Saturday, 24 November 2012

My Property Journey Rewind - 2011 & 2012

I will quickly summarize my property investment journey in the last 2 years and that will bring me up till today. It was a case of doing nothing but moving into the house which I bought in 2010.

The house offered more space for everyone and the desire to go out on weekends actually diminished. Everyone has their favorite corner to hide, including the maid who also got her own room finally.

If you have green fingers, you will definitely enjoy having your own little garden but unfortunately, the green genes from my dad didn't pass down to me. Maintenance is higher due to the higher utilities bills but you don't have to pay the maintenance fee charged by condo and enjoy "free parking". Downside is no swimming facilities unless you build your own lap pool which will then increase the maintenance bills.

As mentioned in my earlier post, the prices of landed housing shot up significantly only in the last 2 years, much better than the condos and apartments. A house in original condition near my street recently transacted at more than $980 psf, indicating a healthy increase from my initial purchase price. This incident taught me a lesson that being a "value" investor is rewarding. I have shared with you previously that I bought a landed because I couldn't find value in condos back then.  I think it is similar to all investments in stocks and shares as well except that property is a highly levered play and it is more rewarding if you managed to catch the right cycle.

I had originally wanted to do an "interest arbitrage" purchase of another property by taking out the "equity value" in 2012, but decided not to proceed even though the bank has granted in principle approval to disburse money to my account to "refinance my loan". I couldn't bring myself to buy at current sky high prices even though the monthly rental income is able to cover the mortgage loans.

I recently went to take a look at Heron Bay (which Minister Khaw blogged about) and Riversails. Under the current market context, both offered good value if you can get it below $860 psf. Personally I prefer Heron Bay's location and designs but it is an executive condo which I wouldn't have qualified anyway.  Riversails is a tad too cluttered for me. (Not that I am seriously considering).

It was pretty funny because at one glance of the brochure, I pointed out the blocks that I want to buy. (3 different stacks). The agent at Riversails told me that those stacks were not released by the developer yet.  It is always the case where developer only release the choice blocks after they managed to sell the "poorer facing" blocks at attractive prices. They will then release the choice blocks at a premium pricing.

I have shared with you previously the things to look out for in selecting a unit within a condo. The same rules apply. Select a unit that faces the pool or garden or one with an unblocked view facing out but make sure it is not facing the evening sun. I prefer higher floors as well.

Happy property hunting and that brings an "end" to the various installments of my property journey. The various installments are below for your ease of reference.

Part 1.
Part 2.
Part 3.
Part 4.
Part 5.
Part 6.
Part 7.
Part 8.

I will continue to share my property journey and my thoughts as it progress. Hope you have find these experiences useful for your own use. 

Oh yes, i promise to share with you the support level to look out for. I think the strong support zone is between 160-180 but there should be plenty of buying interest if price starts to hit the 180-200 zone. I would "visualize" that if prices fall to 180-200 will be a good time to start hunting for a landed property and 160-180 for a condominium. "Unfortunately" for prices to crash to that level, you will need another global financial crisis and i don't see that coming in the next 4 quarters.

Monday, 12 November 2012

Singapore properties prices show no signs of slowing down!

URA released its Q3 2012 real estate statistics and the property market here continues to be hot! The announcement is here.

If you look at the chart above, i think we can see a "bubble" forming in the industrial zone! Due to the series of cooling measures aimed at the residential market, property investors and speculators are piling into the industrial office arena! Many developers are offering "shoebox" industrial space to feed the appetite of these investors! This is really unhealthy and unsustainable. You can see the prices of industrial factory on a steep upward climb! If this continues unabated, i think investors who speculate in such property types will be burnt eventually.  The only good 'sign' is that prices of office and shop units continue to remain stable. As for our residential property, it looked like it is going to resume its uptrend! Let's take a more detailed look at the various residential housing types for a more granular look.

