Is this a good time to invest in properties?

[cscs3]

if you buy a resale condo as a second property, less likelihood of capital gain.
if you buy a new launch, you have to wait for awhile before you can even rent out.
Plenty of hidden costs as well, one thing good about new launch though is the chance of capital gain is higher, especially now when developers are offering few % discount on ballot day, there are certain risks involved
Breakdown of $$ :
- buyer stamp duty - close to 3-4% of property price, depending on how much you pay for it
- Additional buyer stamp - 7% additional buyer stamp duty (second property)
- lawyer convenyancing - $3k
- yearly property tax - depends on the annual value of your unit, at least i would say $1k
- monthly maintenance - 300-600
- agent fee for renting out house - 0.5 month per year
- 3 months buffer for not being able to rent out house
- 1 x cleaning fee / wall painting / air con servicing whenever change tenant
- 3 years locked in period before you can liquidate (seller stamp duty)

so look at a resale 2 bedder for example, 1m, (income : rental 3k - monthly maintainance 400 = 2600)
buyer stamp - 24,600
additional buyer stamp 70,000
lawyer fee - 3000
Just based on the cost of these 3, you will need to rent out for 39 months consecutively before you break even.

if you add in
agent fee + cleaning + tax (per year) - 3000, for every year you own the condo you need to minus 1 month income, so maybe you need to hold for at least 44 months before you break even. and assuming rental is bad, you might need to hold for 4-5 years before you start making actual gains.

inbetween, there might be sinking fund top up as well and other costs

Overall, you will need to hold the property for quite awhile before you start to see any profits.

Good break down, also do not forget interest pay to bank if $ loan from bank. This can become a big variable as interest rate is on raising trend.

 

[kiatme]

Good break down, also do not forget interest pay to bank if $ loan from bank. This can become a big variable as interest rate is on raising trend.

yeah but TS say he got 1m spread all over so interest is out of the picture
but TS has to keep in mind he must have a minimum some in his RA CPF

 

[BBCWatcher]

Let me just restate the situation here.

Martin, age 5X, has an investment portfolio consisting of about 70% real estate (best guess), and 100% of his portfolio is in Singapore, a tiny country in Asia beginning with the letter S. He has maintained this investment posture for his entire adult life, and he's wondering why he isn't wealthier as he's getting nearer retirement. He's asking whether he should raise that 70% to 90% (best guess again), probably to use some mortgage debt to do it, while keeping his 100% Singapore exposure locked at 100%.

....Anybody see a problem or three with that proposal?

 

[hwmook]

Don't mean to be rude, but if we just talk about facts.

At 5x years old, if i have 1m on hand, no debts
i give myself 30 years extra life expectancy,
1,000,000 / 30 years / 12 months : i would have 2.7k to spend every month risk free

but if you look at it from another angle,
i buy a property at 1m, i rent out and on average per month i make 2k cash nett, sounds pretty good as well. i just try to hold as long as possible then will the property to my kids when i pass on, if anything happens i just cash out on the property, even if the market crashes, max i lose 20% of my investment, still sounds good to me

Max you lose 20%? You must be dreaming. You can lose 50% in a crisis.

 

[starfish.starfish]

Don't mean to be rude, but if we just talk about facts.

At 5x years old, if i have 1m on hand, no debts
i give myself 30 years extra life expectancy,
1,000,000 / 30 years / 12 months : i would have 2.7k to spend every month risk free

but if you look at it from another angle,
i buy a property at 1m, i rent out and on average per month i make 2k cash nett, sounds pretty good as well. i just try to hold as long as possible then will the property to my kids when i pass on, if anything happens i just cash out on the property, even if the market crashes, max i lose 20% of my investment, still sounds good to me

If you buy dividends stocks or etf, every month also got $$ to spend without touching your capital. At the end, the stocks can be sold off with money to your kids. No diff if you not thinking of taking loan for your property.

 

[kiatme]

Max you lose 20%? You must be dreaming. You can lose 50% in a crisis.

Pardon my ignorance but if ever it drops beyond 50%, everything else would have been affected too no? All your investments would have been burnt out as well - and I've never seen or heard of any property losing so much value

We'll wait and see..

 

[kiatme]

If you buy dividends stocks or etf, every month also got $$ to spend without touching your capital. At the end, the stocks can be sold off with money to your kids. No diff if you not thinking of taking loan for your property.

Yup, but TS is talking about property in this thread mah

 

[starfish.starfish]

Yup, but TS is talking about property in this thread mah

True but must compare like for like mah.

 

[martin]

Thanks, guys. Appreciate very much. Reading and slowly digesting.

