Tell me one good reason Why I should buy a property now?

Posted on December 31, 2008 by Mindy Yong.
Categories: Questions And Answer.

Tell me one good reason Why I should buy a property now?

Prospective buyer

Sam, tell me one good reason Why I should be buying a property now, rather than later.

Agent

The one good reason is because Temasek Holding is buying – with the government’s blessing. In other words, the government is allowing Temasek Holding to continue to plough the country’s reserves into good investments for the long-term good of the country. Do you think the Singapore government is not smart enough to see good investment opportunities?

Prospective buyer

But Temasek Holding is losing a lot of money at this moment! Don’t you think that it can also be wrong, maybe just for this time?

Agent

No sir, I don’t think Temasek Holding is wrong at all. Yes, it has lost some $16 billion after the stock market crash in October 2008, but that was due to one unavoidable event where almost everyone in the stock market got whipped. But in terms of Temasek’s acquisition of Merrill Lynch, Standard Chartered, Citi group and Credit Suisse and so on, these are ‘once-in-a-lifetime’ opportunities. Don’t you agree that Singapore come out of every previous crisis stronger and richer than others? It will be no exception with all these purchases.

Prospective buyer

But at this moment, it is losing a lot of money and some of the banks may still go bankrupt if the situation does not improve sooner. Don’t you agree that it is very risky to buy anything now?

Agent

No sir, many buyers have suffered ‘paper losses’ because they had bought their properties at the peak of the market bull-run in the 2006/07 period, when they should be selling.

In fact, the correct way to invest in property is ‘buying in weakness and sell in strength’, which means when the market is weak and the prices are low, YOU BUY; and when the market is strong and prices are high, YOU SELL’. Just like what Temasek Holding has done.

By the way, when do you think is the best time to buy?

Prospective buyer

When the crisis is over and the economy is improving.

Agent

When this happens, how many buyers do you think will be competing with you to buy your choice property, and how much higher will the asking price be?

Prospective buyer

I don’t know?

Agent

Mr Buyer sir, in a good market you will never be able to FIND THE RIGHT HOUSE WITH THE RIGHT PRICE.
This is because most of the property listings that remains on the market are not the ideal for you – they are either on low floor levels, bad design, or simply too expensive. You will realise that the house that you like is also being liked by many other prospective buyers and the seller will be asking for a king’s ransom.
This is the main reason why most of the people who bought their properties during the bull-run in 2006/07 are right now suffering from ‘paper loss’. Don’t you see that, at this moment, you are in a good position to land yourself with THE RIGHT HOUSE AT THE RIGHT PRICE?

Prospective buyer

But I still think that prices will drop further. What do you think?

Agent

I don’t see how this can happen without the Singapore government doing something to help. The government will never allow it to happen. Just like the United States government has done everything possible to revive the economy, Singapore government will do likewise to prop up the asset prices to prevent the Singapore economy from going down.
I can guarantee you that the prices right now are the RIGHT PRICES and they will never go down further.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Freehold properties are better investments than leasehold properties

Posted on by Mindy Yong.
Categories: Questions And Answer.

Freehold properties are better investments than leasehold properties

Prospective buyer

I will never buy a 99-year leasehold property. A freehold condo is always a better investment

Agent

Sir, if you are referring to landed properties, I would totally agree with you because you can hand down the land to the next generation; and the freehold land will continue to create wealth for generations. But the same cannot be said for investment in condominiums. Can you imagine yourself living in a 50-year old condo, with all the outdated fixtures?

Prospective buyer

But, when I want to sell it later on, the freehold status will attract higher price.

Agent

That is not true, sir. During the market bull-run in 2006/07 period, a leasehold project called Grangeford Apartment was sold en bloc for $800 million while its neighbour, a freehold project called Horizon Towers were only sold for $500 million.
Likewise, Scotts Square in Scotts Road, which is a freehold project, have done relatively poorer in sales than Orchard Residences in Orchard Road, which is a leasehold project.
Mr Buyer sir, at the end of the day, when it comes to investment in condo, freehold status counts for very little.

