July 26, 2016 9 Comments
“Property Soul You’ve Got Mail.”
It’s another message about a home buyer’s remorse.
Every week there are so many messages on disappointment and regret after buying properties. They all go like this:
“I wish I had … before I bought …”
“Why didn’t anyone tell me …”
“If only we knew …, we wouldn’t have …”
“We should have … but we had no idea …”
So many look-backs. So many regrets. What’s the use of crying over spilled milk?
The killing part is that these messages all end with an inevitable request for advice like “What do you think I should do now?”, or “Do you think I should … or … “.
How do I know? I am not you.
I have been advocating for prudent investment in private properties in my blog since 2010. I am doing my job as a nutritionist, not a surgeon. I take preventive measures, not remedial actions.
Why don’t buyers do some research on the market? Why can’t they check with the bank first before placing a deposit? Why do people let their impulse and greed take over?
If only they knew the 4 facts of property investment before taking the plunge, there would be less home buyer remorse, and I would have received far less regret purchase messages.
1. Showflat is for display. Bare unit is for your stay.
You said the showflat in the sales gallery was so nice. You couldn’t help but imagining yourself staying there too.
There is nothing wrong visiting new launch over the weekends. There is also nothing wrong dreaming about the high life staying in a posh condominium. But please wake up and get back to life after you step out of the showflat.
“The truth is like an alarm clock. You might not want to hear it … but it will wake you up from your dreams and bring you back to reality.”
Look beyond the bells and whistles. Things that are glamorous on show are often humble in reality.
After you collect the key to your bare unit, you suddenly realize that all the nice views and for display only ID designs at the showflat are all beautiful misunderstandings. The space constraint, developer defects, poor workmanship, etc. are the reality you have to deal with.
Like lovers when they first met, they show their best to impress. But after they sign on the dotted line, they begin to show their true colors with eyes wide open.
You get the picture?
2. Properties are not safe investment. Fixed deposits are.
You said you want to develop a habit of regular compulsive savings by putting your money into a property and paying the monthly mortgage.
All adults should have no problem training themselves to put aside money for a rainy day. If you lack that discipline, consider giving a considerable monthly allowance to your parents or better half.
Forget the BS saying that money left in saving accounts will be eroded by inflation. Stop saying how property prices have jumped multiple times in the last decades. Singapore has long passed the exponential growth stage evolving from an emerging to a developed country.
Do your maths: Property prices have fallen 9 percent since September 2013. Singapore inflation rate is 2.4 percent in 2013. After 2013, it is hovering around 1 percent. Which side of your money is eroding faster: your property investment or your bank savings?
Just take a look at the performance of currencies in our neighboring countries, who won’t wish that they are holding the strong Singapore dollar?
Remember property prices dropped 44.8 percent from its peak in 1995? Would you rather hold cash in a low interest rate environment or jump on the bandwagon to buy overpriced properties?
An article in the Edge Property pointed out that in the last quarter 1 in 3 sellers of high-end properties incurred losses, with the majority bought in 2007 and 2010. Average loss is $1 million for units purchased in 2007.
In the city fringe, 1 out of 8 resale deals are in the red. In the mass market, 9 percent of secondary market transactions is unprofitable. A majority of the units were purchased in 2011.
It sounds ironic but how many investors can survive a property downturn or a housing bubble burst with profits higher than interest earned by an average Joe from his fixed deposit?
3. Income and appreciation are not guaranteed. But fees and taxes are certain.
You said you joined the huge crowd of buyers because it was rare for retail units in centrally-located malls for sale.
You bought a unit at Alexandra Central, a 99-year hotel and retail development next to IKEA@Alexandra, during the launch on January 21, 2013. It was just after the government introduced the 7th round of cooling measures on January 11 when Additional Buyer Stamp Duties were raised to 7 percent across the board.
Didn’t you read the signs?
Even though asking prices were a whopping $4,300 to $7,000 psf, all except 2 of the 116 shop units were snapped up on the launch day. One upper floor unit below 200 sq ft even attracted 150 cheques from eager buyers.
How much rent can you fetch from a 200 to 400 sq ft shop in a 3-storey shopping mall? How many bowls of noodles do you need to sell in a day to cover the rent? Are you aware that the mall is not even accessible to any MRT station?
I went there for dinner last month on a weekday evening. A year after the mall was opened in 2015, far more than half of shops at Alexandra Central are still vacant. There are more shopkeepers than visitors. It is that kind of mall that, after you see how quiet the ground floor is, you don’t bother to go up the second and third floor.
Supposedly you bought a 400 sq ft shop at $1.8 million and pay a monthly loan of $3,200, if you are lucky to find a tenant to pay a rent of $3,200, your return is close to zero.
But wait, you haven’t taken into account the high monthly maintenance fee and property tax, on top of the stamp duties and legal fee you already paid.
In this market, it is also not easy to find a buyer to take over a vacant unit in a quiet mall. Above all, commercial properties are subjected to a 5 to 15 percent Seller Stamp Duty in 3 years.
Honestly I don’t think any buyer benefited except Chip Eng Seng Corporation. Because of their best-selling project Alexandra Central, the property developer’s quarterly net profit jumped $167.6 million, a 383.9 percent increase from the preceding year.
Think about generating income and capital appreciation from property investment? Think again.
In properties, nothing is certain except fees and taxes.
4. No Freehold is not a problem. No holding power is.
You said you pay more to buy a freehold property because the value of freehold properties can hold.
Have you over-estimated the investment value of freehold properties? Just because developers bought the freehold land at higher prices doesn’t mean that it is justified for you to pay a premium too.
Afterall, the property game is all about affordability and holding power. And did I not mention enough buying the right property at the right time at the right price?
Don’t complain that you can’t finance or refinance your properties because of the restrictive Total Debt Servicing Ratio. Before you place a deposit, read my 3-3-5 rule again please.
Both freehold and leasehold properties appreciate in value during good times. The reverse is also true.
Tenants rent a place for its location, quality and value. They don’t give a damn whether your property is freehold or leasehold.
No freehold tenure is not a problem. No tenant is.
How long can you continue paying mortgage, maintenance and taxes when you can’t find a tenant? If you have no holding power, you’ve got to cut loss at certain point of time and let it go.
Regardless whether your property is leasehold or freehold, it is not ‘free to hold’.
Don’t buy anything before you attend my Buying My First Private Property Workshop on July 31 or you’ll regret it (again?). Learn all the tips and traps of buying properties from presentations, exercises and group discussions. See you on Sunday!