Ask the experts: 8 property investment questions for 2016

monkey_talkProperty Club Singapore kick-started 2016 with Properties in Year of the Monkey Market Updates and Networking Luncheon. Speakers shared with the 90 participants their latest figures on the performance of different property sectors. They also recommended some property investment strategies for the new year.

Participants found the roundtable discussion session and the panel discussion at the end very informative and useful. During roundtable discussion, seven industry experts were invited from different property-related industries to lead the discussions with their table of participants.

monkey_talk2Every time a participant raised a relevant question, it was like pressing the hot button that triggered questions or comments from everyone. Afterall, it was a rare chance to get up close and personal to seek advice from these industry veterans.

Below is the summary of the experts’ answers to some commonly-asked questions, including some good questions raised by the audience.

1. What is the determining factor to relax the cooling measures?

Debbie Lam, Manager of Consultancy & Research Department at Knight Frank, explained why the government is unlikely to lift cooling measures, based on the comparisons of property indices of private residential homes.

Resale Price Index has fallen 8.4 percent from the peak of the market in Q3 2013, compared with an increase of 62 percent from the market bottom in Q2 2009. Rental Index has dropped 6.7 percent since last peak in Q3 2013, but rent has risen 27.5 percent from last bottom in Q3 2009.

That’s why it’s not time yet to unwind the cooling measures until prices drop to a meaningful level.

2. Will rental prices drop further?

“It depends very much on supply and demand. And it is not how many units that will be completed, but whether demand can keep pace with supply,” said Debbie Lam of Knight Frank.

“The vacancy rate of private residential units now stands at 7.8 percent. It will go higher with 22,000 new units to be completed this year which will put more pressure on the rental market. Rents in the suburbs will go down more since 55 percent of new private homes are in the Out of Central Region.”

3. What are your views on the commercial property market?

“The interest of Singaporeans buying office and retail properties has dropped significantly since the introduction of the TDSR. The commercial property market is currently experiencing some challenges – the results of slower economic growth and higher market uncertainty,” commented Alice Tan, Director and Head of Consultancy & Research at Knight Frank.

“With keen competition in the office market, both office rent and strata office prices have slipped. Prime office space of close to 3.8 million sq ft will be available in the CBD in 2016. This large supply of prime office will force the prices of the office rental market to a downward trend.”

Tan continued, “We have a similar situation in industrial properties. There is close to 22.7 million sq ft new supply of industrial space in the last three quarters of 2015. Tenants are simply spoilt for choice in this already very competitive industrial leasing market.”

4. What is the biggest pitfall when buying properties in Singapore?

Andrew Chee, Head of Valuations at SRX Property Valuations which is a StreetSine Technology Group and SPH company, pointed out the mistake that many Singaporeans make when they are buying properties.

“The biggest myth of investing in properties is believing that property will continue to appreciate every year. However, history told us that property prices can go up and down in tandem with the economy. Even properties in prime locations can be a bad investment.”

He continued, “The goal of property investment is not to buy property, but to build wealth. People should buy properties that have good potential for capital appreciation because these properties can hold their value during a downturn.”

5. Where do you find the hidden gems is this market?

Samuel Leong, founder of SL Builders which specializes in design, construction and renovation of houses in Singapore, shared with the audience market insights obtained from his daily interactions with different stakeholders in the property industry.

“The market may have slowed down but buyers are still going after landed properties. Look for good deals in the current market. Look for old houses that have good potential for redevelopment. Singapore is land scarce and there is limited supply of landed properties compared with condo projects. In time the value of houses will appreciate with the recovery of the economy.”

6. Should I buy in 2016 if I have the money?

“If I had the money, I would be hesitant to put my money in properties this year.” Tay Kah Poh, Executive Director and Head of Residential Services at Knight Frank, said with a chuckle.

“The property cooling measures and prevailing economic uncertainties are hurting the residential property market. Other concerns include the large stock of unsold units, soft rental market and rising interest rates. All these are holding back the investors to enter the market during a time when they expect further downside of property prices,” Tay added.

“Besides, there are many assets for investment besides property, such as Singapore government bonds. Buyers have to understand that property is not a liquid asset and they cannot cash out any time they want.”

7. How do you see the potential of Singapore’s new development areas?

Edwin Lam, founding partner of Designscape Architects, had once shared with the audience how to identify opportunities under the URA Master Plan in a previous talk organized by Property Club Singapore.

Geylang is the place where I see a lot of opportunities there. It is conveniently located in the heart of Singapore with close proximity to the CBD. Prices of properties are still very reasonable. I believe Geylang properties will have a lot of upside potential,” commented Lam.

On the other hand, Tay Kah Poh from Knight Frank held a more conservative view on property hotspots publicized by the media.

“Development of Jurong Lake District was first disclosed in the draft Master Plan 2008. So far there are new shopping malls and a new hospital, with new condos building in the area. However, the two zones Jurong Gateway and Lakeside need time for redevelopment. Buyers need to wait for the completion of the infrastructure to tell whether Jurong is a property hotspot,” said Tay.

What about Woodlands?

He continued, “They announced that the Rapid Transit System to link Singapore and Johor Bahru will end at Woodland and they are targeting to complete by 2019. However, if Jurong is not ready, Woodlands is farther away from being ready.”

“Avoid buying into the hype. Property owners are advised to be realistic about the return of properties in new development areas.”

monkey_talk3Tay illustrated his point with an example. “Paya Lebar Central is tipped to be the next commercial centre. When buyers snapped up Payar Lebar Square back in March 2012, they expected to fetch a rental of $6 psf for the office units. It was not until after TOP that the reality started to kick in and landlords finally realized that they could only ask for $4 to $5 psf for their units.”

8. What are your views for investing in REIT?

Debbie Lam from Knight Frank explained, “It is easier to tell what will happen to the physical properties as compared to REITs. It is because REIT is a portfolio of properties that are vulnerable to interest rate hike due to higher gearing.”

Wayne Quek, Director of Home Loan Whiz, echoed with Lam, “Since REITs usually have a high gearing ratio, rising interest rates imply higher interest expense which in turn affects the profitability of the REITs.”

“On the other hand, a short-term correction of REIT caused by rising interest rates may present some buying opportunities for investors who are looking for value buys or good bargains,” commented Quek who shared the tips based on his past experience of handling over $2 billion worth of mortgages.

During breaks, participants visited the booths of StreetSine Technology Group and Singapore Furniture Rental. Many signed up for the latter’s free home staging visit before they went home.

(Note: The above are personal opinions of the industry experts which do not necessarily represent the views of their respective companies or the stand of Property Club Singapore.)

Join us at the next education talk “Property Defects Inspection 101” on February 27 to learn more about common defects of TOP units and how to inspect resale flats and units after renovation or handover by tenants.

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