Things You Might Not Know About Property Investment
Updated: May 18, 2021
Property Investment! Easier said than done.. Do you know what exactly you are going into when you start your real estate planning? Today I will shed light into the realm of Real Estate Investment.
Commonly said "Two sides to every coin."
We are always in search of investment in hope to grow our wealth and broaden our assets, all in all trying to let our money make MORE money. There are no perfect products/businesses/plans/investments for consumers, everything comes with the PROs and the CONs and in this case, YES, so is Property Investment!
Today, let's take a deeper look into property investment. Property Investment is commonly known to be easier to understand than the other conventional types of investments.
As easy as it may be, it is crucial to understand the depths of real estate planning which are commonly misunderstood or not known, how such investment is going to work for you and finally decide if it's right for you.
Buying property is a lot like getting hitched with your partner. Major huge commitments that require a ton of money and the readiness to tide through waves of ups and downs. First of all, we all acknowledge that Real Estate Investment incurs huge or probably the biggest financial commitment that you will ever face in life, but why are most people still doing so?
Why Property Investment?
Property Investment is often known to be less risky than other forms of conventional investment like stocks and shares. As straightforward as it seems, there are shortfalls that you should be made aware of. Here’s what you need to consider before investing in property:
Property market is commonly known to be less volatile (no sudden cliff dropping) than other types of investments like stocks, shares and etc... It is even more evident during periods like this, lets take a look at the recent oil stock price comparing with property price index as an example. It is a common trend that property price will commonly bounce back to a high point after a "crisis" as shown in the image below, namely, Implementation of Stamp Duty in 2006, Collapse of Lehman Brother in 2008, Increment of Stamp Duty and lowering of Loan-To-Value (LTV) rate in 2018.
-Leveraging on Rental Income:
Rental income is a steady and stable stream of cash for a lot of Landlords. Leveraging on the rental income to fulfill your month to month mortgage installments, in some cases some landlords could even profit from the rent after covering the mortgage repayment, just imagine being able to continuously renting your flat over the span of 25/30 years, the mortgage repayment will be fully covered. Although, this is not very advisable and you should always cash out when the time is right.
For cases where rental income couldn’t cover the monthly mortgage installments which resulted in landlords topping up the remaining, do not think it as you’re losing money, because ultimately with that little cash to top up, you are just paying off your house.
Aside from profiting/breaking even with rental income, do not forget that there is a high possibility for your property investments to gain capital growth especially in Singapore. However, you have to be cautious and wary of the location that you are buying into. If you have heard agents talking about growth stories around areas that you have shortlisted, you need to hear them out. These growth stories will likely be a major factor that will allow you to see the result in the next coming years.
For example, Punggol Digital District Hub, Jurong Lake District etc…
Property is actually a great way to hedge against inflation. Inflation affects negatively to most sectors but only property reacts differently. When inflation sets in, property value goes up and rents do increase as well.
The $1 you put in your piggy bank 10 years ago is valued only at $0.70 today.
However the $1 you put in your property 10 years ago has likely grown with the property value instead of dropping.
During 2018-2019, there was an “En-Bloc fever” in Singapore, where en-bloc just kept happening. En-Bloc is when a property developer decides to buy over an existing condominium by making attractive deals with every of its owners, which will commonly leave the owners with very deep pockets.
As hard as it is to predict where and when the next en-bloc will happen, it remains a possibility to get a quick cash out from developers for most homeowners out there.
Real Estate is a tangible asset. It is something that you can see, touch and maybe even taste (*strictly not for the young, and totally not advisable). This is important because when the economy falters, such tangible assets are perceived as safe havens for investors.
Over the years, most investors and homeowners have seen drastic rise in bank interest rates, which means higher repayments from them and lower disposable income in pocket. However, in recent days major shifts can be seen in the market. This is why it is SO important for owners to do refinancing to turn things around, lowering repayments and getting higher disposable income! For more information on why you should do refinancing, do check out my other article "Why Should You Refinance Your Housing Loans?"
As much as landlords would like to retain their current tenants, there will always be possibilities that the tenant needs to pack their bags and go. In such circumstances, landlord might need to bear the full cost of bank repayment during the period when the unit is not tenanted. Usually, it doesn't take too long to get a new tenant as long as the rental price is well adjusted, unit in well-maintained condition and closely connected to transportation/amenities. However, during this period, where there are little to no expatriates coming into Singapore, rental units are taking slightly longer to rent out as compared to the normal times.
Nevertheless, we still do see units being rented out! Ultimately, as long as the location and the rental price is reasonable, your unit will still move!
Unlike stocks which you can practically liquidate your investments within days, sale of property takes time. The long wait to sell are usually caused by a couple of reasons:
Unit asking for an overly high price
Old looking condition (*which is why home staging is important)
Method of advertisement
Traffic flow around the area (*important, as this implies to the number of eyes looking at the area)
Remaining lease of the unit
Upfront Costs of Buying or Selling Property
There will be costs involved to conclude a property transaction namely,
*Before going ahead with selling or buying a property, you MUST MUST MUST clarify these information from your respective agents. This will pose as a huge hindrance if it is not sorted out beforehand.
You wouldn't want to only find out all these costs after viewing like HUNDREDS of units..
How About Overseas Property Investments?
Sadly, as a local property agent, i have to be brutally honest that I am not the best to advise when it comes to investing in an overseas property, but my guts are telling me not to do such investments. On behalf of my guts, I would like to share it’s opinion.
Just like any long distance relationship that requires huge commitments to maintain, but often or not it always come back with some doubts. It is difficult to manage your properties when you are few hundred to thousand kilometres away. Without really being there to see things happen, it just creates confusion. Unless, you have a trusted agent watching over your assets.
-Stability & Security:
Aside the fact that properties in Singapore are always on an upward trend, Singapore also has always been within the top few in ranking for the SAFEST country around the world. With the systems set in place in Singapore, it is no doubt why foreigners are all flooding into Singapore to make their Overseas Property investments, but I can't be so sure for other countries.
*Singapore Property Index (SPI)
Investing in overseas property is not going to be as straightforward, for starters, you must first know their laws and regulations imposed on an overseas buyer. Moreover, the cost of management, taxes, insurances, renovations, repairs, and lastly which is the scariest of all, any HIDDEN cost...
Your doubts can be cleared if you have any trusted agents practicing in that country.
-Foreign Exchange Rate:
Singapore currency have always been standing tall and strong. However, you can't be that certain with the foreign currencies. Your purchasing power and profits are heavily dependent not only on the market, but you also have to keep an eye on the country's currency fluctuation. It is without a doubt that your rental income will also be affected. As such you will have to be on your toes all the time.
What are your concerns? What is stopping you? I would love to hear from you!
Do stay tune for my next article on where I will dive deep into things to look out for when it comes to buying properties in Singapore!
You might also be interested to find out the importance of refinancing your property. https://www.victorchua.com/post/why-should-you-refinance-your-housing-loans
Victor Chua, Senior Associate Director of OrangeTee & Tie, is a up and rising leader making a stand in the real estate industry.
He enjoys working out during his free time and can sing a couple of songs decently without having any leftover food thrown at him. When not doing so, he enjoys spending time with his family and love ones as he sees family as his top priority.
Professionally, he is a licensed real estate agent, investor, team leader, and a Real Estate Salesperson (RES) trainer in Navis Living Group (NLG).
Throughout his career, he has helped many clients grow their wealth through meticulous and intentional real estate planning by selecting great property investments and also managing their portfolios actively.