Eating out in Orchard on a Saturday evening, we just placed our order when my husband noticed something special about the restaurant.
“The owner of this place did hire pretty waitresses around.”
“Pretty? Where?”
“See the one over there near the counter.”
I looked in his direction and saw a voluptuous figure at the far end of the restaurant.
“That one really looks sexy. But she is, strictly speaking, not a woman.”
“Not a woman? What do you mean?”
At that moment, the ‘waitress’ walked over to our table to serve the drinks. Now at a close distance it was obvious that, behind the heavy makeup, she’s a transsexual.
“How can you tell it when she’s so far away from us just now?”
“Of course I can. Because all women can tell their own kind.”
It’s like the mother can surely tell the differences of her two identical twins. A plastic surgeon can always tell whether a celebrity has a nose job done. A gemologist can infallibly tell whether the stone is a real diamond.
The only ones who have no clue are the outsiders or the amateurs.
Telling real property investors from fake ones
The same applies to property investment.
Some may brag that they have made lots of money from flipping properties, buying high-profile projects or acquiring properties in overseas countries.
Some may claim that they are ‘successful’ property investors going from broke to owning a multi-million property portfolio, buying properties with no money down or using other people’s money.
Some may promise that everyone can get rich quick by going after their exclusive and super high return rare opportunities in any market.
The stories really sound sexy. But they are, strictly speaking, not investors at all. Because they make more money from the commissions and markups of selling these ‘high return’ deals than from the actual income or return of these projects.
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.
Go to any sales gallery or flat viewing and they know what to look for and how to ask the right questions.
Show them the sitemap and layout plans and they know how to pick the best block and best unit in the whole project (exactly what we teach at How to Buy Good Quality Properties workshop).
Show them the numbers they ask for and they know how to calculate the net return of the property.
Give them the facts of a shortlisted property and they know how to negotiate for a good deal.
Sign on the dotted line on the Offer to Purchase and they know which bank and lawyer to work with to ensure a smooth transaction.
Telling savvy property investors from average ones
Are people who bought high-end properties savvy investors?
Recently, Bloomberg’s article “Saving Singapore’s Wealthy” disclosed how banks in Singapore identify wealthy clients simply by the value of their home rather than their net worth or investable fund.
This selected group of privileged customers are signed up as ‘accredited investors’ and are qualified to invest in high-risk high-return products, despite the fact that they have borrowed heavily to fund their home.
With hunger for investment alternatives amid low interest rates, they bought lots of energy bonds (think the doomed Swiber Holdings). We already know what happen next – children’s college fees, retirement savings and emergency funds are gambled away just like that.
We can’t tell whether a buyer is well-to-do or an experienced investor from his home address. Some people I know have built an impressive property portfolio for rental income but still prefer to stay in an HDB flat. Similarly, people who have purchased several private properties do not necessarily mean that they are very good in the trade.
Below is a table showing the primary differences between a savvy property investor and an average property buyer.
I am still in my journey to learn and train myself to be a savvy property investor. But 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?”.
This weekend I am organizing a Property Investor Roundtable Luncheon for Property Club Singapore. I have invited a group of experienced property investors to share their views and knowledge on ‘Opportunities in New Development Areas’. I know all of them personally and I can say that they are all authentic property investors who meet the above criteria.
I look forward to learning from all of them!
Seventy percent of buying decision is made outside the showflat. Going to Showflat is just to confirm some interior design and layout and the final price.
Because it is ‘investment property’ the considerations are very different from ‘ own occupation’, being the returns supercede most other factors esp. personal taste. If one has bias against shoebox units for own stay, it is usually the primary consideration as it garners best returns and easily most rentable.
An example is newly TOP, Urban Vista next to Tanah Merah MRT. Most 3-bedders are still hang, whereas all one-bedders and studios are rented out.
Thanks for your comments.
I tend to disagree on the return on shoebox units. If a project is new, I am not surprised that the owners can still fetch a reasonable rental. Most property agents will bring clients to see new projects anyway.
The Edge Property mentioned that “Shoebox rents have fallen by more than 20% since their peak” and owners lost about $600 per month. Read http://www.theedgeproperty.com.sg/content/consider-these-when-buying-shoebox-units
On Saving Singapore’s Wealthy, the Investopedia definition of a millionaire is USD 1m after minusing all debts and it excludes the staying property. MAS regulates that it is $2m in assets or those having $300k income for last twelve months.
A family home of $2m in value qualifies MAS requirement, causing much social problems. Our MAS rules are pretty lax. There is no requirement to do credit ratings on these junk bonds. Allowing these corporations to issue these debt security without a credit ratings as required internationally and calling it ‘bonds’ is misleading. More so, when on international arena, it will be classified as junks?
It is our Regulatory that cahoots with these businesses to improverish our marginal rich.
There are three levels of High Net Worth Individuals (HNWI). The calculation of net worth always excludes the property one’s staying in, regardless of under mortgage or fully-paid for.
1) Your millionaire next door (US$1 to US$5 million)
2) Mid-tier millionaire (US$5 to <US$30 million)
3) Ultra-high-net-worth individual (≥US$30 million)
There are over 100,000 people in Singapore who fall into one of these 3 groups. However, not all of them are interested to be private/wealth banking clients. With so many banks fighting for a limited clientele, an alternative is to broaden the definition of HNWI so that they have a bigger client base to market their products.
Risky or not is only relatively speaking. Remember Lehman Brothers used to be a 'safe' investment option targeting the retired and the elderly? With low interest rates and low margins, banks have no choice but to market all these products to bank customers. And they always say "all investments carry risk" before you sign on the dotted line so that they cannot be held responsible if anything happens.
I have quoted a real life example of Urban Vista project that TOP a few months ago. Many 3-bedders for rent are still available whereas all studios and one-bedders are rented out. A 3-bedder used to rent out for $4k in the vicinity, is now accepting $2.8k. A one-bedder of 420sf used to fetch about a rent of $2500pm is now doing about $1900pm. So the 20% drop in rent for one-bedder would mean worse (30%)for bigger units.
Most expats today do not come with families as their own expat allowances are not given let alone families tagging along as companies cut cost. So the rent for bigger units are more affected than small units.
It isn’t only in Urban Vista but elsewhere as well. I exemplify it as it has many units on same point of time on rent.
My rent was also reduced this year. From 4000 to 3100! 🙂 3 bedder at Pasir Panjang area. Gosh I should have asked for 2.8k !
Wow, that’s already a 23% reduction.
Wait till end of the year. Many rental contracts are ending by that time.