When a fling becomes a thing

Are you tempted to chase after surging prices of hot stocks to make some easy money? Do you often jump on the bandwagon of hot investments for fear of missing out any profit? Do you like to check out latest gadgets when you already have similar versions at home? Have you been distracted by any third party when you are in a stable relationship?

A fling is an affair that only exists for a short time. It doesn’t matter whether it lasts for years, months, or just weeks. You know from the beginning that it will end someday. It may be friends with benefits, with no string attached. You are aware of what you are in for. You find your target, have some fun and leave in time.

That’s what you think. It turns out that you are in for the excitement but out with a big surprise. You may find yourself emotionally attached. Worse still, you may end up being caught, scammed or blackmailed. Or there may be an unplanned pregnancy. That is when a short-term relationship becomes a long-term commitment, in other words, when a fling becomes a thing.

How an investment fling becomes a thing

For investment, it may start as simple as responding to a sales call, walking into a bank, or stepping into a new launch sales gallery. Somehow you walk out buying a financial product, a hot stock, or an off-plan condominium unit. The salesperson told you this is better than leaving money with the bank. The asset is a good hedge against inflation. The low interest rate now makes it a perfect time to borrow. The return is good and prices will surely go up …

You think you can buy now, cash out at the right time and make lots of money. It is like enjoying all the fun, excitement and benefits, but with no string attached.

Just when you’ve made your decision, circumstances change. Prices of what you bought keep falling. You want to sell but it is too late to cut loss. You end up holding another long-term investment. You have no idea when it can breakeven or when you can recoup your loss.

Paper profit is not a real profit. But paper loss is a real loss. A loss that hasn’t been realized doesn’t mean it does not exist.

Very often a bad investment is not the one that drops in value. If that happens, you can still make up your mind and cut loss right away. The most irritating investment is the type that has its value remain stagnant for years. It may be a few years, one to two decades, or even longer. You can’t foresee when the price will move up again. It is like a complicated affair that is difficult to cut off all ties.

When you make a wrong purchase and buy an overpriced property, if you don’t want to cut loss, you must make sure that you live long enough to wait for prices to go up again to at least see it breakeven. It’s not a joke. Many buyers who bought properties at the market peak in the mid-1990s took almost 20 years to breakeven.

– “To live a long life for properties“, PropertySoul.com

Get real with new launches

Let’s step back in time to look at what happen now to some private residential projects that once had their high-profile launch in town.

1. OUE Twin Peaks

Designed by famous architect Bill Bensley, the luxury condominium was launched in August 2010 at an average price of $2,870 psf. The media reported that celebrities JJ Lin, Jackie Chan and Wakin Chau all bought one-bedroom units at the project. That’s when I went with my girlfriend to visit their sales gallery in Leonie Hill Road. It was a “fling” difficult to resist. Of course for us it was “see only no buy”.

After obtaining TOP in February 2015, unsold units at Twin Peaks were relaunched with prices lowered to $2,600 psf.

In 2016, under speculation of the lift of ABSD, the developer allowed units to be sold at higher psf price under DPS (Deferred Payment Scheme). Buyers could straightly move into their unit after the downpayment. Exercising the option could be delayed one to three years. But this was all wishful thinking. ABSD remained unchanged at the end of the DPS period. An EdgeProp article mentioned that some owners were unable to secure a mortgage and were forced to sell in a weak market in 2018 and 2019 at a loss of 2.3 to 8.1 percent.

For industry stakeholders who said confidently that the government would soon ease the property cooling measures progressively, the unexpected additional curb (introduced on 5 July 2018) announced by the government was a slap in their face. Hopefully, those buyers who opted for the flexible payment schemes were not Ill-advised and were fully prepared for the possibilities and consequences.

– Vina Ip, Behind The Scenes of The Property Market

What happen to those who have sold their units in Twin Peaks? Among the 30 resale transactions listed in the caveat history, only four buyers managed to avoid losses. At least five owners of the remaining 25 loss-making deals suffered a loss of over 20 percent. And this was excluding the two-way transaction costs from buying and selling.

What happen to those who bought during the project’s first launch in 2010 and are still holding onto their units? After ten years, the average psf price has fallen 23 percent from $2,870 in 2010 to $2,200 in 2020.

What about rental return? Assuming you bought a one-bedroom unit at $1.5 million or $2,600 psf in 2015, and you are lucky to rent it out at $3,300 a month now. After paying $4,000 for mortgage, $400 for maintenance and $300 for property tax, you have a deficit of $1,400 every month and $16,800 every year. Now calculate in total how much you have “subsidized” your tenants to stay in your unit over the past six years.

Whether you leave in time or let it become a long-term commitment, the investment is no doubt a very expensive fling.

2. Reflections at Keppel Bay

Designed by renowned architect Daniel Libeskind, the iconic waterfront condominium was launched in May 2007 at an average selling price of $1,830 psf. The media reported that a Taiwanese woman who turned Singapore citizen bought the entire Tower A1 with 83 units for $226 million.

I could still recall visiting the impressive showflat with my toddler. The salesperson invited us to go for lunch in a cruise so we can have a better picture of the seaview from the balcony of our future home. I politely declined his offer, with the excuse that my daughter needed a diaper change and I didn’t have a spare one.