If you looked at the chart above, it seemed like prices have increased across all residential types! I am not sure what kind of new measures the government is going to implement next but it seemed inevitable that Rounds 7,8,9 and 10 are on its way. The post on Round 6 of cooling measure is here. The government has an unenviable task of cooling the market without trying to kill it. I truly pity those couples who are trying to get married and do not qualify for a flat (or what is commonly known as the "sandwich class"). It is a case of not "poor" enough to qualify for a flat but not too rich either to buy a private property without getting into a huge mountain of debt! 

Are you one of those who are in the sandwich class or are you one of those still waiting on the sideline? Perhaps you can share with us your thoughts on what kind of cooling measures you would like to see being implemented. 

Sunday, 4 November 2012

My property journey rewind - 2010

Let's continue with part 8 of my property investment journey today.

Part 1.
Part 2.
Part 3.
Part 4.
Part 5.
Part 6.
Part 7.

If you have been following my blog, you would have known that I made a rash decision in Dec and had a miserable Xmas in 2009.

For the next 3 months in 2010, I concentrated my focus on district 16, an area which I am familiar with.  Buying a landed housing was quite a different experience from buying a condo although the basic evaluation process applies such as tenure, location, facing, and state of conditions. One of the difference in buying a landed is that each property is unique whereas in a condo, you can get units of the same layout in the same "stack" but at different levels.

In early Mar 2010, during one of my viewings, I met an acquaintance from my old school. He has just "changed" profession into an agent representing the seller. He was marketing a 3 storey corner terrace of the size of 3000 sqft for $1.95m (if I remember correctly). I didn't like that house as it was situated right at the T junction and the layout was pretty funny with a small living room area and an elevated dining area.  It was a nice 'reunion' of sort as I found an agent who is "hungry" and willing to work hard for a friend and i know he was someone whom I can trust. It is very important to find someone you trust as an agent be it buying or selling and i will share the reasons with you shortly.

In late march 2010, I spotted an advertisement on the papers along the road which I want to buy. By this time, I have narrowed down my focus to the street which I will want to buy and that is the street where I grew up in. I guess we are all creatures of habit and this trait is hard to shake away but the real reason is that i wanted our kids to grow near their grandparents. I SMS my agent to find out more about the house and arranged for a viewing.

The semi detached house has a land size of about 3,500 sq foot and has 2 levels and an attic. The plot ratio is not "optimised" but I "like" the feeling of "space". The house is in reasonable conditions but still require some renovations to modernise the looks. We always make our decisions fast and viewed the house twice but this time i am more prepared. The first viewing was around 4pm (to watch out for the evening sun) and the second viewing around 9pm to confirm that it is a right choice. I made an offer for $2.128m that night but the agent representing the seller asked for more time to consider the offer and promise to give us a reply by the following Tuesday.

Lessons learnt from the December episode

In the meantime, i have already "learnt" my lessons from the previous round.  I had lined up my "banker" in the last few months. First of all, i got a pre-approved limit. In other words, i know exactly the maximum loan amount which the banks will be willing to lend to us. This helped me to know the range of prices which i can "afford" to look at. 

Secondly, prior to making the offer, I SMSed the banker for an indicative valuation of the house which i would like to buy and i received an indication that it was valued at least $2.3m. In other words, i know that i am "bidding below valuation" and that i can "top up" my offer should my first cheque be rejected.

Thirdly, i have been researching and viewing the "landed homes around the area" and i know what kind of prices to pay. I didn't let my 'bad experience' in December stopped me. One of the corner terrace i viewed around that house has a much smaller land size but was asking for $2.3m. As such, i know that i am bidding at a good valuation.

My first offer was rejected, as expected, but luckily there was no competing offer. The seller's agent said that the owners were expecting at least $2.3m. It was interesting to note that when we were viewing the house, the owners were never around. In fact, there were tell tale signs that all is not well in the house. There was only one pillow one bolster and one set of toothbrush in the master bedroom. My agent then did a search on when the house was 'last marketed' and noted that it was about 6 months ago. In other words, the owners have tried to sell the house since 6 month at $2.3m but wasn't successful. We wanted to put in a bid of $2.2m for my second offer, but my agent advised me to be 'patient' and not appear to be 'eager buyers'. As such, we put in a second bid at $10,000 higher or $2.138m. 

