Will 2015 be the year you are waiting for?

It has been a while since I share my thoughts on real estate.

Recently I tried to repriced my loan as it has been more than 3 years and the "so called" best rate has reverted to the usual rate. The mortgage loan that I am pegged on is base rate plus SIBOR. 

As you can see in the article today, luckily I pegged it to SIBOR and not SOR. lol. But in any case, the SIBOR has also been creeping up steadily. I am not in a rush to convert to a fixed rate loan yet as my current terms are pretty flexible. 

I have to admit that I pay a pretty low interest rate on the house in which I am living in. 

In fact, I find it difficult to use CPF to pay down my loan quickly because CPF OA is paying me a much higher rate.  Logically I should be using cash to pay down my loan but I always believe it keeping some cash as "war chest" for investing or I can use those cash to trade or punt IPOs. 

Just to be clear, there are no lock in or penalty for early repayment to my home loan and 2/3 of the cash I deposit into the bank account will earn the same rate as the mortgage loan. So effectively, I am paying down the loan due to the interest offset features. 

Tip: find a loan package that suits you best. If you have no alternative use for the cash, then it is advisable to pay down the loan as quickly as you can and the bank must not penalize you for doing that. However, if you know how to invest or trade and wants to keep some cash for war chest, then the interest offset feature will suit you better. The cash in your bank account earns an interest rate similar to the loan and you can use the cash when investment opportunities arise. HSBC and SCB offers such features previously but my information is pretty dated. My current home loan is with SCB and called MortgageOne. 

My mortgage loan is currently pegged at 1.1% plus SIBOR and I have gotten a preliminary offer to reprice it to 0.9% plus SIBOR but the documents required by the credit officer is such a pain that I will not bore you with my frustration and almost wanted to give up on the repricing. 

Tip: always ask your existing bank to reprice your loan to a better rate after the promotional period is over. 

Is the property crash coming?

Your guess is as good as mine but I believe I have previously blogged about 2015 being the year to watch out for. With volume drying up, it is actually the buyers' market now. 

HDB prices are coming down

With HDB being the source of "upgraders" to private housing, the pricing of HDB will indirectly have an impact on the private property market. A falling price will effectively means that they have "less cash" for the upgraders. 

However this is just a general trend and you can see flats at Pinnacle, Bishan and Redhill continuing to generate very decent capital gains for the home owners. 

Tip: location is of key importance to capital gains. If you can get a HDB flat directly, you can maximize your returns if the location is good. First time flat owners in Pinnacle at Duxton or the flats near Mountbatten Square made good capital gains when they sell after 5 years and the flats can command very decent rental yields too. 

Private Property Price Index

You can see a "rounding top" forming across the different types of properties. It seemed like private housing will continue the downtrend in 2015. However, what will cause the price to crash will be "fear and panic" in the market place and I haven't seen it yet but market conditions remain challenging given the current government policies. 

My property investment journey

If you are new to my blog, I have documented my property investment journey. The various links are here consolidated here.

Capital Gains or Rental Yields?

This is only applicable for readers who are hunting for their second property. What are you looking for if you are buying a second property? Is it for capital gains or rental yield. If you are looking for yield, you can start scouting around but if you are looking for capital gains, you will need to see a "real crash" and the interest rake hike must just be the catalyst you need. 

Happy waiting .... Patience is a virtue. 

Subsequent update. 

This article appeared in the papers the following day. Perhaps the crash of oil price is the catalyst for the crash....?

Private Residential Price Index

The prices are starting to trend down with more weakness likely in the 2H of 2014. 

I think it will be interesting in 2015 and some bargains are starting to emerge. 

Freehold condos can now be bought in Newton and near Holland Road at around $1,300-1,500 psf. I have 2 friends who bought recently. So make sure you do your homework. 

Don't go for new launches if you really need to buy a place to stay. Go find existing homes and you may be able to find "value". 

Happy hunting. 

Sky Vue

The project that made the ex CEO of Capitaland eat his words is launched today. He had once said "it is almost inhumane" to build and stay in such small units but today, we see Capitaland trying to lure investors (not families) to Sky Vue, much to the anguish of people who had bought units in the nearby "iconic" Sky Habitat. 

Sample of the price list of Sky Vue received today. As you can see, most of the units are 1 and 2 bedrooms. 

Nowadays I can no longer be sure when agents tell me it's a 3 bedroom unit. They have cut a typical unit so small that a 3 bedroom can sometimes be less than 1,000 square foot. It is unfortunate but we are definitely heading towards the Hong Kong style of apartments.  "Expensive and small". Now a one bed room is less than 500 square foot and a 2 bed room is less than 800 square foot. I am not sure if that is live-able for a typical family of 2 adults and 2

children. 

Now back to Sky Vue, the location is undeniably better than some of the sub urban condos that were being launched but unless you are looking to stay alone or with a partner, it is really hard to imagine a family of four squeezing into a 2 bedroom unit of 679 square foot costing more than $1m. 

If you really need to buy a unit today, go look for a ready one that is not brand new and more "value for money". Believe me. You will prefer space over "newness" over time. 

If you have no urgency to buy a property, just hang on. What you need is a FED tightening and a squeeze in liquidity. It may be just round the corner and hit when no one is expecting it. 

Be patient. 

