The Car bubble has burst?

The government must have read my blog post on 13 Jan 2013 where i spoke about the foaming car market and that car loan should not be extended against the COEs. :oP

The new measures are truly more drastic than the previous car curbs from Feb 1995 to Jan 2003 and took the market by "surprise" where the loans are now limited to 50%-60% of the car's purchase price and the loan can only be limited to a maximum tenure of 5 years.

"Singapore's central bank said the tenures of motor vehicle loans will be capped at five years, with the maximum motor vehicle loan amount pegged to 50 or 60 per cent of the vehicle's purchase price, depending on the Open Market Value. These financing restrictions, however, do not apply to commercial vehicles and motorcycles."

 I once spoke to a second hand car dealer and there are basically "two" types of car buyers. They either take little loan or max out the loan and MAS is probably trying to "protect" the second type of buyers to prevent them from over-extending themselves.

I think this new measure is timely and will probably be one that will "burst" the car bubble. Perhaps we can see some sanity returning to the car prices soon? ... let see how the COE prices will react in March and in the coming months. The COE price chart is below :) Will COE prices finally head back to the $50k mark?

Don't have a naked position in the property market!

After Round 7 was introduced, i received even better offers from the agent of D'Leedon. The developer is offering up to 10% and 15% "Chinese New Year" discount on the units. No more funny "tiered" discounts which i first mentioned in my blog post on 3 Jan 2013.

A 3 bedroom unit on #22-17 (1227 square foot) is now going for $1,786,190. The developer has definitely become very 'sincere' overnight in cutting prices to move units.

I had a blog post in September where i mentioned not to sell your flat if you can and that a close relative of mine has sold his flat in anticipation of a drop in price. Well, as an update, this relative of mine couldn't take it any more as he see the prices moving away and finally bought a studio unit (635 square foot) for $1.288m at D'Leedon on 29 December 2012 only to see developer cutting prices two weeks later when Round 7 was enforced. 

I think the simple takeaway is this: Don't have a naked position in the property market.

There is a Chinese saying "衣食住行", meaning that a roof over your head (a place to stay) besides clothing and food is a basic necessity. I guess once you loses your roof, you probably will lose your head as well and start thinking and behaving irrationally. 

I had a reunion dinner with my ex-colleagues two Fridays ago where one of them thanked me for advising her not to sell her executive condo in 2010. She had wanted to cash out because she thought the prices was high and wanted to rent a place near a good primary school for her eldest son. She is also expecting a price correction. I remembered telling her back then, "don't do it because you only have one property and you can never catch the top and the bottom". With the benefit of hindsight, if she has sold in 2010, she will probably be paying rental for 2 years and suffer the heartache of seeing the prices of her executive condo setting new records in 2012.  

After thanking me, she went on to say, "well, i have just sold my condo at record price in December, what would you advise me to do next?" She has just sold her executive condo in Chua Chu Kang area where she has stayed for the last 13 years. I think she will probably get back around $1.2m in proceeds and that it has been fully paid for. 

She then asked me "Should i....

(1) Rent a place and wait for prices to drop or

(2) Buy 2 new properties with the cash received or 

(3) Buy one property now and buy another one a few years later.

What would you advise her? I will leave that for your thoughts. Feel free to comment, especially if you are thinking of taking a "naked" positing in the property market as well.  :) 

Round 7 - Finally its here and the car is foaming as well.

When i first wrote about the Round 6 in Oct last year, i mentioned that more government measures is likely if price spiral out of control.

In Nov 12, when i was analyzing Q3 prices, i mentioned a bubble forming in the industrial zone and that cooling measures round 7,8,9 and 10 are on its way.

On my blog post on D Leedon on Jan 3rd, i said the government will probably need to step in again. 

Well, here you go. On Jan 11, the government introduced one of its most "comprehensive" property cooling measures, covering HDB, ECs, Industrial units and Condominiums with effect from 12th Jan.

Deputy Prime Minister and Minister for Finance Mr Tharman Shanmugaratnam said: "The reality we face is that interest rates are extraordinarily low, globally and in Singapore, and continue to add fuel to our property market. We have to take this further round of measures now, to check recent market trends and avoid a more serious correction in prices further down the road."

Will it work this time? Frankly your guess is as good as mine. 

In my post on 24 Nov 2012, i mentioned that you need another global financial crisis for prices to retreat. My view remained the same. The prices will not fall unless we see a sharp drop in the stock market due to company failures. Only a drastic fall in investors sentiments will we see a meaningful correction. Alternatively, you need a dramatic increase in borrowing costs (i.e. interest rates) but I don't see that happening soon either.

Will Round 7 will be effective in killing off the investors' demand, especially those who already owned one property? My gut feel is "Don't Count on it". The government has not plugged one loophole in preventing current one home owners from getting more "loan" out of their first property to pay the down payment for the second property but it may dampen sentiments in a "knee-jerk" reaction.

The Car is foaming as well!

Not only are we seeing bubbling record prices in property, we can witness that in COE prices where Cat A prices hit a record high of $92,100.With BMW and Mercedes trying to game the "CAT A" category and a falling quota, it is no wonder that Cat A prices are where they are right now! In my view, the government should not allowed loans to be "borrowed" against the COEs. It just doesn't make sense and a car bubble is foaming right now....if the government don't stop that, the prices will cross the $100k soon and that will exceed the value of my entire SRS portfolio as of 31 Dec 2012? It's pretty crazy.

D' Leedon

I went to view the D'Leedon showflat at Farrer road on Sunday. It was the site of the previous HUDC enbloc. As you know, Singapore property prices ended 2012 with a big bang and at record prices. The news article is here.

I thought this was one of the few condo that are still exhibiting "good value" under current market conditions. If you ask me to buy ECO (district 16) at $1,300 to $1,400 psf or the Sky Habitat (district 20) at $1,500 to $1,600 psf or Foreseque Residence at $1,100 to $1,200 psf (district 23), i would rather buy a unit of D Leedon at around $1,400 psf (after 8% discount), which is in District 10 and within 1km of good primary school like Nanyang Primary.

However, to get to $1,398 psf, the units on sale are typically bigger (around 1,400 square foot) and on the lower floors (below 12th floors) out of a height of 36 floors. And you will need to check off the criteria that will allow you to receive around 6%-8% discount off the listing price. Personally i don't like the gimmicks of "tiered discounts". If you ask me to buy something now, I would probably get an investment unit at D'Leedon if the smaller ones (around 1,000-1,200 square foot) are selling below $1,400 psf on the higher floors. hahaha.... A small unit on level 25 with a size of 635 square foot was sold for $1.3m that weekend. That translate into a psf of more than $2,000. 

If you are wondering why SC Global wants to privatize itself, that is because its still has many high end condos not sold yet and it is going to run foul of its deadline and have to pay for extension charges. The news is here. As such, many developers will want to avoid this predicament and try to move units by lowering its prices and that is probably one reason why the developer of D'Leedon is giving out discounts now to 'move the units' as it is a huge development with more than 1,600 units and as of Nov, still 60% unsold based on www.squarefoot.com.sg (see graph below). 

I will probably give it a miss and play the waiting game with developers who are facing the pressure to slash prices. If the prices continue to edge upwards, the government will probably need to step in again.  

Happy investing.  

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.

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. 

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.