agents to just have the knowledge about the property they intend to sell. But today the expectations of homebuyers going beyond that. Now buyers expect an agent to be able to analyze the market and update them with market pricing of the different locations be it in the North, South, East, West or the Core Central area. It’s not just about those projects they are selling only.

Agents should no longer concentrate on just buying and selling. Today they need to know extra information such as bank interest rate, loan schemes available for their clients etc. Then they can give good advise to potential buyers on financial matters and even estimate the monthly returns for the buyer.

A good agent is also someone who reads the paper daily to know what is happening in the country and around the world. How the stock market or Gross Domestic Product (GDP) is progressing can easily affect the buying/selling price. These are factors that drive consumer sentiments. And the property market is largely driven by sentiments.

The best agent you can get is one that has a broad knowledge of the market environment. How much information they can share with their clients is a test of the depth and breath of their knowledge.

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“Should I buy a brand new condo or a resale one?” I get asked this quite often from clients.

Sure, its nice to purchase that brand new condominium, especially when you can take advantage of the Interest Absorption Scheme (IAS), where you pay the full amount only at TOP (Temporary Occupation Permit).

But my advise is buy a resale unit. There are a few advantages. For a start, the price could be a lot lower than a spanking new unit. This automatically lowers your risk. Even if the value of the unit falls, the rental income you can get from it could possibly tide you over or even make some passive income especially with our low interest rates.

Compare this to buying a newly launched property. You would not be able to earn any rental income. [need elaboration]

For new property, the project is not TOP yet as a result the 20% down payment that you put down does not generate any returns and you cannot leverage on the banks that offer low interest rate today.  As for resale properties, owner can enjoy passive income from the rental as the interest rate is low.

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It’s a common story. Buyer sees a beautifully decorated showroom, gets an adrenaline rush from throngs of people viewing it coupled with the pressure imposed by pushy agents and get all caught up in emotions. Then they see people rushing in to buy. And they don’t want to lose out. Before they know it, they are writing the cheque for the down payment without really knowing why.

This is exactly what I want to advise you against. As rational buyers, we should be careful about emotion-buying. Let’s not just follow the crowd. Like any emotionally motivated decision, there’s high risk in buying blindly.

Nowadays, we see many buyers rushing in to buy newly launched condo, when many of them have relatively small land size. Thus you must be very clear of the potential upside in buying such a property.

For small units, at what price must you sell to make a profit of $100,000? Perhaps $100 to $200 above your original psf price. In my opinion, a $1900 psf is on the high side, of course it depend on location too.

Ask yourself, if the market crash can you still manage your mortgage; ie. is it sustainable in the long term?

Technically, if you are looking at capital gain, there is no difference in buying at $1,500 psf or $2,000 psf, if your price increases by $100 psf for either. A lot of people don’t realise that it is probably better to buy a bigger unit at around $1,500 psf. Every $100 psf increase is a profit for you.

What matters then is the size of your condominium unit. Ultimately, the higher the psf for a small unit, the larger its risk.

SINGAPORE’S property market looks set for recovery, although the ride ahead is not likely to be smooth, according to the chairman of property developer Wing Tai Holdings.

Mr Cheng Wai Keung, speaking yesterday at Wing Tai’s full-year results briefing at Fairmont Singapore, said the mass market segment had probably stabilised and he was cautiously optimistic about the mid-end segment.

The only market area he was not so bullish about was at the high end, where recovery was uncertain in the absence of a global recovery.

Mr Cheng said demand – particularly for mass market homes – had soared in recent months.

Since July 1, Wing Tai has sold 269 units worth $575 million at Belle Vue Residences in Oxley Walk, Ascentia Sky in Alexandra Road and Floridian in Bukit Timah.