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Making your first million dollars in real estate investment: Dreams and nightmares.

Sunday, September 25, 2011

Often, we hear that investing in real estate is the fastest way to making the first million dollars.

We saw people in queues and offering blank cheques in buying frenzies for projects such as One Devonshire some two years ago. The buyers then would have bagged nice gains and many would have sold their properties by now.

Sometimes, the building specifications of the property do not even matter for buyers. Positive sentiments just drive them to pay whatever asking price is out there.

Building specifications? Yes, for example, when I buy a condominium, I will find out how many lifts serve each block and how many units are there per floor per block. This is very important to me because if there were too few lifts, the waiting time could be unbearably long especially if we were staying on a high floor.

A HDB point block has 2 lifts serving 25 floors and 4 units per floor . This means 1 lift for 48 units (remembering that ground level is the void deck). So, if a property has 36 floors and 3 units per floor, having 3 lifts is about right. We get 1 lift for 35 units.

So, the lift to units ratio is very important, wouldn't you think?

Apparently not. Southbank, a condominium along North Bridge Road, has 197 units in its residential block but only 3 lifts. This means 1 lift for almost 66 units. This ratio is worse than a HDB point block! I wouldn't buy a unit there but it does not mean that people who did would not make money from their purchase. Indeed, in two years, its price has appreciated a hefty 50% on average.

I also consider having ample parking lots essential. All too often, I hear friends living in some condominiums complaining that their visitors cannot find parking lots in their estates and some even got their wheels clamped for parking in lots designated for residents.

We see so many condominiums built with just 1 parking lot per unit these days. If a resident has two cars, he is in trouble. Of course, where are visitors going to park?

We see many condominiums built with enough parking lots for only 80% of the units just because the developments are a short distance from the nearest MRT station. If every resident owned a car, things could turn ugly.

We also see some condominiums these days with mechanical parking lots and I read that it takes 7 minutes for a car to be parked. Imagine if five people should come home at the same time. Could the fifth car's waiting time be 35 minutes?

Increasingly, we see newer condominiums being more and more marginal in that they are compromising on the day to day pragmatics. These are projects I would avoid but it does not mean that one would not make money in these projects, of course. It is just that if it is not a condo I would want to live in, I wouldn't buy it. Quite simple.

Of course, some would say that buying a piece of real estate is about location, location and location. Doesn't matter if it has enough lifts, parking lots or whether it is freehold or leasehold. I imagine this to be true for most but for me, it is more than just location.

Now, certain things I can see and analyse but certain things I can't. It is a bit like buying shares of companies. We can look at a developer's history and the project's specifications and asking price psf just like how we can look at a company's history, its numbers and its share price. However, there will always be things we cannot see.

I read in the news today that a very reputable developer in Singapore, Wheelock Properties, is being sued for S$14m "in compensation for defects that have been plaguing the estate for the last three years". We are talking about The Seaview.



Wheelock Properties is the developer of Ardmore Park, long regarded as the standard in luxury condominiums before SC Global came into the picture with even more grandiose developments. So, it came as a surprise to me that "in late 2009, building surveyors found at least 32 cases of defects in areas such as lift lobbies, the swimming pool, residential units and the basement car park.

"In addition, the MC claimed that the contractors did not carry out waterproofing properly in areas such as the basement car park, causing damage and safety risks.

"Residents said the same problem was occurring on the rooftops, which meant that higher-floor residents had problems of water seepage and water-stained ceilings and walls."

The Seaview was marketed as the Ardmore of the east and was a very pricey project. It still is. A 1,647 square feet four bedroom unit is asking for $2.5m today. With quality issues aplenty, I wonder if buyers would give it a wide berth. If we take a look at Property Guru's website, we see many trying to sell their units in The Seaview.


So, is buying condominiums developed by a reputable company always a good idea? Is buying new always better than buying old because the perception is that the property's condition would be relatively newer and that less repairs are required?

The article on The Seaview is quite detailed and I have only reproduced a small section of it. To read the whole article, click here.

I have very few blog posts on real estate investment, I realise, and I hope you have enjoyed this one, especially if you are thinking of taking that next step to invest in a condominium in the next few years.
 
Related posts:
1. Real estate as a hedge against inflation.
2. Money continues to flow into Singapore.

30 comments:

Calvin said...

Hi AK,

Just like you, I am quite appalled at the lack of practicality the new condos in Singapore are given nowdays. From tiny little units to small lift to no car parks alloted, its quite ridiculous. However, this has not stopped the prices from rising.

For now, I will not be buying anymore developer properties. I actually wrote an article about buying subsale vs developer properties here.

http://www.investinpassiveincome.com/pros-and-cons-of-buying-completed-properties-vs-under-development-properties/

I prefer to buy what I can see.

Calvin
http://www.investinpassiveincome.com

AK71 said...