Prospective buyer

What if I live in the condo myself? Wouldn’t a freehold condo provide more assurance of easier sale, if I have to?

Agent

I have just said that nobody will want to live in a 50-year old condo, if they have a choice. As such, a 50-year old freehold condo won’t be easier to sell than a 5-year old leasehold property if the freehold condo is in a lousy location; and the leasehold property is in the best location.
Whether a property is easy to sell or not depends on many attributes, chiefly of which its location – which determines the rental value (also called investment value).
Freehold status, as I have said many times, counts for very little.
Likewise, tenants will not rent a very old apartment if they have the choice. And because the value of any real estate comes from the rents it collects, at the end of the day, whether a condo project sells well or not depends on the investment yield it can offer investors. May I show you a comparative study I have just done on two nearby condos to ascertain their investment value?

Prospective buyer

Okay, interest me.

Agent

As you can see clearly in the comparison of the two condos, the net yield of the three sample units at the Freehold Bullion Park condo is between 3.72% and 4.34% respectively. They are a shade lower than the net yield of between 3.97% and 4.5% produced by the three sample units at the nearby 99-leasehold Orchid Park condo.

But if the owners of Units J and K in the case study have leveraged their investments on a mortgage, they will be experiencing negative returns on, which means that they have to fork out cash every month to repay their mortgagees.

Prospective buyer

Why is the freehold condo unable to attract a higher rent?

Agent

While the landlords believe that their freehold units in Bullion Park are worth a ‘premium’ (e.g. units in Bullion Park cost $120 to $150 psf more than comparable units in Orchid Park), the tenants do not believe the project is worth a ‘rental premium’.
This is because on practical terms, the tenants of both the two nearby condos use the same MRT station, travel the same bus route, and/or pay quite similar taxi fares everyday. Why should the tenants pay higher rents?

Prospective buyer

So, what is the moral of the story?

Agent

Oh, I appreciate the ‘point blank’ question. Let me answer it ‘point blank’ as well. Freehold status alone does not bring better investment value, as can be seen from the above comparison between Bullion Park and Orchid Park condominiums.

The additional premium of $120 to $150 psf the Bullion Park owners paid for the freehold status of the project did not bring them any additional financial incentives.

Both the condos are attracting median rents within the same narrow range of $2.20 to $2.50 psf per month. In other words, by holding a more expensive unit with no added financial incentives (such as higher rents), the owners of any freehold properties are actually ‘under-utilising’ their own resources (i.e. money), and at the same time, exposing themselves to unnecessary risks.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Why should I invest in property now?

Posted on by Mindy Yong.
Categories: Questions And Answer.

Why should I invest in property now?

Prospective buyer

Tell me Sam, what is the point of investing in a condo, going through all the hassles, taking all the risks, and earning so little in interest? I might as well put the money in the fixed deposit and earns the same interest.

Agent

Sir, I think you have missed some very important points here. Yes, the equity dividend rate looks pathetic at first glance (Referring to the Bayshore Park case study). But sir, you must understand that the 4.15% yield is after you have paid off ALL the costs in property ownership, including property tax, total maintenance fees, and agent’s commission.

In fact, property investment is always better and safer than putting the money in the banks – which are only given the government’s ‘no risk’ guarantee a few weeks ago. Has anyone explained to you how property investment can work to your advantages in the long term? May I have the privilege of explaining it to you, sir?

Prospective buyer

Why not? Tell me how such a risky investment like buying into a old condo beats putting money in the Fixed Deposit Savings, which is totally ‘risk free’?

Agent

Sir, real estate investments offer, among other things, one benefit that no savings plan can beat, that is, you will become the proud owner of an property that provides passive income to you everyday.

Prospective buyer

What is ‘passive income’?

Agent

You and I are earning ‘active income’ right now. If we stop work, our income stops. When a landlord stops work, his income continues to flow from the rents he collects from his property investment. This is called ‘passive income’, which means you don’t have to work actively for it. The property works for you.

