MWBAN.232034.V510B
 
29/2/12 

Opportunity in Singapore real estate market. 
Since the last quarter of 2011, after the implementation of Addional Buyer Stamp Duty, local & foreign investors have tighten their pockets by taking a more prudent approach towards the opportunities left in Singapore real estate market. 

I started having friends and clients discussing the common topics on what are the real estate investment alternatives left in Singapore market. Most of the people came up with common solutions, like buying smaller residential apartments 'shoe box unit', investing in overseas properties or buying commercial and industrial properties etc. Investment can be attained by lots of other ways too, buying shares and commodities, investing in reits scheme and land banking, buying bonds and bills or setting up new businesses. I couldn't give any ultimatum solution, of cos, I am salesperson in real estate neither a financial advisor nor business consultant. So eventually we focused much discussion on real estate investment. 

We have three general options in placing our buck in real estate investment. Which approach shall we take? Shall we plunge ourselves into securing 'shoe box unit', taking higher risk on buying overseas properties, venturing into commercial and industrial for higher rental yield returns? Whichever choice we make has its pros and cons, why not let me break them down for further understanding. 

1) Sercuring 'Shoe box unit'.
January of 2012 prove to be a robust month for few property developers as they have sold more than 1500 numbers of new units in a single month. And base on last year's trend, many people are snapping up smaller apartments like hot cakes, even our government have voiced out to warn on the buying spree of 'mickey mouse unit'.  

The Pros
- First thing that comes to investors’ mind, smaller quantum on price tag, so it's easier to acquire with lesser future default risk involved (not able to pay monthly mortgage loan).
- By utilising only 20% of cash downpayment and maximising the usage of individual credit limit, will have a steady flow of positive monthly rental income.
- Since quantum purchased price is low, it will be easier to sell to next buyer. 

The Cons
- Every buyer looks at the quantum price which deemed affordable, however the usual psf (per square foot) is always much higher than those present condos around the launching site.
- The steady flow of rental income will be compromised, due to large supply of apartments emerging into market from the construction pipeline. It's noticeable that in year 2011, quite a number of owners who had collected their keys from TOP project (condos that just finished construction and ready for occupation) couldn't get their apartment to lease out within projected time line and with their desire price. Some of the owners unfortunately have to fork out money on top of rental payment received from tenant, after offset their mortgage payment and condo maintanance fee.
- The targeted buyers in future, woundn't be a couple who is going to get married, wouldn't be a family of 3 or more, wouldn't be a foreigner who wanted to convert into Singaporean and raising their family here. The only audience would be, another investor keen to invest and lease out to single expatriates again. And what if economy is affected badly again by global market? Can these owners easily liquidise their asset 'shoe box unit' to a limited pool of audience? 

2) Venture into overseas market.
Starting from the recovery of SARS outbreak in 2003, many local investor has venture into overseas market in eastern side of the world including placs like China, Australia, New Zealand, Hong Kong, Malaysia and Thailand etc. In fact most of these countries enjoy the huge property boom after 2003, on the contrary western part of the world hasn't been doing so well. 

The Pros
- Much lower price tag, with more stability market (Thailand, Vietnam, Malaysia, Australia and New Zealand etc) as comparable to Singapore.
- Consider also investing in the country's currencies against Singapore dollar.
- Convert the property to your future retirement home or a property to reside your children if they plan to further their studies aboard.
- By engaging property management company to run errands and manage your rented property, not having any hassle on Tenant's demands while enjoy looking at the bank statement with steady flow of rental income. 

The Cons
- Stable market might be a stagnant market in long run, after all the 'native locals' always understand their country better than foreigner, thus their locals are more knowlegeable in buying the right 'priced' property than foreigner like us.
- Singapore dollar has been strong throughout the past years. Looking at the global crisis woes, exchanging back to Sing dollar at the wrong time will cut a big chunk of your profit eventually.
- The service fees involved in engagIng a firm running rental errands in other countries can be really expensive. It's much cheaper to engage local estate agent to lease out your Singapore property. :) 

3) Wager on commercial & industrial property. 
The Pros
- Likewise for smaller price tags on individual unit.
- Not restricted to any new policies implemented, like the maximum 60% mortgage loan quantum (this policy apply to everyone who is buying their 2nd residential property), the Additional Buyer Stamp Duty.
- High promising rental yield return, with possibility of securing a longer Tenancy lease 3 to 5years, compared to residential property which usually falls between 1-2 years. 

The Cons
- Most of the old office building and older heavy industrial property couldn't make a big profit when it's sold off. Reason being the condition is usually run down and major rectification is needed, lease tenure left is limited, thus the new buyer has lots of calculation need to factor in.
- Lesser flexibility in terms of managing these assets, it cannot be converted into residential, owners can't simply move in to stay. After all if you are not running any businesses utilising this property, the only way is to lease it out.
- Usually office renovates after every 5-10 years, changing of carpet or Aircon system, and layout of office cabins and separation of rooms. Heavy industrial property will need refurbishment after 10-15 years, otherwise the rental amount will usually be affected. Not all owners enjoy a steady stream of rental income, some might encounter their property being vacant up to 1-2 years then able to secure a new tenancy. 

I have come to an end of my article, conclusion to my article on Singapore real estate opportunity? Probably will be mention in my next article. Ultimately everyone wants to buy low and sell high, down to the core where can anyone find the surfaced opportunity for to secure low buy in and high cash out? 

The next article I will talk about is 'Property monopoly'.   

*Disclaimer: The above written content is solely base on my own opinion and judgement, some details are not 100% accurate, I do not bear any responsibility on any claim towards me.
 
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Andy Tan
Associate Team Director
ERA REALTY NETWORK PTE LTD
andybian@hotmail.com
CEA Licence No.:
L3002382K / R015441I
+(65) 9101 2495