As property investors, it is always interesting to meet like-minded individuals.
During the process of exchanging personal experiences, we get new ideas and inspirations. For subjects like property investment that have no definite guidelines or standards, comparing notes with others can offer better clarity and more insights. At times, it is thrilling to have an epiphany.
Recently, I came across a property investor sharing his views. I was glad to find that we have many similarities in our property investment approach.
For instance, we both believe that property investors won’t buy any project unless they know it inside out. This includes finding out which blocks, units and layouts are the best in the development. That is exactly the skills I shared in my How to Buy Good Quality Properties online course and workshops.
Another thing, we both think it’s a bad idea to buy ground floor units with patio. I was thinking about rubbish thrown from upper floor units ending up in the yard. But he was worried about upper floor neighbors jumping off their windows. If that happens, the value of the ground floor unit will immediately depreciate at least 40 percent – the more the levels in a project, the higher the risk the ground floor units.
How to tell good property investors from bad ones
Anyone can call themselves property investors. But there are differences between good and bad ones. Instead of citing paper profit of a property at a certain time, it makes more sense to look at the cashflow and annualized return over a longer period of time.
“Buying properties is like sailing in the open waters. When the wind and waves are in your favor, it doesn’t matter what you buy. Everyone makes money. Indeed, it is almost impossible to lose money when buying a property and selling it shortly thereafter when prices are on the way up. The trend is your friend until it stabs you in the back.”
– Vina Ip, Behind The Scenes of The Property Market
In other words, it is not about showing off the purchase of an expensive home, nor flipping a property for quick money. Or worse still, some investors are simply buying poor quality properties one by one to add to a bad property portfolio.
“People who have purchased several private properties do not necessarily mean that they are very good in the trade … Savvy investors are the ones who can spot the hidden gems from the rough. They can naturally smell a good deal. They are a breed apart from the fake version in many palpable ways.
I can easily tell whether someone is a value investor in properties by asking him three simple questions:
1. What have you bought?
2. When did you buy them?
3. How much did you buy them for?
If he is not keeping the properties for the long-term, a fourth question will be ‘How much did you sell them for?”.”
– “How to tell savvy investors from average ones?”, PropertySoul.com
How professional property investors think
Firstly, professional property investors don’t care much about macro factors, for example, how the economy is performing, or whether interest rates are going up or down.
Even if we see property prices going up, not every project is worth buying. If you buy following the market trend, the value of your property will rise when property prices go up. But the reverse is also true.
For savvy investors, even when the market is doing well, they will avoid buying poor quality properties. On the contrary, when the market is bad, they will look for properties with holding power. Once the market recovers, prices will rebound. The investment will be very profitable.
To sum up, for professional property investors, the two key questions that determine buy or no-buy decision are:
1) Whether this is a good quality project; and
2) Whether it is worth buying at the current price point.
Also, there are a few key factors to evaluate whether a project is worth buying: supply pipeline, building quality, rental return, developer launch price or owner’s asking price, and the location (transportation, shopping, amenities, etc.).
Buy in town rather than in the suburbs. Always think about what your next buyer needs rather than what you need.
Sometimes even when location, developer and quality are all good, the property can still be a bad deal. The reason is developer launch price is too high. If you do your research on all the resale projects over the years, you will understand why price depreciation can be so high. Be careful of those projects that, after you buy, the value will depreciate year after year.
Let’s go straight to the point
It is interesting to read comments from developers and property agencies after the first weekend launch of new projects. They are no different from equity analysts finding a reason to explain why stock prices rise or fall on the day.
If a new launch shows decent weekend sales, spokespersons sing the same song about falling interest rates, pent-up demand, buyer confidence and strength of the housing market. Anyway, it is just another free advertorial in the media.
Apart from the BS talk of macro factors, no one points out the real reason: Facing market uncertainties, developers deliberately lower asking prices to compete with other new projects in order to clear as much stock as possible.
A good example is the recent new launches in CCR. Luxury condos in Singapore’s prime districts have seen better days from 2007 to 2010. Unfortunately, the tide has turned since the ever-rising ABSD slapped on local and foreign buyers. For the past few years, it has been increasingly difficult for developers to attract buyers for CCR projects.
After the 2nd quarter, under the uncertainties of the Trump tariff, developers can no longer hold back. Projects release at the same time triggers Great Singapore Sale of new CCR new condos. Within a month, asking prices drop from $3,800 psf to $3,100 psf. What a desperate move to pass on the risks to homebuyers!
The market shows that the lower the asking price, the better the sales the first weekend. By the way, there are more CCR new projects queuing to be launched. Will they go below $3,000 psf? Where are the price gaps of new projects in CCR, RCR and OCR? What psf price can CCR resale homes sell in the current market?
Majority of new launches are landmines
The property investor also mentioned that over 70 percent of new projects launched by developers now are landmines. His estimation of 70 percent is too conservative.
We can vividly recall how enthusiastic homebuyers snapped up newly launched luxury projects in CCR between 2007 and 2010. Then the Sentosa luxury home market started to soften in 2011.
“Marina Collection is a high-end project in Sentosa launched for sale in 2007 at $2,600 to $2,800 psf. Unfortunately, prices soon plummeted to $1,600 to $1,800 psf. By March 2011, 38 owners of 42 sold units defaulted on their UOB mortgage.”
– “How rate hikes hit developers and homebuyers”, PropertySoul.com
From the Covid-19 outbreak to this day, every month CCR prime properties topped the list of the most unprofitable transactions, with owners suffering the biggest losses.
“Scotts Square was launched at $4,000 psf in 2007. Thirteen years later in 2020, the latest transaction record of a one-bedroom unit on the 32nd floor was sold at 20 percent lower at $3,200 psf.
Hamilton Scotts was released in 2008 at $3,600 psf. The latest transaction last month was a big discount of 28 percent at $2,600 psf.”
– “When a fling becomes a thing”, PropertySoul.com
How can prime residential properties chalk up the biggest losses every quarter? Thanks to the CCR en-bloc craze in 2007-8, re-investing of en-bloc windfall in CCR, and aggressive developer pricing of CCR new luxury homes at that time. Of course, Singapore’s 60 percent foreigner ABSD also adds fuel to the fire.
Painful mistakes continue to repeat themselves in history because people never learn their lessons. We don’t need a crystal ball to tell what is going to happen to those who are now buying non-CCR new projects at CCR prices.
Food for thought
As property investors, we also discuss how we see the market in the near future.
Although we both make our money in properties, we can’t deny the fact that times have changed. In the past, we had every reason to be optimistic. In fact, we had all the cards in our favor – cheap properties, easy borrowing, low interest rates, few buying restrictions, reasonable taxes, good budget tenants …
Like it or not, things are different now. We have no choice but to invest carefully and conservatively. To be honest, we may not want to consider investing in properties in this market. Because even if property prices continue to go up, the yield and profit may not beat other types of investment. But if prices drop after our purchase, there is plenty of room for market correction. In other words, the potential for loss outweighs the potential for gain. Property investment carries higher risks but lower chances for good returns.
After all, the number one priority in investing is always to preserve the capital.
Join us at “The Future of Singapore Homes” education seminar on August 30 (Sat). Register here.
My book Behind The Scenes of The Property Market is available for preview and order online.
Check out my new online courses How To Buy Good Quality Properties and Buy The Right Condos.
If you need advice on property matters or residential properties in Singapore, you can check out my one-to-one consultation service.
Leave a Reply