Invest in Singapore property: Select right property

Invest in Singapore property: Selecting the right property
Courtesy of www.propertyBUYER.com.sg
http://www.propertybuyer.com.sg/viewnews.php?article=109

There are many things to consider in property investment. Financing is one of them

First of all, let us clarify, we are NOT property agents, so we have no vested

interest in what property you select. We are merely writing this based on our

experience. We are Singapore Mortgage Brokers who help you get home

loans or to refinance your property.

Tel: 6100 - 0608 sms: 9782 - 8606
Email: loans@propertyBUYER.com.sg
http://www.propertybuyer.com.sg/contactus.php


The key things to consider in Property Investments are: -

* Affordability and holding power

* Rental yield

* Capital appreciation


Affordability and Holding Power

Ideally, you should not purchase an investment that is way beyond what you

can Safely Afford.


You should also have good holding power to withstand Mortgage home loan

interest rates fluctuation as well as have enough cash flow set aside for up

to 24 months of Mortgage Home loan installment.


This is important as market condition can become volatile and the last thing

you want to do is to sell your investment property at a huge loss in a

Singapore Property market stricken with panic.


You can check your affordability with us: -

Email: loans@propertybuyer.com.sg


Rental yield and Income

Rental yield is important in a property investment. However rental yield

cannot be over-emphasized.


What is important is the Return on Invested Capital (ROIC), most commonly

referred to as ROI.

Rental yield is: -

Annual Rental divide by Property purchase price


Return of Invested Capital (ROIC): -

[Annual Rental - (Interest financing cost) - (Maintenance & Misc Cost)] divided by Invested Capital

By looking simply looking at a property investment and comparing yield can

be very mis-leading. It is similar to looking at P/E for shares. As rental prices

fluctuate, so does property prices.


Buying based only on investment yield is the of the most foolish mistakes a

property buyer/investor can make.


RENTAL DEMAND

Singapore's rental demands are mainly derived from foreign expatriates as

most Singapore citizens own their own homes.


RENTAL SUPPLY

Property stock do not stay the same, as Property Developers will likely get

first hand information from Governmental development plans in order to add

to the supply.

PROPERTY VACANCY RATE

Singapore's property vacancy rate have traditionally stayed at around 6 to

8%. This means that 6 to 8% of all private properties remain vacant.


From the recent late 2006, 2007 and 2008 experience, especially in 2008,

population grew up around 5.5% to 4.8m. The bulk of the population growth

is through foreigners coming to Singapore to work or stay. This drives the

vacancy rate downwards to around 3 to 4%. Rental prices start to shoot

upwards when vacancy rate drops to around 3 to 4% as this indicates

severe shortage.


In order for vacancy rate to go from 7% to 3% (within a year), based on the

property stock of ~ 300,000 units of private property, that is 12,000 units of

additional rental demand needs to be created.


Given that property developers are adding to the stock all the time, in 2008

forecast supply growth is around 4%.


That means for 2009, there needs to be 24,000 rental demand (within a

year) in order to SQUEEZE the rental market. Of course certain locations

will be more SQUEEZED than the others and start to rise first.


Otherwise, the rental market will remain very SLACK and without direction.

What happens when RENTAL yields go up?

When rental rates go up, the yield increase. When the yield increase, the

property prices go up.

So it is important to look at YIELD for a rolling 2 to 5 years instead of simply

the latest and most recent yield.

As an illustration, a Property with a 4% Rental yield.

In 2006

$3,000 per month or $36,000 per year ------> $ 900,000

In 2007

$3,500 per month or $42,000 per year ------> $1,050,000

In 2008

$4,500 per month or $55,000 per year -------> $1,375,000

In 2009 and Beyond???

$3,000 per month or $36,000 per year -------> $ 900,000

Given that property developers usually hold out till rental prices are good

before they launch so as to capture the BULK of the VALUE. And because

the property developers time it so well, the BULK of the VALUE created for

their company is from you and paid for BY YOU.


The average yield for SIngapore Properties is around 3 to 5%. At 4%, it

represents a 25 times leverage.

For every $100 increase in monthly rental, it leads to $1200 rise in annual

rental and hence $30,000 more for a property!!!