But sir, I must remind you that only properties bought cheaply during ‘bad times’ will be able to provide good ‘passive income’. If you buy the property during the bull-run market (or over-pay for the property), you expose yourself to some investment risks. Do you like to know more about the difference between a leverage investment and risk-free savings?

Prospective buyer

Why not? Tell me more about it.

Agent

When you put $250,000 in the Fixed Deposit savings, the money does not grow, except by the small percentage that the interest rate gives you. But for property investment, the capital value of the property will grow over time due to economic growth, inflation, and the specific demand and supply situation in the market.
So as you reduce your debts every month on the one hand, your equity in the investment property increases on the other hand. Do you realise that Fixed Deposit Savings cannot do this for you?
Moreover, if you have purchased the property at a low time, such as now, the capital value can only appreciate when the economy picks up its pace again, and in a short period of time, the property will create enormous wealth for you.
And the best part in this ‘wealth creation process’ is that, you do not have to come out with anymore fresh capital, your tenant is actually paying for you. Don’t you think this is better than the risk-free savings plan?

Prospective buyer

Yes, but you also admitted earlier that there is some risks involved. How do I know that the property prices or the rent won’t fall?

Agent

Yes, you are right sir. Risk is an important aspect of investment. In every investment, there are bound to be calculated risks, and nobody can guarantee you that you won’t be the unlucky one that gets hit by bad timing or bad luck.
The best way to protect against yourself from ‘risks’ is to buy the property during market lull (which happens every three to five years), or a recession (which happens every ten to twelve years).
This is because we won’t know when the market will hit the bottom, neither will we know when the market will hit the peak; so the best guide is to sell during bull-run and buy during a recession.

Prospective buyer

But nowadays, investors are shifting money to the safety of guaranteed bank deposit, do you think that a leveraged investment in property is still valid today?

Agent

Why not sir? The shift in investor’s emphasis today will not change the fundamental of real estate investment as the best vehicle to create and preserve wealth for generations.
I assure you that once the economic activities come back, the money that you have prudently put into a property will produce more value per dollar than any bank deposit.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

I am not sure whether this is a good time to buy ?

Posted on by Mindy Yong.
Categories: Questions And Answer.

I am not sure whether this is a good time to buy ?

Experienced Agent

Mr Buyer sir, I can tell that you and your wife love this house very much. What is stopping you from buying it today?

Young buyer

I think I should wait for a while longer and buy at a lower price. In times of great uncertainties, patience is a virtue.

Experienced Agent

Indeed, you are wise beyond your age, sir. Patient may be a virtue; but I am not sure whether I should agree with you about letting go something you like so much at such an opportune time. May I ask you an obvious question? Do you like this house? If I can assure you that it is absolutely safe to own this house, would you like to know how you can own your dream house when you are younger, rather than older?

Young buyer

Like I said earlier, we will wait for a while. After all, prices are dropping across the board. I believe we can pick and choose for a while longer.

Experienced Agent

But sir, every house is different. When you miss one that you really love, you may not be able to find a substitute property that you will love as much. What if I can prove to you that after five years you will thank me for advising you to buy today? Has anyone explain to you how wage inflation will affect your housing plan later?

Young buyer

What has wage inflation have to do with buying a house now? I don’t see any wage inflation in Singapore now.

Experienced Agent

Do you agree that we are going through the worst inflation in 26 years? I bet you do. But have your wages, as well as private home prices, increased lately? No, right? Don’t you think that it is illogical when there is a massive inflation, but home prices have come down, instead of going up like other commodities? And the Manpower Ministry has recently said that it is not recommending wage increase for fear of wage inflation. Do you know how ‘wage inflation’ will affect your plan to own a home, sir?

Young buyer

I don’t know.

Experienced Agent

Once the present economic uncertainties are blown over and when the dust settles, employers will hire again, especially companies from the US and Europe. This will push wages up to the next higher level much faster than now, taking into account the massive inflation now. In short, cost-of-living adjustments and inflation adjustments will follow suit when the economy is back on track.
As far as housing developers are concerned, they will also adjust their selling prices so as to compensate for the losses they incurred now.

