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15-04-2012, 08:13 AM
The Straits Times
Apr 15, 2012
Opt for 'collectibles' when investing in property
There are still risks and uncertainties, so go for homes that are in low supply but of good quality
By Esther Teo
Sky-high home prices and a slew of cooling measures have heightened the risk of investing in residential properties, leaving investors unsure as to what their next step should be.
Investors hoping to lock in capital gains are likely to have slim pickings this year.
After almost three years of gains, home prices have taken a breather, with preliminary estimates showing a 0.1 per cent dip in the first three months of the year.
Experts say that the dynamics of the property market has changed after five rounds of cooling measures since September 2009 to tame escalating prices.
Private home prices have skyrocketed 55 per cent since the middle of 2009 as the flush of liquidity in the market and low mortgage rates have kept the market robust.
Sales volumes also surged, with buyers snapping up a record 18,920 units last year - including executive condominiums (ECs) - on the back of the bumper supply of land. This eclipsed the previous high of 17,344 units in 2010.
But with soaring demand and prices came measures to cool the market.
They ranged from tighter financing rules to additional stamp duties for both buyers and sellers.
These were fairly tough measures and could have caused the market to tank if they had been introduced in the past.
However, these are exceptional times we are living in, no thanks to the global flood of cheap money that has resulted in bank deposits paying next to nothing in interest.
While home prices remain stubbornly high, some of the speculative fervour has been dampened by the stiff measures.
For instance, the seller's stamp duty has creamed off speculation from the market, tipping investors towards taking a mid- to long-term view on their purchases instead.
The seller's duty can be as much as 16 per cent. It is applicable for up to four years from the purchase of a home.
The duty is tiered, meaning that sellers stump out less in taxes the longer they hold onto their purchases.
This led to near halt in subsale activity - a handy indicator of property speculation. Subsales as a percentage of total sales fell to about 8 per cent last year. Before the curbs were introduced, they were as high as 16 per cent in the fourth quarter of 2008.
Jones Lang LaSalle's (JLL) South-east Asia research head Chua Yang Liang notes that property investment has become a longer-term game.
'The asset is chunky and illiquid, it typically requires more time to transact than other investment instruments,' he adds.
'So, one should not focus only on making short-term gains, as that could potentially damage the health of the property market in general.'
Since the 2008 Lehman Brothers crisis, the action in the residential market has swung from luxury to mass.
While suburban projects have seen record pricing amid strong demand from buyers, high-end homes have languished.
As a result, experts say the high-end segment may offer better capital appreciation as it is the only segment where prices are still below their peak.
On the other hand, home prices in the suburban regions have already eclipsed their last peaks in 2008.
Mr Ku Swee Yong, chief executive of International Property Advisor, says that as there are still risks and uncertainties in the market given the current global climate, it is important to invest in 'collectibles'.
This means homes that are in low supply but of good quality such as landed homes or non-landed, high-end projects like The Marq, Parkview Eclat and Ardmore Park, he notes.
On the other hand, mass market homes should be avoided due to the large supply expected to be completed over the next few years, Mr Ku asserts.
'The high-end market has been in the doldrums regardless of the recently imposed additional buyer's stamp duty and so, with rich foreigners stepping aside for a while, investors can take the opportunity to get back in,' he says.
'But the mass-market segment should be avoided because you'll be competing with HDB and EC segments as well, whose owners might be divesting or leasing their units out at the same time,' he notes.
PropNex chief executive Mohamed Ismail, however, holds a different view.
His picks are landed properties due to their limited supply, EC homes that have passed their five-year minimum occupation period and freehold resale homes in suburban areas, which he said are 'underpriced'.
These resale suburban homes can be picked up in areas like Hillview, Pasir Ris and Serangoon, he added.
'The stalemate in the high-end market has created a buyer's market so if you can find a good bargain, then why not. But if not, you can afford to wait a little longer because there might be a correction in prices,' he added.
Mr Ismail expects city centre and city fringe home prices to fall 5 per cent but suburban prices to rise 3 to 5 per cent.
It is unclear who is right.
But the general consensus is that home prices are expected to remain soft this year.
If the capital gains game is up, what about investing for rental yields?
Credo Real Estate executive director Ong Teck Hui notes that yields for residential properties are generally low and so measuring investment performance by yields alone is inadequate.
Hence, total returns - both rental yields and capital gains - must be taken into consideration when deciding on a home purchase.
Says Mr Ong: 'What is the point of having good yields if say, a property was bought at the peak of the market and subsequently suffers capital depreciation wiping out the gains from rental yield?'
Gross residential yields are typically between 2.5 per cent and 3.5 per cent.
But despite the low yields, experts note that there is still positive cash flow for investors who rent out their units since mortgage rates are less than 1.5 per cent.
If an investor is to focus on the yields front alone, however, resale homes are likely to be more attractive.
This is because they are generally priced lower than newly completed units but rental income is the same, notes JLL's Dr Chua.