The fling was really tempting. But if it became a thing, it would be much cheaper to rent a yacht than to buy an overpriced dock to park a yacht.

What happen 13 years later in 2020? Average prices have fallen to $1,600 psf or a drop of 12.6 percent.

What happen to those who managed to cash out from Reflections during the last 13 years? Of close to 240 buy-sell pairs, over 60 percent transactions were making a loss. Among them, 28 percent of owners suffered a loss between 20 to 80 percent.

For the less than 40 percent transactions who either break even or are profitable, how many are actually profitable after all the transaction costs? What about annualized return after holding the property from a few years to 13 years? What about the opportunity cost of using the original sum to buy that property to invest after the 2008 stock market crash, then sell the stocks now to buy the same unit at a lower price?

A two-bedroom at Reflection was last transacted between $1,400 and $1,500 psf. But you can also rent it at $4,000 to $4,300, minus the monthly expenses of $4,000 mortgage, $550 maintenance fee and $400 property tax. You can save on stamp duties, legal fee, renovation, furnishing and repair costs. If you can rent, why buy?

3. Other Projects

What about other high-end projects in prime districts?

– 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.

– Marina One Residences one-bedroom units were selling between $2,200 to $2,300 psf during its launch in 2014. Recent deals are closed in similar price range which do not seem to be affected by inflation, though rental has fallen to $3,300 per month.

I am not adding to the list in case I will mention projects you bought by coincidence. I haven’t even touched on properties in Sentosa. I mean those flings that are easy to get in but difficult to get out. Flings that are celebrated by the marketers but are also exposed by the same media when things go south. Such as having to write-off a $11.8 million loss for the Wallich Residence penthouse in just one year, after paying $6.63 million (1st property) or $14 million (2nd property) for Buyer Stamp Duty and ABSD, and another $5 million for Seller’s Stamp Duty. I hope Mr. Dyson at least receive a thankyou note from the Inland Revenue.

As the Japanese saying goes, others’ misfortunes are as sweet as honey. While reading the sad stories of strangers, we are secretly happy that we are not one of the victims. We believe that we are smarter and more cautious with our money.

– Vina Ip, Behind The Scenes of The Property Market

The moral of the story

Readers as clever as you would have learned something from others’ mishaps. Let me help you to think aloud for the lessons you just learned.

1. Is there a bad purchase pattern?

What have all these projects in common?

1) Private residential projects released during the peak of the property market, say, in 2007?

2) High-end projects newly released in prime district 1, 4, 9, 10 and 11?

3) Designed by world renowned architects and offer branded furniture, first of its kind housekeeping?

4) Media reports with rumors that so and so celebrities and the wealthy are also buying into the project?

5) High-profile new launches widely covered by and advertised in the print and online media?

2. Think you are smarter than the developers?

Why are new homes always priced at a premium and selling at “future prices”? Because developers need to factor in the maximum increase of property prices in the next five years so that they can maximize their own profits.

Why is it so difficult to make money buying from new launches? Because as an individual homebuyer or retail investor like you and me, we can’t possibly be smarter than the developer.

That’s why after investing in properties for two decades, so far I have only bought from second hand projects. I don’t want to lose money by being too optimistic or too confident. I must keep the “loss door” tightly shut behind me.

3. The curse after the en bloc wave?

Still recall back in 2007, spokespersons from property agencies commented that collective sale owners were going back into the market, using their windfall to buy not just one, but two units from new projects?

As I mentioned in my new book, one of the 11 ways to lose money in properties is”You win, then lose it all”. It is similar to winning in a casino. Somehow you go back to gamble and lose it back to the house at the end. As the saying goes, the house always wins.

During the previous round of the en bloc craze in 2007, closed deals of collective sales were mostly found in the CCR. Many owners of these projects were property investors. They used their windfall to upgrade to newer homes or acquire more properties. Some developers even offered them priority to pick the units at new projects built at the former en bloc sites. A total of 14,811 new units sold in a single year in 2007.

If there is a defining moment that marks the dividing line between the time you have money and the time you lose it all, that is the moment when you buy the wrong property.

– Vina Ip, Behind The Scenes of The Property Market

In the last round of en bloc fever in 2017 and 2018, collective sale projects were mainly concentrated in the RCR and OCR where we are seeing the bulk of new launches now.

ls history going to repeat itself?

The profile of collective sale owners has now changed from investors in prime districts to retirees in neighborhood districts. If the housing plan of the latter is to downgrade and save the cash for their golden years, are they contributing to the sales of million-dollar HDB deals rather than new projects from collective sale sites? If this is the case, where can we find enough homebuyers to clear the remaining 40 to 80 percent unsold units in “not so new” projects launched back in 2018 and 2019?

Food for thought

Sometimes there is only a thin line between a fling and a serious relationship. But deep down, you know very well the differences between the two. Don’t make excuses to justify a whim. Go back to the original reason why you make that decision. Run the numbers. Then convince yourself to proceed or give up.

Marketers can come up with convincing reasons why you should buy now, or different schemes to take advantage of policy loopholes. But to a homebuyer or investor, all property purchases carry risk. A home purchase is a big long-term commitment. There are always strings attached. When a fling becomes a thing, there is a price to pay to disentangle the knots.

If you can’t afford to pay the price, don’t get started.

If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.

My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.