 

[BBCWatcher]

All your investments would have been burnt out as well - and I've never seen or heard of any property losing so much value

No, not true. If the Singapore government survives (extremely likely), your government bonds and CPF assets chug right along. And if you're not 100% Singapore invested, then the non-Singapore stuff is highly likely to chug right along, too.

And yes you should be familiar with property crashes. Isn't anybody familiar with the world's second largest (now third largest) economy? A not-so-tiny Asian country that also has a rapidly aging population and low birthrate? If you were 100% invested in Japanese real estate and/or Japanese stocks, you were s****ed, for decades. (Martin hasn't got decades, not in the investment time horizon sense.) That really happened, and not that long ago. You would have done rather well with Japanese government bonds, and you did even better if you were globally diversified to some reasonable degree, because that disaster (still reverberating) was very national.

....But all this is academic, really. Martin is currently ~70% invested in real estate and 100% invested in Singapore. He's been in this posture for his entire adult life, and he's wondering why he isn't wealthier.

Is anybody seriously arguing Martin should now shift to ~90+% real estate and stay locked at 100% in Singapore? Seriously?

 

[martin]

@BBCW. In response to your post #12.

CPF - i have done exactly what you have suggested. Doing VC every year. Already max MSA, reach FRS, i think close to ERS. Yes, intend to draw out from 70 years and escalating plan. Already paid back to OA what i drew out for property purchase and intend to leave my OA untouched for as long as possible, using what i have outside first. Oh, btw, coming to age 55 soon.

Bond - you have advocated adding bonds to my portfolio, but isn’t bond yield very low, like 1-2%?

Non-sg etfs - yup, been pondering lately to add a vanguard etf. You would recommend VWRD? What about VUSD, VDEM or VHYD? But their prices are quite high now.

 

[BBCWatcher]

CPF - i have done exactly what you have suggested. Doing VC every year. Already max MSA, reach FRS, i think close to ERS. Yes, intend to draw out from 70 years and escalating plan.

Awesome. How's your spouse doing?

Bond - you have advocated adding bonds to my portfolio, but isn’t bond yield very low, like 1-2%?

No, the nominal yield is much better than that. If interest rates don't change from today, at auction (non-competitive bid, please) you should get a ~2.4% yield on the 7 year bond and a ~2.6% yield on the 10 year bond. Zero Singapore tax and zero fees, if purchased at auction and if held to maturity, and the safest Singapore dollar assets available. Ladder them as I've described, and you've got a lovely bond portfolio as a part of your retirement assets. As each bond matures you can decide whether to spend it or recycle it (in each auction: each year the 7 and 10 year issues come up for auction once, occasionally more than once -- just watch the calendar), and these bonds throw off the coupons that you can spend or reinvest.

This comes after the "CPF piggybank" technique I described since that's ~2.7%. But it's limited in the deposit amounts.

Non-sg etfs - yup, been pondering lately to add a vanguard etf. You would recommend VWRD? What about VUSD, VDEM or VHYD? But their prices are quite high now.

VWRD works well as a single, simple vehicle for global stock index investing. It includes the whole investable world of stocks, including a dash of emerging markets (about 10%). The expenses are low, the liquidity is good, and dividends are non-accumulating which isn't such a bad thing in retirement.

VUSD, VDEM, and VHYD are smaller funds that are somewhat more targeted. I don't think there's any need for them, and their trading volumes are thinner anyway. Just buy the world in one go.

Blackrock's IWDA, possibly combined with EIMI, would be the other choice instead of VWRD. I don't have a strong view on whether IWDA (or IWDA with a little EIMI), or VWRD, is the best choice. Both are fine. Maybe a slight edge to VWRD for simplicity and throwing off dividends (nice for retirement income), but either way.

Prices are quite high right now, I agree, which is why I also recommended gently gently. I don't like your portfolio allocations at this moment, but I also don't like what seem to be high prices. So you handle this as if you were guiding a supertanker through a Suez Canal (if that metaphor works): slowly, gently, deliberately, steadily, over a period of time.

 

[martin]

if you buy a resale condo as a second property, less likelihood of capital gain.
if you buy a new launch, you have to wait for awhile before you can even rent out.
Plenty of hidden costs as well, one thing good about new launch though is the chance of capital gain is higher, especially now when developers are offering few % discount on ballot day, there are certain risks involved
Breakdown of $$ :
- buyer stamp duty - close to 3-4% of property price, depending on how much you pay for it
- Additional buyer stamp - 7% additional buyer stamp duty (second property)
- lawyer convenyancing - $3k
- yearly property tax - depends on the annual value of your unit, at least i would say $1k
- monthly maintenance - 300-600
- agent fee for renting out house - 0.5 month per year
- 3 months buffer for not being able to rent out house
- 1 x cleaning fee / wall painting / air con servicing whenever change tenant
- 3 years locked in period before you can liquidate (seller stamp duty)

so look at a resale 2 bedder for example, 1m, (income : rental 3k - monthly maintainance 400 = 2600)
buyer stamp - 24,600
additional buyer stamp 70,000
lawyer fee - 3000
Just based on the cost of these 3, you will need to rent out for 39 months consecutively before you break even.

