Capitaland: Bought at $2.35.

Property counters continue to be sold down today. Mr. Market is really worried about the aggressive cooling measures announced by the government, it seems.

What do we do when there is lots of fear and prices are battered down? Ask ourselves if there could be some good stocks we might be able to buy on the cheap. I wondered especially if all property counters are going to be affected to the same degree?

Companies which develop luxury residential real estate like SC Global and Ho Bee are likely to be more affected by the new cooling measures as a bigger proportion of buyers of the properties they develop are foreigners. The impression I have is that they are also less diversified and have a bigger chunk of their business in Singapore luxury residential properties.

Fundamentally, in comparison, the more diversified Capitaland is probably less affected and, in fact, with plans to spin off more properties in China into two new REITs, it could see positive interest from the investment community in an otherwise down market. Capitaland is likely to weather the storm pretty well.

Technically, $2.35 looked like it could be a strong support, having been breached only once since April 2009. So, I put in an overnight buy order at $2.35 which was filled this morning.

Well, today marks the second time this support has been breached since April 2009. The counter's price managed to close at $2.35 but not after touching a low of $2.31. Volume, although still relatively high, reduced today as a black spinning top was formed. This is a possible reversal signal but in case of further weakness, next support is at $2.28.

Related post:
Selling a private property just got harder.

Buying a private property as an owner-occupier? Think like an investor!

This blog post is in response to a comment by a reader, Jaime. See it here.



Hi Jaime,

How to buy a private property for self stay? I am most probably considered an amateur when it comes to buying private properties but I am happy to share my thoughts with you.

Just keep visiting showflats if you want to buy new. Or keep viewing apartments (look through the classifieds in the papers or search sites like Property Guru) if you do not mind buying from the resale market.

So, when you finally find a property you like and within your budget, do you just buy? That is a million dollar question, isn't it?

Even as a potential owner occupier, to answer this question, we have to think like an investor. This is the only way we do not end up overpaying for that dream home. We can pay but do we want to overpay? Remember, it is never about affordability, it is always about value.

A property's value is determined by the rent it is able to fetch if it were rented out. The higher the rent, the higher the property's value. Putting it simply, we will always value highly anything that is able to benefit us more, right?

Annualise the potential asking rent and calculate the yield based on the selling price of the property. This gives you a very rough idea if a property is worth buying.

To get a more accurate picture, ask how much is the monthly payment to the MCST, property tax and find out how much would insurance cost. Deduct all these from the annualised rent. What is left is net property income (NPI) or income after all maintenance costs have been accounted for. Calculate the NPI yield based on the selling price of the property.

If a housing loan is taken to finance the purchase, interest rates must be given due consideration. In the current low interest rate environment where housing loans could attract interest rates of 1% or lower, a NPI yield of just 3 to 4% is probably enough to make a property investment worthwhile.

If interest rates should bump up by a percentage point or two, investors would demand higher NPI yields as well. This could be achieved either through higher rents or lower selling prices. In a weak economy, prices across the board would likely take a hit since higher rents are less likely to come by. Lower rents and prices are even more likely when coupled with oversupply.

Some might ask why I say 3 to 4% NPI yield is enough to make a property investment worthwhile if interest rate is low? Isn't inflation in Singapore in excess of 5% now? Shouldn't we be invested in assets that could outperform inflation rate?

Well, theoretically, real estate should see its value at least keeping pace with inflation. So, investing in real estate should give us returns over and above inflation rate. Remember, however, that this is in theory. In reality, this is an imperfect world and there will be times when things go out of sync due to decisions made with imperfect knowledge; and these are times when savvy investors capitalise on the imperfections either as a buyer or a seller.

There will be times when things could go horribly wrong, when things go out of sync for a prolonged period. When something is stretched to an extreme, it does not just return to the mean. It is likely to overshoot to the other extreme as it tries to find equilibrium again. Sounds scientific, does it not?

You might be thinking of buying a home for self stay but think like an investor and look for value. You might one day monetise your home. Who knows?

Oh, yes, it could be lots of legwork but have fun in your search in the next few years. It is going to be a buyers' market. So, sharpen your bargaining skills. ;)


You might also be interested in these blog posts:

1. Making your first million dollars in real estate investment.

2. New or resale property?