Investment Instruments Series - Property

In property, people normally invest in it for 2 aims; either to collect rent or for capital returns.

If you are going for capital returns, just follow the rule, buy low sell high. Property prices goes in cycles. In Singapore, if you take the last property boom(1994-1997), and the current booming market, its about 12 years apart(start of both booms). So for example, if you buy a 5 room HDB flat in Bishan at the low, it would be around $350k. It can easily fetch $450-500k during the boom period. Or if you are cash rich, get a district 10 property and a tidy profit of $400k-$1m is not unusual. During my father's time(1970-80s), he bought the flat for <$100k and now, its going for $350-400k. Nowadays, you will have to buy a new flat for $200-300k and the profit, if any is only at most $50k. Buying and selling flats is no longer as profitable.

If you have read or attended any renowned real estate experts / gurus talks such as Robert Kiyosaki or his advisor, Dolf de Roos, you will know that rental returns is better than the capital gains as you will be using other people's money(OPM) to pay your property. Take for example a property worth $500k. You pay a minimum sum of maybe 10%, and takes a loan of $450k, the monthly installments would work out to be about $1500 for 30 years. If you rent it out for $1800, you will have a positive cashflow of $300/mth. This $300/mth would be your passive income no matter if you work or not. And the tenant would also be paying for your installments of $1500.

But in Singapore, it is very difficult to find a cashflow positive property as the government controls the market very tightly. Furthermore, when you rent a property, the government would impose on you a tax. So all in all, you will not be getting much from your rental income. This scenario has an exception though. From my understanding, only the commercial properties could command a positive cashflow. The only problem is that to buy a commercial property, you would have to pay cash and a good commercial property costs >$1m. Not a lot of people has that type of money in Singapore.

For me, I prefer overseas properties. Depending on which country, advantages being that it is relatively cheaper to buy a property overseas, overseas rental is higher as compared to Singapore, not needing to pay rental tax and no stamp duty. Of course the downside would be not being to see if the property is well managed. That is why due diligence has to be done before one buys an overseas property. The reputation of the property manager, type of tenants, location, possibility of long term lease, country's property law are just a few of the issues to be researched before plunging into the overseas property market.

If you read the Saturday's newspapers, there are bound to be some companies advertising on overseas properties. The cheaper properties are usually from our region, such as Malaysia, Thailand, Australia and New Zealand. I am not comfortable with the Malaysian and Thai government. Malaysian government has changed their property laws several times and this has brought great inconvenience to Singaporean property investors. As for Thailand, I feel that the government is too instable. Maybe I enjoyed my Aussie and NZ trips, I do prefer the people and the environment there. The more expensive properties are usually the UK ones. As a rough reference, Aussie and NA properties ranges between S$150-$500k. UK ones are normally at least $800k. The rental yield for Aussie and NZ properties is usually around 5-10%. But beware of the loan interest rate. It is around 7-9%. So this high interest rates do eat into your rental income.

If you are interested in going into any overseas property market, go to any of the "no obligation" seminars/sales talks advertised in the newspapers. Learn more about the different companies.