Young buyer

I get the picture. But why should I pay more if I know that I can pay 5% to 10% lower, given that the economy is not going to come back so fast?

Experienced Agent

You are right, sir. But how do you know which price level will be the lowest? Did you remember the 2007 bull-run market? If you do, you should remember that once the time is ripe, everybody rushed in. There is no way you can pick and choose a unit like now, because all ‘good units’ are somehow booked before you even entered the Show Room.
For you age, I strongly believe that you should take advantage of the low interest rate now and build up your cash savings. Do you want to know how it works for young couple like both of you?

Real Estate Financial Planning for young buyers

Experienced Agent

For a young family like yours, a property allows you to build up your wealth quickly and surely, through your monthly savings. This is because you can utilise you CPF savings, which otherwise will be sitting idly in accounts and earning very low interest, to pay for the house.
You can opt for the maximum repayment term of 30 years and choose to pay a lower monthly repayment sum. In this way, you can free up some cash for other enjoyments, but still will not compromise the wealth building through the monthly repayments.

Young buyer

I know this part. What is so different whether I buy now or later?

Experienced Agent

Do consider what I am going to tell you next.
First of all, wage inflation has not set in yet; property inflation has not set in yet; and the interest rate is still at historical low. If you buy today, I am sure you are buying at one of the lowest price point in history. So I am very sure, your monthly instalments for the next few years are going to be very affordable; and because the interest rate is low, you will get to pay back more of the principal sum, and less interest. This means your strategy of ‘creating wealth through debt reduction’ is more effective if you buy now, rather than later when the interest rate is higher.
By the time the global economy recovers, which may be in two to three years time, you will experience huge capital appreciation in this property because you buy it today, rather than later.

Young buyer

But what if in the three to five years, the property prices continue to fall? Where would I stand?

Experienced Agent

It is possible but unlikely because of the nature of our economy. Despite repeated crisis over the past decades, property prices in Singapore went ‘up and down’ and not ‘down-and-down’.
When the economy recovers, wage inflation and home prices will shoot skyward. That’s where you will be able to refinance your asset and bring out cash from the property. By then, you income would have gone up and the ratio between your wages and the costs of property ownership will drop from the initial 50% to maybe 30% or even lower. You would then be living in a very affordable property and enjoying a lot of cash from re-financing your asset.
But you will not be able to enjoy those benefits if you buy your property later because all the financial packages have time bar that will restrict you from re-financing or selling the property in the first few years of the term.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

How LOW can home prices go ?

Posted on by Mindy Yong.
Categories: Questions And Answer.

How LOW can home prices go ?

Customer

Tell me Sam, how low do you think the property prices will drop to?

Agent

This is always a tough question to answer. But a quick answer will be as low as a high rental yield of five percent with a sitting tenant.

Customer

What do you mean by this?

Agent

Assuming you are the owner of a 2-bedroom Jurong East condo unit which is being rented out at a monthly rent of $3,000 or over $3.80 psf. Let say I offer you $500,000 to buy over your unit with the tenancy, would you sell to me?

Customers

No, why should I sell at such a low price? Besides, most of my neighbours are asking for prices between $560,000 and $650,000?

Agent

Precisely, and I dare say an average unit would not sell below $570,000 if the current rents maintain at $3,000 (give and take 5% fluctuation in the next 2 to 3 years) and with an outgo of 20%. An investor who are familiar with the project will snap up the unit if the owner is willing to go below a sale price that represent more than 5% net rental yield because that will be like stealing.

On the other hand, to buy the said property at $650,000 would present the buyer with an initial yield of 4.4%. The risk will be higher in the event that rents start to ease due to higher supply.

Customer

What if I am buying for self-occupation? Should I be bothered by the rental income of my neighbours’?

Agent

The same logic and reason apply to an owner-occupier when he purchases the condo because at the end of the day when he wants to sell it, he must be able to monetise it. A property with high and sustainable rental value will attract more keen interests than others.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Why should I buy now? I want to wait for the price to drop a little more

Posted on by Mindy Yong.
Categories: Questions And Answer.