Hi Calvin,

People seem to have a love affair with all things new and I guess the same goes for condominiums.

After visiting quite a few showflats in the last couple of months, I have also come to the conclusion that it is perhaps better to buy older condominiums which were built during a time less crazy.

Calvin said...

AK,

Are you intending to buy another condo for your own stay? By the way, are you married, and if so do you have kids?

Calvin

Temperament said...

Hi Ak71,
Have you been a landlord collecting rent? If so can you share your experience? i intend to be a "shoe-box"(470 sq. ft. with a "full-size" swimming pool and gym facilities) rent collector as part of my diversification plan from equity-portfolio dividend collecting. Is there any real advantage for condominium with the 2 facilities i mentioned for attracting renters over those condominiums without?

What do you think of shoe-box of 470 sq. ft as retired dwelling for 2 old folks who most probably will struggle to do weekly house-keeping, by then. This is also in case my son needs my present abode (HDB) in another 5 years time or later.

Ha! Ha!
We all get older and older you know and we try to do lesser house-keeping by having a smaller house. We hope we do not need to use part-time house-keeper ever, with the Lord's permit. We like to stay active and healthy.
Shalom.

AK71 said...

Hi Calvin,

I was staying alone in a 1000 square feet condo I bought 8 years ago. I have recently moved back to stay with my parents after selling it not too long ago.

I also sold another condo, a smaller one of about 600 square feet earlier this year although I had originally thought of staying there when I bought it 2 years ago.

You asked the same question as another reader regarding my marital status. I always wonder why are people interested in this. ;)

I am not married but as to whether I have any children, I can't be sure. ;p

AK71 said...

Hi Calvin,

I realise after having fun with my last comment, I forgot to answer your first question. ;)

No, I do not intend to buy another condo for self stay at the moment. I was just visiting showflats to get a feel of things.

AK71 said...

Hi Temperament,

I think living in a smaller apartment is a great idea for elders as long as there is no need for more space.

Are you planning on selling your 5 room flat to your son and using the money to get a smaller apartment?

As for whether I have any direct experience as a landlord, I have to say "no" although I do co-own another condominium with my sister and that is rented out. My sister takes care of things.

Finally, regarding very small apartments (i.e. 500 square feet and smaller) and whether they are any good as passive income generators, at the right price, they could be. ;)

I am wary of just how many of these ultra small apartments will be completed in 2013 and 2014. These apartments are great for singles and couples without kids but will there be enough demand?

We could see rentals coming under pressure for such apartments, especially for those in poorer locations, and this could lead to correspondingly lower property values.

In fact, for friends who are thinking of buying such ultra small apartments, I have asked them to consider waiting till 2013 and 2014 as they could possibly get them at lower prices.

financialray said...

I believe for most people, property investments probably make more money than stock investments, presuming both investments are for the long term, that is at least 5 years and above.

When my sons are eligible, I will make sure they apply for their own HDB when they grow up. My own home is for me and my wife. Not to be judgemental, but it is better to keep our property in our names till our last breath. We never know when we may need the money for ourselves eg medical bills, hospitalisation fees, emergency.

AK71 said...

Hi financialray,

If I were in your shoes, I would probably do the same. :)

We can only hope that our country continues to prosper and property values continue to appreciate under the right leadership, of course. Most Singaporeans as asset rich and cash poor with their flats as the primary store of wealth.

Marco said...

SUNTEC Reit has slipped to SGD1.17. I am considering to go in at SGD1.15.

Mind to share your view?

AK71 said...

Hi Marco,

It seems that many people are interested in buying more units in Suntec REIT going by the comments and emails I get.

Personally, I still have some units bought some time ago at $1 a piece. At that price, we are looking at a distribution yield of about 10%. That is when I might be interested again.

Fundamentally, its high exposure to office space could be a weakness as a lot more office space is due for completion in the next two years. We are also seeing high tech industrial space drawing away tenants from office space. This is why I have not bought into any office REITs in Singapore for a long time.

Technically, $1 for Suntec REIT does not seem impossible too but remember there is no certainty about this. ;)

Singapore Man Of Leisure said...

Hey AK!

We bought around the same time in 2003!

Although mine is in a different league altogether - a 3 room HDB resale. It's value has almost tripled!? Crazy right?

Nothing beats owning a place of my own - however small or humble.

It an inflation hedge and "flexible" retirement tool to me. When I old and need income, I can rent out a room. Or rent out the whole flat and "retire" to a lower cost country. Or it could be my final retirement home - it will outlast me - never mind the 99 year lease. Freehold for what? LOL!

Just sharing to others in similar league as me. No condo or landed property life also can be good.

Small got small happiness; big got big hapiness.

Way to go AK! Soon you will move to the landed class league!

AK71 said...