if you add in
agent fee + cleaning + tax (per year) - 3000, for every year you own the condo you need to minus 1 month income, so maybe you need to hold for at least 44 months before you break even. and assuming rental is bad, you might need to hold for 4-5 years before you start making actual gains.

inbetween, there might be sinking fund top up as well and other costs

Overall, you will need to hold the property for quite awhile before you start to see any profits.

Thanks for the analysis. Very helpful.

 

[martin]

Thanks, bbcw. With regards wife’s cpf, she’s a little behind but also max msa and near FRS.

 

[hwmook]

Pardon my ignorance but if ever it drops beyond 50%, everything else would have been affected too no? All your investments would have been burnt out as well - and I've never seen or heard of any property losing so much value

We'll wait and see..

You have never seen? Google Singapore residential property index and focus on year 1997/8. Yes it has happened before in Singapore and it took 10 years before the market recover to similar level. Affect other investments? If you compare to SGS, Singapore government have never fail to return you every single cent. That's low risk investment. If you compare to equities, STI index suffer the same drop but recover in 2 years. So what does that tell you? Property price is not as elastic as equities and not as stable as bonds so why would you want to bother with such an asset class when you are already nearing retirement? A mixture of bonds and equities will give you decent returns with stability while property does not.

Compare the residential property index now vs 1997, it's like 10% higher while STI index is like 75% higher. Property is not a fantastic asset by itself, it's only leverage that make it seem good. You can leverage in the equities market too if you please.

 

[MikeDirnt78]

You probably have 1 attempt to buy another property at the right price.

Unlike stocks, you cannot average down on a property if you have purchased one at the wrong price.

So there isn't a need to hurry to buy one if you already have a roof under your head.

Just wait for the next financial crisis.

 

[mummy1234]

Reading through some threads and there is no shortage of people who accummulate substantial part of their wealth through buying and selling properties. Not saying people who trade properties regularly but ordinarily folks who in their lifetime, maybe, just buy and sell 1 or 2 properties and that’s a few hundred k’s profits or millions that now form the bulk of their wealth.

So question, is it now a good time to buy or are prices too high? If you have cash on hand, is it better to wait for property prices to plunge? Will that happen? or do you think those days when one can make much by buying and selling properties are over?

I am also wondering if we should buy another property in Sg for own stay now. Though we r renting soon, we r also viewing potential houses for own stay.
Hindered by ABSD and wondering if we should sell our small condo or decouple to avoid ABSD. Hopefully, a black swan event comes and prices drop so we can buy again.

Actually, if only hubby would agree with my JB semiretirement plan, we wouldn't be in this quandary.

 

[andyhtc]

Reading through some threads and there is no shortage of people who accummulate substantial part of their wealth through buying and selling properties. Not saying people who trade properties regularly but ordinarily folks who in their lifetime, maybe, just buy and sell 1 or 2 properties and that’s a few hundred k’s profits or millions that now form the bulk of their wealth.

So question, is it now a good time to buy or are prices too high? If you have cash on hand, is it better to wait for property prices to plunge? Will that happen? or do you think those days when one can make much by buying and selling properties are over?

Prices are on the high side for new launches for investment buys. The golden period of property flipping is over.

Assuming $600k cash is used for a 1-bedder, the rental could be about $1.8k for 1 year or effectively 11 months after deducting miscellaneous costs. Hence, the pure profit is $1.8k*11/$600k = 3.3% net yield.

I think there are better returns in shares dividends without the headache of dealing with rental issue and problem of a highly illiquid asset.

 

[mummy1234]

I am looking at resale freehold condos for ownstay and investment. Still can find less than S$1100psf ones in district 19 and 15. May be buying one 3 bedder soon. Second viewing tomorrow. I think the location is pretty good near mrt and famous eateries and shopping centres. Easy for my kids to take mrt to school and to go for tuition. Nearby bigger leasehold new condos selling for much more.

 

[OngHuatHuat]

You look at how those dividend stocks drop over this few weeks....

Prices are on the high side for new launches for investment buys. The golden period of property flipping is over.

Assuming $600k cash is used for a 1-bedder, the rental could be about $1.8k for 1 year or effectively 11 months after deducting miscellaneous costs. Hence, the pure profit is $1.8k*11/$600k = 3.3% net yield.

I think there are better returns in shares dividends without the headache of dealing with rental issue and problem of a highly illiquid asset.