MAJOR RISK BUYING AT HEIGHT OF RENTAL PRICES

If you go in at 2008 thinking that a property is NOT BAD at 4% yield, it is

worth it to pay $1,375,000, you are exposing yourselves to a huge risk,

because if rental values cannot keep up or falls back, you are looking at a

$475,000 of capital loss.


WHAT IF BANKS ASKS YOU TO TOP UP CASH

And in case the banks exercise their clause to ASK YOU TO TOP UP your

equity in the home / property since the valuation has FALLEN, you will face

severe hardship!!!


CAPITAL APPRECIATION POTENTIAL

Some Singapore properties such as River Valley, Orchard road as well as

Singapore properties around District 9, 10, 11 and 15 have highly volatile

rental prices.

For example a yield of 10%, (formula 1 / 0.1 = 10) the leverage is 10 times.

For a rental of $12,000 a year, this leads to a

Capital value of $120,000


For a yield of 4%, (formular 1/0.04 = 25) the leverage is 25 times.

For a rental of $12,000 a year, this leads to a

Capital value of $300,000


So it is important to compare and get the yield from a Rolling 3 year

average, 5 year average from which to do your calculation. Otherwise you

are prone to make the "Mistakes of small numbers", by basing your decision

on a particular short span of track record of the property market and it's

possible income (rental).


Strata Title

No matter where you go, buying a condominium unit will entitle you to a

share of the land where the condominium is located. The higher the

Condominium go, the less land share you have.

As an illustration: -

Land of Estate = 200,000 sq feet

Plot ratio is 3 = 600,000 sq feet

That means that that entire plot of land builds up to 600,000 of space that

can be SOLD to public.


That can be either 3 storeys x 200,000 sq feet or 6 storeys x 100,000 sq feet

or 24 storeys x 25,000 sq feet each floor. Developers will build higher or

lower depending on regulatory requirements.


Let's say 600,000 sq feet is built into 600 condominium units of 1,000 sq feet

each.

If you own a 1 condo unit, your share of PHYSICAL LAND is only 333 sq

feet.


This is vastly different from owning a landed property where you own the lot.

Strata title risks.

Strata title land has some risks of collective decision making. For example if

80% or 90% (depending on age of property) decides to sell to an en-bloc

developer, even if you disagree, you will have to sell.

En-bloc may not necessarily be a good thing in some circumstances.

Landed Title risks

Landed title do not have the risks of Collective decision being imposed on

you. But it holds other risks. Due to the smaller cost for the government to

acquire your land under Urban redevelopment Authority's land acquisition

act, in case the government wants to build a road through your house, your

house will be forcibly acquired. And although the government pays a market

price (or so they claim) for your property, most people whose property had

been acquired has never been really happy with the compensation. And the

government do time their purchase at a time when the market values are

low, leading to home owners capitalising the losses.


Should we go as high as possible?

Typically NO. Taller buildings have a higher maintenance cost over the longer term. Not only that, you are paying more for a building rather than the Land.


Over time, the building deteriorates. And if the land's appreciate does not

offset the price drop of the aging building, the Capital appreciation could be

moderated.

Should we go as low as possible?

Yes, generally true as you own more of the "Physical Land". But if you want

to own a condominium which has less than 6 storeys high, you may miss out

on speculative demand from Foreign buyers.

6 Storey High Properties

Foreigners cannot buy landed property or property whose development has

less than 6 storeys high. This is to prevent hedge funds and wealthy

individuals from cornering and hence controlling Singapore's domestic

economy through LAND.


Singapore mortgage advisor like us to help you go through many valuations

and recommend a SAFE price to bid for your property. That drags out the

buying time.


Why work through www.PropertyBUYER.com.sg for mortgage home loans?

We help property buyers to look through each property's valuation to

establish a valuation range for any given unit. And based on that, we

recommend a bid price for the buyer.



www.propertyBUYER.com.sg is a research-focused Singapore Mortgage

Advisor that helps individuals get the best fit Singapore Home loans or to

refinance their properties, not simply the cheapest Singapore Home loans.

You can come to us for your Singapore Home Loan needs and we will do the

research work to compare all the bank's packages as well as assess the

best fit for you.

ABOUT US Contact us

Tel: 6100 - 0608 sms: 9782 - 8606

Email: loans@propertyBUYER.com.sg

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