But if the product is good, uncompleted homes can get a lift in prices once they are completed as potential buyers are able to get a sense of what they are buying into, experts say.
esthert@sph.com.sg
Apr 15, 2012
Opt for 'collectibles' when investing in property
There are still risks and uncertainties, so go for homes that are in low supply but of good quality
By Esther Teo
Sky-high home prices and a slew of cooling measures have heightened the risk of investing in residential properties, leaving investors unsure as to what their next step should be.
Investors hoping to lock in capital gains are likely to have slim pickings this year.
After almost three years of gains, home prices have taken a breather, with preliminary estimates showing a 0.1 per cent dip in the first three months of the year.
Experts say that the dynamics of the property market has changed after five rounds of cooling measures since September 2009 to tame escalating prices.
Private home prices have skyrocketed 55 per cent since the middle of 2009 as the flush of liquidity in the market and low mortgage rates have kept the market robust.
Sales volumes also surged, with buyers snapping up a record 18,920 units last year - including executive condominiums (ECs) - on the back of the bumper supply of land. This eclipsed the previous high of 17,344 units in 2010.
But with soaring demand and prices came measures to cool the market.
They ranged from tighter financing rules to additional stamp duties for both buyers and sellers.
These were fairly tough measures and could have caused the market to tank if they had been introduced in the past.
However, these are exceptional times we are living in, no thanks to the global flood of cheap money that has resulted in bank deposits paying next to nothing in interest.
While home prices remain stubbornly high, some of the speculative fervour has been dampened by the stiff measures.
For instance, the seller's stamp duty has creamed off speculation from the market, tipping investors towards taking a mid- to long-term view on their purchases instead.
The seller's duty can be as much as 16 per cent. It is applicable for up to four years from the purchase of a home.
The duty is tiered, meaning that sellers stump out less in taxes the longer they hold onto their purchases.
This led to near halt in subsale activity - a handy indicator of property speculation. Subsales as a percentage of total sales fell to about 8 per cent last year. Before the curbs were introduced, they were as high as 16 per cent in the fourth quarter of 2008.
Jones Lang LaSalle's (JLL) South-east Asia research head Chua Yang Liang notes that property investment has become a longer-term game.
'The asset is chunky and illiquid, it typically requires more time to transact than other investment instruments,' he adds.
'So, one should not focus only on making short-term gains, as that could potentially damage the health of the property market in general.'
Since the 2008 Lehman Brothers crisis, the action in the residential market has swung from luxury to mass.
While suburban projects have seen record pricing amid strong demand from buyers, high-end homes have languished.
As a result, experts say the high-end segment may offer better capital appreciation as it is the only segment where prices are still below their peak.
On the other hand, home prices in the suburban regions have already eclipsed their last peaks in 2008.
Mr Ku Swee Yong, chief executive of International Property Advisor, says that as there are still risks and uncertainties in the market given the current global climate, it is important to invest in 'collectibles'.
This means homes that are in low supply but of good quality such as landed homes or non-landed, high-end projects like The Marq, Parkview Eclat and Ardmore Park, he notes.
On the other hand, mass market homes should be avoided due to the large supply expected to be completed over the next few years, Mr Ku asserts.
'The high-end market has been in the doldrums regardless of the recently imposed additional buyer's stamp duty and so, with rich foreigners stepping aside for a while, investors can take the opportunity to get back in,' he says.
'But the mass-market segment should be avoided because you'll be competing with HDB and EC segments as well, whose owners might be divesting or leasing their units out at the same time,' he notes.
PropNex chief executive Mohamed Ismail, however, holds a different view.
His picks are landed properties due to their limited supply, EC homes that have passed their five-year minimum occupation period and freehold resale homes in suburban areas, which he said are 'underpriced'.
These resale suburban homes can be picked up in areas like Hillview, Pasir Ris and Serangoon, he added.
'The stalemate in the high-end market has created a buyer's market so if you can find a good bargain, then why not. But if not, you can afford to wait a little longer because there might be a correction in prices,' he added.
Mr Ismail expects city centre and city fringe home prices to fall 5 per cent but suburban prices to rise 3 to 5 per cent.
It is unclear who is right.
But the general consensus is that home prices are expected to remain soft this year.
If the capital gains game is up, what about investing for rental yields?
Credo Real Estate executive director Ong Teck Hui notes that yields for residential properties are generally low and so measuring investment performance by yields alone is inadequate.
Hence, total returns - both rental yields and capital gains - must be taken into consideration when deciding on a home purchase.
Says Mr Ong: 'What is the point of having good yields if say, a property was bought at the peak of the market and subsequently suffers capital depreciation wiping out the gains from rental yield?'
Gross residential yields are typically between 2.5 per cent and 3.5 per cent.
But despite the low yields, experts note that there is still positive cash flow for investors who rent out their units since mortgage rates are less than 1.5 per cent.
If an investor is to focus on the yields front alone, however, resale homes are likely to be more attractive.
This is because they are generally priced lower than newly completed units but rental income is the same, notes JLL's Dr Chua.
But if the product is good, uncompleted homes can get a lift in prices once they are completed as potential buyers are able to get a sense of what they are buying into, experts say.
esthert@sph.com.sg
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