Why should I buy now? I want to wait for the price to drop a little more

Customer

Tell me Sam, since you just said that prices are falling, why should I buy now?

Agent

First thing first, sir. Before I answer this question, may I know whether you like the house?

Customer

Yes I do but I think the price a little historic. I seriously don’t mind waiting for a while to get it at lower price. After all, there are going to be so many other choices available.

Agent

This may not be a very wise move especially when you like the house. I cannot guarantee you that you will find another unit which you like so much.

Moreover, your logic about property prices might not be very accurate. Historically, we can see that for a sound economy such as Singapore’s, the capital appreciation of real estate follows a certain healthy pattern, that is, the ‘new low’ will not be lower than the ‘previous low’ and the ‘new high’ will always be higher than the ‘previous high’.

This is especially so for a city state with limited living space and a vibrant economy.

Customers

But I thought there will be much more supply coming on stream from next year onwards? Don’t you think more supply will bring down the prices?

Agent

In theory I will have to say yes. But sir, do you seriously think that all houses are the same? For that matter, do you like each and every property that you have seen so far? I bet the answer is no. Therefore, in theory, higher supply causes the price to go lower when the demand remains constant; but in reality the higher supply of new homes may not occur in more desirable locations, such as here.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Should I Sell now ?

Posted on by Mindy Yong.
Categories: Questions And Answer.

Should I Sell now ?

Customer

Tell me Sam, do you think I should SELL my property now?

Agent

Why do you want to sell? The RENTAL VALUE of your property is still good.

Customer

But I am living in the house [I am not renting out], how does the rental benefit me?

Agent

Oh, it does sir. Rent is where the capital value of your property comes from [even though you are not renting it out]. You see sir, when your project [estate or block] is attracting good rental value, and when you put up your property for sale, investors will consider buying it because they can enjoy a good return on their investment.

Customers

How does it work for an investor?

Agent

For example, if you are selling your house at $1 million to an investor and the annual rental income is $60,000, it means that the investor is enjoying a yield of 6%. The banks are unable to pay that kind of high interest nowadays. Even if you minus the other costs of property ownership, the rate of return is still higher than the interest rate offered by the banks today.

Customers

So what do you suggest I do?

Agent

If you are going to monetise your investment, I can find a good and reliable tenant for you and ensure that the monthly rent payment is prompt. But if you really want to sell, I suggest you find an alternative home right now and I can help you pick a ‘winner’.

In this time of uncertainty, you need to pick the ‘winner’ which will not diminish so much in value even in a recession.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

How’s the Market ?

Posted on by Mindy Yong.
Categories: Questions And Answer.

How’s the Market ?

Customer

Tell me Sam, how’s the market now?

Agent

The economic fundamental is still good, except that the property market is a little erratic because of the problems in the US. But over here in Singapore, prices are still holding up alright.

Customer

In your opinion, should I sell my property now?

Agent

May I know why you want to sell it? As I have just said, property prices are still holding up in Singapore. Do you intend to take profit, upgrade to a bigger property or downgrading?

Customers

I want to cash out. What is your advice?

Agent

If you want to cash out; my advice is to cash out now or else you will be caught in a mad rush where everybody wants to take profit slightly before the casino is completed. But where are you going to live in?

Customers

I will rent a place first and wait for the market to cool down. Do you think it is a good idea?

Agent

I never advocate renting because it is no difference from you helping the landlord to get richer by paying his mortgage. I also don’t believe it is a good idea to go without a property on hand as you will be eaten alive by this monster called ‘hyper-inflation’. At the end of the day, whatever money you hold in your hand is going to diminish in value.

Customers

So what do you suggest I do?

Agent

You will have to pick a winner – a property that does not diminish in value so much even in recession [refer to the list of ‘Most Sellable Projects’ in First Quarter Property Market Review on www.update.sg].

You should choose a unit in one of those ‘most sellable project’ and make the switch now when prices are still strong for your ‘selling side’ and buy into a ‘winner’ project and let the inflation take care of the capital appreciation in the medium term.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com