Know who to trust in your property decision

I must admit that I am the type of person that won’t trust others easily. Very often, I question what strangers say, especially what salespeople tell me.

I am not born skeptical or cynical. It is learned over the years. After two decades investing in properties and other assets, I have my fair share of trusting the wrong source or person. There were many times I regretted being so naive.

This is especially true in real estate. Although there are honest people around, it is basically a cowboy industry. The wrong people I trust can be industry stakeholders or subject matter experts. They include property agents, conveyancing lawyers, bankers, contractors … you name it.

Sadly, there are a lot of first-time homebuyers, eager upgraders and amateur investors who are very gullible. They think the property market is what they have been told in vested local property articles. Many only read the misleading headlines. Some trust everything their property agent told them without using their own judgement.

Trust the wrong guy and asking for advice too late

I am passionate about properties and enjoy talking to people about it. It’s fun and inspiring to know others’ thoughts in home purchase and property investment.

In my one-to-one property consultation sessions, I realize that most people only want to buy one private home or upgrade to a condo unit. Even if they are buying for investment, they plan to buy one or at most two properties for rental income. None of them is so serious and crazy like me who would buy five private properties in 4½ years.

I would tell them frankly everything I know and what I would do if I were in their position. At the end of the day, whether they buy or not buy, sell or not sell, is entirely up to them. Their final decision has nothing to do with me. I don’t earn commission from them anyway.

However, there are some situations that I can’t help. For instance, those who purchased overpriced new launches at record prices last time and are still under water. People who have financing problems or quality issues after buying off-plan properties. A few acquired strata-titled shop units in a new mall that ends up to be a ghost mall. Some bought Iskandar projects in the mid-2010s that have become ghost towns now … (Read “Case Study: A curious case of “no money down” property schemes”)

There is nothing we can do. What’s done is done.

Actually, they shouldn’t come to me. I was not the one who recommended them to buy these properties. They should look for the agent who sold the property to them last time. If it involves misrepresentation, they can consult a lawyer and seek legal advice.

How asset progression becomes home regression

Below is a real-life case study that I can’t offer any help in my property consultation service. Some details have been omitted to protect the identity of the person.

They are a typical Singaporean young couple with two toddlers. Their BTO flat has reached its 5-year Minimum Occupation Period. A property agent introduced them to the concept of “property asset progression”. With low interest rates from the bank, now is the perfect time to invest in private properties. He showed them how they too could own a condominium unit.

You read an online ad saying that you can easily trade-in your HDB flat and upgrade to a condominium unit. Better still, you can avoid paying ABSD if you sell your HDB flat and buy two new private homes, one for yourself and one for your spouse. There is a free talk where the organizer will share the secret with everyone. At the end of the talk, you are assigned a dedicated agent to guide you through the process personally. After some persuasion, you finally sign on the dotted line and hand over your deposit cheque.”

– Vina Ip, Behind The Scenes of The Property Market

1. The Good

A BTO flat is a Singapore citizen entitlement heavily subsidized by taxpayers. After owning it for five years, it is common to make a few hundred thousand dollars when sold in the open market.

This young couple was pleased with the profit they made after selling their matrimonial home. Before buying their next home, the agent advised them to rent a place temporarily. Under the pandemic, 10.7 percent or 176,000 foreigners left Singapore in a year. With their agent’s help, they had no problem renting a cozy condo unit.

Then they followed their agent to visit the sales galleries of new launches. They finally decided on two small units – one for the husband and one for the wife. Their social status immediately progressed to private home owners and future landlords!

One good thing about buying off-plan homes is progressive payment. There is no need to pay everything upfront. The profit from selling their BTO flat is just nice to settle the initial payment. Better still, the bank approves a pocket-friendly mortgage with first year interest rate close to one percent.

2. The Bad

One fine day, the couple searched for recent property transactions of nearby condo projects. They were shocked to find that, compared with the resale units, they were paying at least 30 percent more for their purchase at the two new projects.

It never rains but it pours. In 2022, the low interest rate era has come to an end. In June, the three local banks have raised their 3-year fixed-rate mortgage rate up to 3.08 percent. What looked affordable at the time of purchase is a very different story now. They can’t imagine how high the mortgage rate will go by the time they collect the key to their new homes.

3. The Ugly

Singapore re-opened its borders this April. In the second quarter, foreigners returned to the Little Red Dot all at the same time. Suddenly, rental demand exceeded supply. Everywhere private home rents shot up. Savills said Singapore and New York lead global rental rate hikes in the first half of the year.

Coincidentally, the couple’s lease is due for renewal soon. Their landlord has already suggested raising their rent by over 30 percent. They have no idea how long they need to continue renting. Even with no construction delay, they must wait at least three years before the completion of their two new private homes. In the meantime, they may have to rent a smaller and older HDB flat that is within their budget. What’s more, their third child is coming. They can’t keep moving.