Property Price Index

Private Property prices show no signs of coming down.

My views remain the same: while the policies are in place to prevent speculation, sellers are not lowering their expectation. This causes the current stalemate in the market where the volume transacted is low.

You will need to have a major crisis to bring down the prices.

Round 8 - TDSR framework

My last post on Round 7 was on 13 Jan 2013. The post is here.

Frankly i am not sure if the recently introduced total debt servicing ratio ("TDSR") can be considered as Round 8. It sounds more like making sure all the banks are operating from the same set of guidelines to rein in both the "cowboy" bankers and the "cowboy" speculators. 

The initial TDSR ratio is set at 60%. In other words, the ratio of total monthly debt obligations divided by gross monthly income must be less than 0.6.

One interesting TDSR calculation is that the "medium term interest rate" assumption of 3.5% for housing loans and 4.5% for non-housing loan. This is way above the current SIBOR and perhaps it is a signal to property buyers that the low interest rate environment is not going to last forever. 

In addition, the computation also includes a 30% haircut for variable income such as bonus and rental. 

Currently the views from the analysts are mixed with respect to the impact from Round 8. Daiwa is one of the more bearish, forecasting a decline of 18-20% from end of 2012 to end of 2015.

I have shared with you my property journey. The post is here. Let's take a quick look at the current market and see where we are as of Q1. (Q2 chart will be out later part of July)

The property market here continues to be resilient despite Rounds 1 to 7 cooling measures. haha.. It will be tough to "douse" the fire with Round 8. You can see it in J Gateway sold out in one day. I am thinking Round 8 will probably not be the last round but other than an outright ban on Singaporeans buying their 2nd or 3rd properties, can you think of any more cooling measure that will be effective ? Perhaps forcing multiple home owners to sell their 2nd or 3rd properties will bring down the prices but Hong Lim Park will probably be full of people protesting everyday till the next election. :-P

You need a few things to happen to bring down the prices sharply:

1. A significant stock market crash

2. Another financial crisis (where fear strikes) as in 2008-2009.

3. A rise in interest rate 

4. A big retrenchment in Singapore companies and expats leaving Singapore in droves

Do you foresee any of the above coming soon? 

Hedges Park Condominium

Today I visited the above condo show flat. It will be torn down next month and is almost fully sold with a few units left.

The remaining units are those on the lower floor. I picked #03-27 of about 1,076 square foot.

The developer is offering a 10% discount and the price is $957,060. The condo will TOP in about 2 years.

While I like the various themes and the many pools, I personally don't like the location.

This is a 99 year leasehold property. Most likely I believe the developer wants the plot back after 99 years. Most of the older development around that area such as Ballota is freehold.

In case you are not aware, the stroy goes like this. Hong Leong bought a very big piece of land here many many years ago and started dividing the area into smaller plots. It started to launch condos in this area using names of the flowers, starting with Azalea, then Ballota, then Carissa, Dahlia, Elderwise, Ferreria, G (can't remember the name) followed by Hedges... Some of the earlier launches are freehold condos.

Happy show flat visiting. :P

Sennett Residence

We visited the Sennette Residence this morning. Sennett Residence is right beside the Potong Pasir MRT station and in my view, the location is pretty good. I think it is an area with "potential".

It is two stops away from the City Square residences which i bought in 2005. My post documenting my property investing journey in City Square was here. There will be an upcoming shopping mall right opposite Sennett Residence and i thought this location will be perfect in the sense that it will be near a big shopping mall, just like City Square and should have no issues attracting tenants to the project.

I have to tell you that this is only the second day of the launch and there are many pair of shoes outside the show flat. I have to say the cooling measures are not apparent at all and I believe many of them are investors (definitely don't look like first time buyers to me).

As of this morning, more than 200 units are sold (out of 332 units) and that is pretty impressive for day 2 of the launch and it is by Tuan Sing (not exactly a big boy developer but listed on the SGX).

Here comes the best part. Most of the good units that meet my criteria which I "will consider" are sold out. The next best 3 bed room apartment on level 12 (#12-11) of 1,077 square foot facing the landed properties is selling for $1,729,000. That works out to be $1,605 psf! Frankly, i might as well go back to District 10 and buy D Leedon whose prices have since dropped below $1,300 psf for certain units but a last check with D Leedon agent indicate that those "value for money" units on the lower floors are now sold out. They are left with the higher floor units. (#33-21 of 1216 sf at D Leedon is now asking for $2.022m and #29-36 of 635 sq ft is asking for $1.253m)

Anyway, i guess Senett Residence was "hot" with investors because they belong to the "shoe box" categories where many units are actually quite small and the actual quantum is more "palatable" since a 50% down-payment is required for 2nd time buyers. 

I enquired the price of a one bed room "in red box below". 

As you can see, that works out to be $1,582 psf. Based on the $921,000 net purchase price, i have to fork out about 3% in stamp duties and another 7% ABSD which means another $92,100 to the price. That will push the small one bedroom apartment to $1.013 million, which to me, is crazy prices to pay.

Second time buyers will also need to set aside a minimum $69,500 in your CPF account before you can utilize the "excess" money in the CPF.

Anyway, i decided to wait since i don't have a "naked position" in the market and perhaps the price will fall to a support zone which i am more comfortable with in 2015.