To our surprise, our second cheque for a mere $10k increase was accepted. Probably it helped that there were no competing offers and that the sellers were truly serious in selling. Lesson learnt - couples into a messy "situation" are serious sellers as they want to get out of the marriage as soon as possible even though the offer was about $200k below market. So avoid such situations if you can as divorces can cause a serious dent in your pursuit of financial freedom not to mention the other bad effects on the family.

Having a good agent working for me and on my side truly helps as well. If i had approached the agent who was representing the seller directly, he would have probably advised me to top up my price to $2.2m or more immediately. My agent has helped saved me about $60k and my agent's commission will be paid by the seller anyway.

After buying the landed house, we decided to sell the condo so as not to over-leverage ourselves and get some cash to renovate the new house. As a way of "thanking" him, he became my exclusive agent for the condo that i had. No exclusive paperwork was required and he charged me a "friendship fee" of 1%. 

In May 2010, we started to market my condo more actively. There were a couple of buyers who offered us cheques. In this instance, having an agent whom i trust proved to be once again beneficial. He advised me to reject 2 offers which he considered to be below market. One for $850k and another at $860k. In the following Sunday, he held an "open house" for my unit and at the end of the day, managed to create a "competing situation" between 3 serious buyers and the final bid came in at a "record breaking" $908k for units in that condo at that point in time. (I have also shared an earlier post that the same condo was resold in August 2012 for a $172k profit).

In other words, my agent has helped me achieve a higher than expected selling price even though he has to co-broke with another agent. This time, we made around $300k for this condo and i paid him 1.25% instead of 1% as a reward. I am always a firm believer of rewarding someone for a job well done.

Why having a good agent is important and watch out for rogue agents!

Beside sharing with you the importance of having a good and trustworthy agent, i want to highlight the fact that some agents are 'rouge' agents. In other words, they will not want to accept "co-broking" even though the buyers brought by the other agent are offering higher prices. Let me share with you a numerical example. 

Imagine you appointed a rouge agent to market your house for $2m. There were 2 buyers. One was sourced by your rouge agent and offered $2.1m. The other was brought by another agent whom he needs to co-broke with and that buyer offered $2.3m. Both made the offer at the same time but which one do you think your rouge agent will want you to accept the cheque from? Of course, it will be the one whose buyer he sourced because in this instance, his commission will be 1% x $2.1m = $21,000. If he presents the $2.3m cheque from the other agent, his commission will be 1% x 0.5 (assuming the co-broking arrangement is 50:50) x $2.3m = $11,500. In other words, he will earn $9,500 less. However, in this instance, the owner will be short changed by $200,000! I have seen real-life examples happening, so these are true cases and do watch out for the rouge agents! You will not know that you have been short changed because the you will never get to know of that $2.3m offer if you agent didn't tell you... unless the potential buyer complained about that rouge agent but by that time, the transaction would have been consummated. 

Graphical view of my transactions in 2010

Below is the graphical view of my transactions in 2010. I have purchased a landed home for around $615 psf. (The landed home picture in this instance is for illustration only) since i wouldn't want my fans to come to my house :-P

These little decisions which we made in the last 10 years helped "changed" our life as i reflected about them. As you moved through the various stages in your life cycle, always take time out to think about your life's objectives and work towards them.

A property is a good inflation hedge and it has proven to be so in the last 10 years and in my view, will continue to act as a good hedge against inflation. That was all for 2010, other than spending the following 8 months renovating my house and i have till now, never regretted my decision to buy this place. As you now know, prices for landed homes shot through the roof in 2011-2012 and the increase was even better than that of condominium as Singaporeans start to realise the value proposition of a landed home. (see how the pink line cuts above the purple line in the chart above).

Remember my little advice for you. Things moved in cycles, learn how to invest and catch the right cycles with the right instrument and you will get out of the rat race faster. 

I will share with you what i think will be the support zones to buy in my next instalment but that will have to wait as i have been extremely busy with work and will be travelling extensively in the next 2 months for both work and leisure.
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