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Over the years, I have talked to myself about real estate and my philosophy.
With the Additional Buyer Stamp Duties (ABSDs) increased by quite a bit, a reader asked for my thoughts on the property market in Singapore now.
Regular eavesdroppers on AK would be able to guess the response.
My philosophy has not changed.
If we are investing in real estate, just like investing in stocks, we want to invest in an asset that, after expenses, will generate a meaningful income for us.
If we buy real estate thinking that the price of the asset will rise in the next few years and that we would be able to flip it for a profit, that is not investing.
That is speculating.
Usually, I would stop here.
However, for quite a few years now and it has gotten a lot worse, we have people buying real estate in Singapore not to generate any income nor to flip for a profit.
They simply want Singapore properties as a store of wealth because of the strong Singapore Dollar and the politically stable environment.
They are mostly foreigners.
Wow!
So many ultra rich foreigners!
From which countries?
You ask, you answer.
I am not going there.
I have said before that when we buy a property, we want to ask 2 questions.
1. It is not just a question of affordability but we should also ask if it is value for money.
2. Do we have deep pockets for if things go wrong and many things could go wrong.
However, to these very rich people, these two questions are most probably irrelevant.
So what if the properties don't make money or if they should even lose money?
If the ultra rich are able to protect a big fraction of their wealth, they would still be very rich and that could be more than enough for them.
For the rest of us, we really have to stay grounded and not be swept away by barbers telling us we need to have more frequent haircuts even if we are going bald.
Now, for those who bought properties in Singapore recently thinking they could flip them a few years later at higher prices, the much higher ABSDs announced might have turned those dreams into nightmares.
The government of Singapore wants properties to be sold mostly to genuine owner occupiers because housing affordability is a big issue.
Singapore welcomes foreign direct investment but we do not want foreign direct speculation.
Hence, the recent strengthening of property cooling measures.
For those of us who are still thinking of investing in properties for passive income in Singapore in spite of the ABSDs, I would go back to those 2 questions I said we should be asking.
Cannot remember?
Scroll up and take a screenshot.
Nightmares do not discriminate between speculators and investors.
This is a fact.
Pay a price too high and we could have a high price to pay in future.
Anyone who is not ultra rich but wants to be a real estate investor in Singapore might want to read the related posts below.
Related posts:
1. Condo investment has been a drag.
2. This condo has also been a drag.
3. Investment philosophy and properties.
4. Two questions we should ask.
5. Affordability and value for money.
Bloggy Award
8 comments:
Dear AK
Agree with what you say
Anyway foreigners accounted for only 4% of transactions and this might include US citizens as well. They do not have to contend with ABSD and because of the FTA, they are treated like SG citizens when it comes to ABSD
They can buy properties without the 60%
I know of two families
Clever Indian origin expats who relocated here after acquiring US citizenship
These measures are unlikely to affect most SG folks- they can always buy another property in the name of their spouse and if they still have cash, an buy for their kids as well
However, the rental yields are poor. Appreciation is very poor, lease decay and property maintenance plus taxes will ensure there will be very minimal returns. I have not even talked about the opportunity costs here, leave alone leverage for mortgages!
Regards
Garudadri
Hi Garudadri,
Thanks for sharing!
I didn't know American citizens are treated like Singaporeans when it comes to ABSD due to the FTA.
I agree that Singapore properties make for poor investments if we are looking for income generating assets.
We would be very lucky if we are able to eke out a net return of even 1% or 2% p.a.
This would be OK in a low interest rate environment as even a 50% LTV would amplify the return but when interest rates are much higher, leverage becomes a problem for many.
This is especially for people who took the maximum loans allowed.
Many property investors with deeper pockets probably agree if reports of borrowers doing early capital repayment for housing loans in recent months are true.
All the arguments used by property agents to get people to invest in Singapore properties using other people's money in past years have led to naked swimmers being exposed as the tide goes out.
Foreigners who purchase high-end condominiums are typically beyond the financial reach of locals. As I recall, this phase of property restrictions started around 2010, and have only grown tighter over the past 13 years. It's like boiling water in a kettle, where the pressure just keeps building and building. Price just keeps going up.
Those who have refrained from investing in these properties may have missed out on 13 years of rental income and significant capital gains. It may be too late for them to enter the market now, but there may still be opportunities available. I don't know.
However, the latest measures introduced could exacerbate supply shortages in the years to come, as developers may be discouraged from building more units. This, in turn, will only drive up rental prices even further.
Hi Cory,
Narratives like that which property agents like to use just fan the flames of speculation and strengthens the feeling of F.O.M.O.
That's what happened in Japan before the country sank into 2 lost decades and property prices fell into the doldrums.
I shared my own story in a blog in 2017 which I linked in this blog as Related Post #3.
If I am an investor, I would keep an eye on rental yield as to whether investing in real estate in Singapore makes sense at any point in time.
Those years when I did buy private properties here were years when the rental yields told me it made sense to do so.
Entry price matters.
Of course, if we are speculating in the property market, that's a different story.
Like I have said before, I have nothing against speculating as long as speculators know they are speculating and not investing. ;)
Hi AK71,
Have you ever consider 20 years down the road, your freehold condo will face en-bloc fate and you need to top-up to purchase another residential property?
Regards,
MSA
Hi MSA,
One of my biggest problems is that I think too much or so I have been told.
It is probably a big reason why I became a mental patient at IMH. (TmT)
Sometimes, unexpected things which we cannot prepare for will happen.
We would just have to cross the bridge if we ever come to it.
If we have been financially prudent and have ample financial fire power, we can cross bridges with confidence even if they are of the Indiana Jones variety. ;p
Well, not much we can do about it unless ones willing to forge out that 20%. The previous 17% was already a nightmare, crashed the dreams of many middle income people wishing to own a 2nd property.
Back in year 2011 when I just came of age to purchase a HDB of my own, I explored both options. A private apartment or a HDB. Turns out that my pockets are small, so I can never really can afford to take the risk investing in private properties. I ended up purchased a HDB, fetched my folks lived with me and rent out their public housing. 12 years down the road, those small modest rental income from that ancient house has been quietly generating income, giving us consistent income and above all-A peace of mind.
Of course, we do not spend all those rental, we re-invested it. LOL> Ahem into fixed Deposit. Safe safe.
Hi TDT,
Saw the recent headline?
"Blossoms By The Park: China buyers pick up 4 units despite doubling in foreigner ABSD rate to 60%."
I so stunned like vegetable! O_o
If the world's top 1% all decide to park a percentage of their wealth in Singapore, I think ABSD will have go up many times of 60%. LOL.
All of us have different circumstances and different beliefs.
So, naturally, we should all have our own strategies which fit.
I am very happy to read your experience which is a good example of this.
It works for you and that is what matters. :D
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