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14-12-2016, 01:47 PM
(This post was last modified: 14-12-2016, 01:48 PM by Big Toe.)
We had cheap money for far too long. If a company is unable to climb out of financial difficulty even after so many years of low interest rate, it is better off closed for good. The problem with these zombie companies is that they drag the whole industry down, even the healthier ones. One cannot be much better/smarter than the weakest/dumbest competitor. (quoted by WB on airlines previously I think)
The same goes for individuals hanging on to investment properties. The industrial properties are especially bad. If you look around the newer(some even older ones) developments the best ground floor units just sit empty for years even though they are sold. At the current rentals it is not even close to break even. And with some at 30years leasehold, these buggers depreciate fast and attract the same tax as freehold/99/60 years.
Retail shops is just as bad, matter of time before rentals starts coming down significantly. Problem with retail shops is some are priced like they are made of diamond(both the sale price and rentals). Rentals can go only as high as the catchment around the area it sits on and the type of business it operates. Basic economics.
Same goes for residential units, except it is easier to rent out a residential unit than a commercial one. And yields can be mildly positive.(for now, but maybe not for long)
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Big toe, responding to your statement
Zombie companies: Some countries are practicing it, throwing money to support the ailing ones. Locally, we have seen such cases (e.g Krisenergy, Swiber), where bondholders and various stakeholders are striving their best to keep these companies afloat so as to get their capital back. This is subjective as critics will argue that they can be "nursed back to health", which i find baffling.
Properties is bad: however for industrial and residential, it is supported by rich Singaporeans/and some foreign investors who have the recurring income (from job or somewhere else) to ensure they can cover the interest/taxes etc. IMO only when interest/taxes etc on this properties exceed 50% of working income, will these people find it unbearable and start cutting losses. Job losses will definitely start a force sale of ppty.
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CY09, responding to you statement.
The thing about the current situation on property is this. While the property investors may have the ability to service their loans comfortably, it is the mental anguish of recurring losses that they may not be able to tolerate. There is no foreseeable upside to speak of and plenty of potential negatives going forward. Having to service an empty/depreciating property for years is painful(Depreciation from the leasehold tenure, financing cost, property tax, maintenance, opportunity cost). If it is me, I would cut my losses(ie selling it at a lower price) and put my money to better use.
A friend of mine with envious of people with multiple properties. I told him dont be. With great property portfolios comes great financial burden. Great during the upswing, not too good during a downturn.
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(14-12-2016, 11:49 PM)Big Toe Wrote: CY09, responding to you statement.
The thing about the current situation on property is this. While the property investors may have the ability to service their loans comfortably, it is the mental anguish of recurring losses that they may not be able to tolerate. There is no foreseeable upside to speak of and plenty of potential negatives going forward. Having to service an empty/depreciating property for years is painful(Depreciation from the leasehold tenure, financing cost, property tax, maintenance, opportunity cost). If it is me, I would cut my losses(ie selling it at a lower price) and put my money to better use.
hi Big Toe,
I don't think that is necessarily true. For irrational human beings, the mental anguish of recurring losses should not be higher than that of a one-time big loss. A one time big loss, even though lower than the sum of small losses, creates too big of a mental deficit.
Some years back, an experiment was done on noise affliction. Subjects were exposed to 2 kinds of noise - One was constant small noises for a longer period, while the other was occasional but slightly louder noise...On the decibel scale, the former had higher impact. As it turns out, the latter was reported by the subjects to have been a louder irritant.
You would have reacted like an Econ, ie. a rational being but generally, I think the masses are not.
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No matter how bad the news are protraying the general property market, you shouldnt believe too much from what you hear. I always go to the ground to see it myself, and there are certainly small bright sparks around. My tenant recently just renewed for another year at $100/mth less and I just refinanced at $200/mth less : ). $100/mth net increase in this "bad" environment : ).
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Value mushroom,
How did you refinance at 200 less? From a fixed rate loan to a variable loan?
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Oh actually i did a reprice from FHR18 + 1.25% to FHR18 + 0.8%.
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(15-12-2016, 08:21 PM)ValueMushroom Wrote: Oh actually i did a reprice from FHR18 + 1.25% to FHR18 + 0.8%.
Any admin charges incurred ? Thanks.
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It is $500 after discount. You must not be locked in for repricing to work, if not the bank usually cant be bothered with you.
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15-12-2016, 11:49 PM
(This post was last modified: 15-12-2016, 11:52 PM by Big Toe.)
Hi there Mr Mushroom.
1. There will be bright spots even in the worst of times. But it would be the exception rather than the norm.
2. Right at this very moment if you own at least 2 HDB shops side by side(preferably >150sqm) in a relatively high density location, you can easily rent it out to certain businesses(that are killing each other now) for at least 25-30K/mth. That's a very comfortable retirement income.
Large HDB shop space rentals IS becoming as expensive as downtown core. Mainly because they are extremely rare. Small spaces on the other hand is not worth as much, it is the large spaces within the heartland that is becoming increasingly rare. Chances of buying such spaces is almost 0 no matter how much money one have.
3. Your tenant did renew at a lower rate and you managed to re financed at a lower rate. It is indeed a good deal for you at the moment, but going forward, what would be the likely scenerio? Rentals up or down? Interest rates up or down?
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