5 miseries that unfortunate owners are facing

I am writing this blog post for a minority group in our society – the unfortunate owners of private homes. Their number is not small but their voices are not heard.

You might say: But these people have money to buy private properties. Most of us can’t afford to live in condos. Some of us don’t even have an HDB flat under our name. Compared with us, their problems are not problems.

See, this is exactly why when private homeowners run into troubles, no one will pity them.

Our concepts of landlords are outdated for at least 20 years

Two main groups of people will come for my consultation service. The first group wish to upgrade from HDB to private homes. The second group want to buy a second property for investment.

The latter said they want to generate passive income or plan for (early) retirement. The idea is to buy a condominium unit. Collect rent from the tenants who help to pay the mortgage. Then wait for the value of the property to go up.

We may be approaching the year 2022. But Singaporeans’ knowledge and understanding of property investment still stay at a time at least twenty years back before 2002. That was when people bought private homes at a very reasonable price. They enjoy good rental return from expatriate tenants. These owners may have paid off the mortgage by now. Property prices have also increased by leaps and bounds.

English philosopher John Stuart Mill once said, “Landlords grow rich in their sleep without working, risking or economizing.”

That was what I thought when I started my property investment journey in 2002. However, after spending over eight years as a multiple property landlord, I would like to rephrase Mill’s statement as follows:

“Landlords suffer in a bad economy, take all the risk and lose their sleep. After hard work, income is not guaranteed.”

Whenever I go for property viewings, I often ask the owners the reason for selling. There is a common reply from sellers who bought for investment: It is not easy to be a landlord. There is simply too much work managing tenants with the small rent collected every month.

– Vina Ip, Behind The Scenes of The Property Market

What unfortunate owners and landlords are facing

Misery #1: Shrinking size of foreigners

I can still recall my one-bedroom unit at River Place was first tenanted at $2,500 in 2004. Rents of the subsequent tenancies were higher than the previous ones. Until it peaked at $5,000 in 2007.

How could the rent be doubled in three years’ time?

Thanks to Singapore’s immigration policy. Fellow landlords all benefited from the influx of foreign talents and approval of more PR applications.

However, there was a twist of fate for landlords when Global Financial Crisis struck end of 2007. Around the time of the 2011 election, there were discontents on immigration of foreigners and pressures to cool property prices.

In the next three years, rental rate of my River Place unit plummeted from $5,000 to $3,000. Two-year company lease was replaced by 1+1 with diplomatic clause. My agent’s job changed from helping expatriate tenants to maximize their rental benefit to meeting the tight budget of local tenants.

Last time it was the financial crisis. This time it was the pandemic that made foreigners leave Singapore in droves. The government’s policies in immigration and employment pass play a big part in both crises.

The recent Population in Brief report revealed that 10.7 percent or 176,000 foreigners left Singapore in a year. This figure can be much higher if not for Malaysia’s border control, with Malaysians being stuck in Singapore for work.

Among Singapore’s foreigners, 11 percent are employment pass (EP) holders and 18 percent are dependents. In total, 29 percent need to rent a home if they don’t own one. If 10.7 percent of them left Singapore, we have lost approximately 19,000 EP tenants or 51,000 if their dependents are counted.

Misery #2: Negative return from properties

It is not a secret that many who bought new projects in prime districts between 2007 and 2011 are still under water. The date of breakeven is nowhere in sight. To make matters worse, the rental market is not looking good in CCR.

According to URA’s newly released 3rd quarter 2021 real estate statistics, the vacancy rate in CCR has reached 9.7 percent. And this so-called vacancy rate just counts the number of premises with no utility account. The URA rental index also only includes data from owners who managed to find tenants.

I covered this story in my earlier post “What rental viewings told me about the leasing market”: The owner bought his one-bedroom unit in Cairnhill for $3,100 psf. But the unit below his was last disposed at merely $1,930 psf.

He already lowered the asking rent to $2,900 from his last rental of $3,300, just to partially cover his monthly mortgage of about $5,500. But recently, some owners anyhow let go at $2,300 to $2,500!

In 2007, my one-bedder at 7-year-old River Place in District 3 was leased at $5,000 per month. Could you imagine fourteen years later, a one-bedroom unit in a 6-year-old high-end condo in District 9 can only rent out at half of that price? Mind you, I paid $668 psf for my unit, compared with $3,100 psf paid by the Cairnhill owner.

Even if the owner can find a tenant willing to pay $2,750, it can only cover half of his monthly mortgage. He still needs pay $450 maintenance fee and about $250 for property tax every month. What if the tenant asks to change or add some furniture or appliances? How much more can he “subsidize” the tenant? Should he put up with the additional requests, or risk leaving it vacant for longer?

We put up with the bosses in our office and we are being paid for it. In contrast, we put up with the tenants in our investment and we are subsidizing them for it.

Welcome to the reality of the landlord game!

Misery #3: No financial relief during bad times

We believe people staying in public housing must have less means than people who own private homes. The former is buying a roof over their head. The latter have spare cash to upgrade or invest.

We offer different housing grants for first-time and resale HDB homebuyers. New BTO flats are sold at a highly subsidized rate set by the government. We even help people to upgrade to ECs using taxpayers’ money.