This is the story of how a couple’s dream of “asset progression” becomes “home regression”.

It is not too bad. At least the buyer could call their 5-year-old BTO flat their new home. Besides, they supported the developers by clearing two unsold units from their shelves. Above all, they helped their property agent to earn four commissions – from selling their BTO flat, renting a private home, and buying two new condo units from developers.

Retirees longing for passive income

Let me share another common property consultation request.

“I am in my 50s and planning for retirement after x years. We have two children in secondary and tertiary education. I plan to buy a condo unit for rent for passive income in my retirement years. We own a 4-room HDB flat. It is almost fully paid up with $xxx,xxx outstanding loan. Altogether we have about $xxx,xxx in savings.

My agent recommends us to buy new project xxx. Should we go for xxx or xxx, and buy xxx or xxx?”

1. Beginner’s luck is rare

This kind of request immediately rings the bell in me. After over a decade reading readers’ sad property investment stories, I can tell you this: Singaporeans want to buy investment properties for passive income. Many have such dreams. But few can be realized. Our media never report this: Many landlords who bought their rental properties at high prices suffer from low or no positive return.

Why? Because Rome wasn’t built in a day. Success in investment requires lots of insights and years of experience. You can’t do something very well if you are doing it for the first time. Of course, there is something called beginner’s luck. But no one can guarantee that it will happen to you.

2. Too old to fail

In particular, I am cautious of the middle-aged investing for the first time. I have mentioned this in my earlier blog post “What retirement planning has taught me”. Financial literacy has nothing to do with age. People are not wiser with money when they age.

If the money you saved is from your 30 years’ of working life, please don’t risk it. Because if you lose it, it is unlikely that you can earn it back in the next 30 years.

It is like a guy in his fifties who left his wife to start a new family with a young woman 20 or 30 years younger. Unless he or his new wife is a multimillionaire, he must work for another 20+ years to see his young kids grow up. By the time he can retire, he will be in his 70s and well pass Singaporeans’ retirement age.

In a lifetime, you must make a wrong financial decision, lose your hard-earned money and have your heart broken at least once. Then you can learn to be smarter. The earlier you fail, the better. Making elementary mistakes is best reserved for the young. It is too late and too painful to fail when you are no longer young.

– Vina Ip, Behind The Scenes of The Property Market

Stop and think at the crossroads

If you are approaching an important life event, say, your wedding or retirement, don’t invest in properties. Because the shorter the timeframe, the higher the risk. You can’t tell whether property prices will go up or down in 2 to 3 years’ time.

People tend to make big investment mistakes when standing at a crossroads or entering a new phase in life. It is easier to sell to buyers who are facing health, financial, relationship or career problems. The same is true when marketing to newly-weds, new parents or retirees.

– Vina Ip, Behind The Scenes of The Property Market

Did you notice marketers often stress that we don’t have enough money to retire? Should we trust them?

Singapore has a stable economy and relatively low income taxes compared with other countries. Above all, we have a sound public housing and pension system. From what I observe, for the middle class who earn a stable income in their working life, most likely they have sufficient fund for retirement. For those who don’t, they may have overspent in some ways, overcommitted in their home purchase, or lost money in scams or bad investments.

To market their products, financial institutions and insurance companies instill the fear in us that most people are unprepared or have insufficient funds for retirement. We waste too much energy worrying unnecessarily and spending too much money buying unnecessary financial products or high-risk investment schemes.

Who determines the amount we need for retirement? Who decides how much protection we need to feel safe? Why do we have to rely on others to tell us what to do? Why can’t we take charge of our financial health and plan for our future? How can we replace negative thoughts with positive thinking to start building wealth?

– Vina Ip, Behind The Scenes of The Property Market

For the not so young but no idea who to trust

There are good and bad guys in any trade. It is the bad sheep that tarnish the reputation of the industry. As consumers, we must know how to protect our interests to avoid falling into the traps.

I like what former US President Ronald Reagan said, “Trust, but verify.”

If you are gullible and don’t know who to trust, take note of these five points:

1) Don’t be shy to ask questions. Validate facts and challenge the other party when you find discrepancy or contradiction. Protecting your hard-earned money is not a sin.

2) Never trust strangers for your home purchase or property investment decision. Don’t listen to the advice of anyone who is vested. Make decision on your own. Be responsible for yourself and your family. Remember, no one need to take responsibility of your money except you.

3) The benefit of living decades longer than the young people is, you should realize in a split-second that there is no free lunch in this world. The rich build their wealth through hard work and persistence, not by luck or by chance.

4) If you are good at making money, you should have made it in your life by now. The chances of ordinary folks, retirees and elderly getting rich are rare.

5) You don’t want to worry about money in your golden years. The worst thing is to have your retirement fund tied up in a bad investment. It is sad to waste the rest of your precious time worrying about such things.

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.