Hi SMOL,

Hearing property values doubling in the last 8 years is quite common but a tripling is rare! Congratulations!

If you are not thinking of selling that piece of property in your lifetime, it certainly does not matter if it was 99 years leasehold or freehold.

Even buying a property with only 60 years left to its lease is plenty for people in their 40s if it is not for investment. :)

I share your sentiments. If only I do not have to ensure that I would be able to care for my parents in the worst case scenario.

As for landed property, I stayed in one for 8 years of my life when I was a boy and a teenager. I did not enjoy it. I much prefer condo living. Otherwise, I could have bought a landed terrace house 8 years ago somewhere in Yio Chu Kang. ;)

SnOOpy168 said...

Wow. Never thought of this "lift" issue as I had been a HDB dweller on a "take it as it is" basis.

BTW, is there blogs, similar to ASSI, for the property market or owners-to-be ?

AK71 said...

Hi SnOOpy168,

Yup. Lifts. Very important for high rise dwellers. ;)

Go to the left sidebar and look for "RESOURCES". You want Propwise.sg. :)

Singapore Man Of Leisure said...

Hi AK,

Opps! I got eyes never see or-yi-or again. Apologies, you already landed class.

I am lucky in the sense that my relatonship with my siblings is tight. So the load is not so shared.

Best wishes and good health to you and your parents.

AK71 said...

Hi SMOL,

Even amongst landed, there are so many sub-classes. I can't be bothered really. I go for what I like. I am one of the least classy people I know. Some even say I am low class. ;p

I am on good terms with my siblings too but since I am the only son, I guess it is only natural for me to take 100% responsibility for my parents' well being if I could afford to, at least the financial aspects. :)

Anonymous said...

Hi AK,

I am considering buying Marquarie Infrastructure fund (MIIF) at $0.48. I have previously bought some at $0.57 previously. The yield now is quite high. What do you think?

Thank you

Regards
Phyllis

Calvin said...

Hi AK,

That's what I guessed. I am getting married soon and my to be wife will not want to stay together with my parents.

Otherwise, I could rent out my house and get more rental income! Or I could sell it to realize the capital gains and reinvest.

Calvin
http://www.investinpassiveincome.com

AhJohn said...

Basically, property in sg is good, especially you can pay installment by rental. I am waiting for next crisis ...

AK71 said...

Hi Phyllis,

I still have a small long position in MIIF. These were at 30+c a unit. I cannot remember the price exactly as it was years ago. Most of my investment in MIIF was sold quite a while back.

I have not been actively monitoring MIIF. So, I cannot say with any confidence if it is a good investment now but I know they have lowered their gearing significantly and are sitting on a lot of cash now.

What are they going to do with all that cash? Will they be putting it to productive use or return it all to unitholders?

AhJohn said...

The timing maybe, when govt allows 10% down payment for 2nd loan again.

AK71 said...

Hi Calvin,

You could do all that, couldn't you? Well, you know what they say: once you are married, your life is not yours alone.

Live it up as I am sure there will be upside as much as there is downside! ;)

financialray said...

Actually, we should also take note of the main contractor Tiong Aik and RSP architects.

Since Wheelock so well known, perhaps it is good to take note of who they sub-contract to.

Is Tiong AIk in charge of another up and coming project called Coralis somewhere nearby??

Anonymous said...

motley: i do think it is the best way ... real estate. strike at the right time you get leverage and cashflow. In that way it is easier than looking for a multi-bagger. Cashflow is key though ... or you lose everything.

AK71 said...

Hi Ah John,

I think, like you, quite a few people are waiting for that next opportunity. :)

AK71 said...

Hi financialray,

Yes, I agree. We have developers and we have main contractors. I believe this case could have negative ramifications for both.

I think it was mismanagement on the part of Wheelock to have let this gotten out of hand. $14m is probably a drop in the ocean for the company.

If I were running the company, I would get all the problems fixed instead of letting the whole matter go public.

AK71 said...

Hi Motley,

Yup, get a good piece of real estate at the right price and we are all set. If the property is in a good location and if the economy isn't in the doldrums, cashflow shouldn't be an issue.

Of course, if Lady Luck were to frown upon us, we could have a nightmare no matter what.

Anonymous said...

Hi AK,
I will like to share with you on the lift that you had concerned.
Sometimes, it not just by doing calculation on the units/lift. You should also include time into the formula. :)
Condo lift is moving faster than the old point block HDB. The condo lift came with 2 doors and I saw some HDB lift only has 1 door. The one with 2 doors sure will take shorter time to close/open. The condo lift also has bigger compartment which can fetch more people.
Just my 2 cents.
from Rock

AK71 said...

Hi Rock,

All valid points but I am also worried about lifts breaking down. There are days when one lift would be out of service, for example. ;)

Thanks for sharing. Appreciate it. :)

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