According to the Housing and Development Board, the proportion of BTO flats sold within a year of meeting their minimum occupation period has doubled between 2016 and 2020 from 6.5 percent to 13.4 percent.

Why are we using our country’s reserves and taxpayers’ money to subsidize BTO flat buyers, let them profit from it after five years, then lure them to upgrade to condominium and take up a bigger loan?

But once we upgrade to private homes, the sympathy, grants and subsidies we take for granted are gone. We can no longer depend on the government for upgrade, redevelopment or en bloc. We can’t complain about the decaying lease. We are on our own if we lose money on our private homes. We suffer in silence if we have low rent, no tenant or missing rental payment.

I know landlords whose rental income cannot cover outgoing expenses even before Covid-19. They are making much less during the pandemic and are struggling to make ends meet.

Unlike HDB flat owners, they don’t quality for service and conservancy charges rebate. They are ineligible for the Covid-19 Recovery Grant because they own more than one property. Many are living in a property with annual value over $21,000.

These unfortunate owners are hanging by a thread and saved by the banks’ mortgage relief or loan deferment schemes. For instance, OCBC allows mortgage instalments to be lowered to 60 percent of original monthly payment. However, the support scheme will expire in two months this December.

Misery #4: No sympathy from the public

In November 2019, Shenzhen’s most luxurious residential project 龙华金茂府 set the new price record in this prosperous city in China. All units were sold above RMB15 million (S$3.16 million). Unexpectedly, on September 18 homebuyers petitioned collectively for a full refund from the developer.

Their long list of complaints included hidden fees, developer defects, poor workmanship, handover delay, etc. Buyers said they have lost all their savings and many borrowed heavily to invest in this high profile project.

After being reported by the media, instead of gaining sympathy from the public, they draw widespread criticisms. Below is a translation from one of the media reports.

“Many mainland Chinese think property speculation is not gambling. It is investment. Developers have the obligation to ensure that they make money. If not, they must allow them to withdraw and refund with interest. They call this right protection (维权) … How can people who can afford to buy luxury properties lose all their fortunes? … think the government will come forward to support property speculators? … Property speculation is a big gamble. When you lose, don’t talk about right protection. Never speculate in real estate if you can’t afford to lose.”

A property agent in Shenzhen said the owners’ request for withdrawal is all because they have overpaid for the development. They feel shortchanged. With the recent government regulations and crackdown on property speculation, land sales and property prices have cooled. The owners are only making use of the situation to get their money back.

Evergrande is close to bankruptcy with US$305 billion debts. It is estimated that 1.5 million homebuyers are left with their uncompleted homes. Last month, angry investors created a scene in Evergrande’s headquarters to demand for missed repayments of the developer’s “wealth management products”.

Do you pity those who lose their life savings overnight? Or do you think these people deserve it because they are foolish to chase property prices or put their money in junk bonds?

Whenever property prices tumble, there are only two types of people who can stay intact:

1) Those who think it didn’t worth buying and haven’t bought; and
2) Those who cannot afford to buy.

– Vina Ip, Behind The Scenes of The Property Market

Misery #5: No local will pity foreign buyers

Too-big-to-fail Chinese developers that have defaulted (or delayed to be courteous) their bond payments so far include Evergrande, Fantasia, China Fortune Land Development, Sunshine, Oceanwide, Tahoe, Modern Land and Sinic Holdings.

We are fortunate that the Singapore market is considered too small for bigger Chinese developers to build projects or raise funds here.

Out of the defaulted Chinese developers, only Fantasia is currently building 53 cluster houses at Parkwood Collection, with original target completion next month. According to the URA website, as of now only 25 houses have been sold.

Country Garden’s property management company claimed that Fantasia didn’t repay a RMB700 million (S$147.4 million) loan. In the meantime, Country Garden also failed one of the three red lines in liability-to-asset ratio. Their hands are tied to borrow more.

For Country Garden’s Forest City project in Johor Bahru, value of units has undergone deep dive. Less than ten homes were sold in the last 18 months. Country Garden Malaysia staff have been trimmed from 1,700 to 500 with more layoffs to come.

The largest groups of buyers in Country Garden are the Chinese and the Singaporeans. There is hardly any Malaysian buyer.

It doesn’t matter whether we buy properties in Malaysia, Thailand, Vietnam, Cambodia or Myanmar. The locals all know that there is an overpriced high-end property segment there targeting specifically the rich overseas buyers. The purpose is to attract foreign direct investment aka foreign currencies.

Since the country’s well-to-do don’t put their money there, they don’t care whether prices are slumping or projects left unfinished. If in trouble, these foreign buyers can group together to seek legal advice and go to court. A local lawyer will be happy to help and split with them the compensation awarded, if there is any.

Allow me to quote once again my 2013 blog post “Ask 4 questions before you buy that overseas property”.

1) Who are the other buyers?
2) Can you trust the developer?
3) Why are the locals not buying?
4) Where is the secondary market?

Food for thought

As an investor and former landlord, I am not being bitter or pessimistic. I am being blunt and realistic.

Always invest with your eyes wide open. Know all the facts and check every single detail before signing on the dotted line. As stated in the fine prints, all investments involve risk. The value of your investment can go down (to zero) depending on the market conditions. Currency exchange rates can fluctuate. Past performance does not guarantee future results.

When in doubt, leave it out.

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.