In the 1930s, American novelist Upton Sinclair wrote that it is difficult for a man to understand something when his salary depends on his not understanding it. Almost a century on, the observation remains just as relevant.
Insurance agents continue to peddle expensive life policies despite the universal adage that buying term and investing the rest is the cheapest and most efficient way of acquiring coverage.
Try engaging your insurer friend on that and be prepared to watch the friendship go up in smoke.
While I would have felt a sense of unease years ago, age has made me more accepting.
Why should the truth even stand in the way of visceral self-interest?
It never has, it will never be, and I have come to accept it as a way of life.
So it is a breath of fresh air to find myself across the table from property insider Ku Swee Yong.
A man of many talents, Swee Yong read Chemistry in the UK before returning to serve out his scholarship bond.
An overseas posting with the then Singapore Tourism Promotion Board saw him segueing into the property industry with Far East Organisation in Jakarta. More recently, he had stints with Savills and served as a director in Soc Gen Private Banking. Today, he is the CEO of his own property agency International Property Advisor.
Two things set him apart from other property pundits in the market.
Firstly, Swee Yong’s strong suit is in market research and analysis.
Unlike many others who simply parrot headline numbers, he digs deep and examines the market from many different angles.
Secondly, he is candid to a fault and does not shy away from calling a spade a spade. Over the years, he has taken some contrarian market stands and he has shown no signs of letting up.
In the couple of hours we spent chatting, I learnt more about the man and his exploits. First, we spoke about the state of the market.
Short Term View: The Bear
Swee Yong’s advice is chilling.
Currently, there is an oversupply of housing options in the pipeline and buyers are better off holding their purchase.
“Please hold cash because there are much better buys coming along”
Ku Swee Yong
When probed, he took time to provide an in-depth explanation.
For public housing, which makes up the majority of the market in Singapore, there are two structural issues at play.
- Firstly, HDB flats are on a 99-year lease. The lease will run down eventually. In the next few decades, we will see more and more flats approaching the end of their lease period.
- Secondly, Singapore is faced with an ageing population. When a homeowner passes away, his or her children will inherit the flat. We are already at very high levels of home ownership, with the majority of the population being HDB homeowners themselves. Individuals are not allowed to own more than one HDB flat, so either one must be subsequently sold. This scenario will become more and more prevalent in the future.
In fact, at the current moment, the entire owner occupancy market in Singapore has already been satisfied.
According to Swee Yong, there are more than 1.4 million residential units in Singapore supporting 1.3 million households.
There is an excess of a hundred thousand units on the market that needs to be rented out.
The moment we are not able to keep up with the job creation and once we see an outflow of the foreign population, rentals will be depressed and the capital value will be adversely affected. Already, we have seen weaker population growth in the recent years compared to what it was in the early 2000s.
The confluence of excess supply, ageing demographics and dwindling population growth will put a lid on property prices in Singapore for the near future.
Long Term View: The Bull
All this talk about an oversupply and the problems facing the market right now is making him sound like a perpetual bear on the Singapore market. Swee Yong was quick to remind me that this is far from the case.
In 2006, the property market was just about to get back on its feet again after a prolonged period of weakness caused by the Asian Financial Crisis in 1998 and the dot com bust in 2001. Volume was beginning to pick up and developers were starting to awake from their slumber.
Based on an analysis of demand and supply and a combination of other macro-economic factors, the signs were there for a spike in property prices. Swee Yong forecasted that residential property prices would cross $4500 per square foot in three years’ time.
It was a 50% increase from the $3000 per square foot that high-end residential properties were transacting at that time.
What Swee Yong did not realise was the amount of flak he would draw from making such a bold call. Investors who were afraid of missing out on the bandwagon accused him of talking up the market. Developers were concerned, so were government policymakers.
In May 2007, barely a year later, and two years early even with his forecasting, a unit at the St Regis Residences transacted above $4500 psf for the very first time.
The breakthrough was confirmed when SC Global launched its flagship The Marq on Paterson Hill the following month. A unit on the 16th floor was sold for $5262 psf, setting the record for the highest property transacted then.
The Quant
For Swee Yong, it is never about talking up or talking down the market. Neither is it about being contrarian for the sake of being contrarian.
My research is based on numbers. I will stack up on the numbers to present my case.
His ease around data allows him to come up with his own unique interpretations of the market.
To gain a better understanding of what his work entails, I strongly recommend his latest book Preparing for a Property Upturn – Trends and Pitfalls in Real Estate Investment.
The chapters within are succinct and backed up strongly with economic, population and property sector data. By marrying these information chunks, Swee Yong is able to present an accurate snapshot of the property market, past and present.
Unlike many other property investing books I have read, his work acts to calm investors down instead of riling them up.
He stirs readers into thought rather than drum them into unnecessary action. The books are high on rationality and analysis rather than anecdotes and stories. They educate rather than persuade and they are a must for every bona fide property investor.
Another issue that we dwelled on a fair bit is that of the property investor’s mindset and the biases they bring into the market.
The Rational Mind
Our property market has matured. Unfortunately, the mindset of property investors have not.
Swee Yong was adamant about putting property investing into perspective for the investor.
My main argument is for the past 50 years, prices have gone up. And when people extrapolate history, they will say that prices have gone up. Our education system has conditioned our students to think that – the past 50 years, this has happened, so this will continue to happen this way.
Unlike our parent’s generation, where huge amounts of wealth were generated across the entire population from the spoils of property ownership, the matured market will not see growth spurts like before. Our generation and the generation after us should be happy with slow and steady growth.
Ku Swee Yong
He also had a few choice words for people thinking that property investment is the magic pill to riches. While many on the Singapore Forbes Top Ten Rich list are there because of real estate, few actually started from real estate.
Real estate should be your second investment. Your first investment should be financials, private equity, or go and start a business.
Once you have amassed enough and you realise that hey, there are excesses that I cannot deploy into the new business anymore, then dip into real estate. That way you see people in the tech world, they will keep returning all their money into tech first. Then buy their own house, then buy their own buildings.
Ku Swee Yong
You should not see real estate as your first foray, especially if you are gearing at 70-80pc. because you do not have much buffer. When the market drops 30pc you are wiped out.
The Concerned Citizen
The next thing he said really got me thinking.
When you already have a steady income due to a job, why then do you want to invest in something else that produces another form of steady income?
In 2018, we published an article called The Real Singapore Inc – Why We Do Not Have a Global Company). In the article, we put forward a few reasons as to why Singapore will be very hard pressed to produce a truly global company. These include our relatively small home market, the government’s monopoly on talent, Singapore’s unique brand of top-down entrepreneurship.
We need our government to encourage us to start businesses. It has never worked that way. Entrepreneurship has to be bottom-up, the intrinsic motivation of the individuals to create dreams and things. We have probably lost that hunger. We have grown too comfortable to take risks. And hence I say we have many hindrances to build truly global companies – The Real Singapore Inc
Alvin Chow, CEO of Dr Wealth
The policy of home ownership for every Singaporean is effectively a deterrent to entrepreneurship. In fact, as Swee Yong would proclaim…
That’s why this country has few entrepreneurs. At 28 years old, when you have a 30 year old home loan, your wife will start to nag at you to have a job. Real estate investment is killing innovation.
Ku Swee Yong
It suddenly dawned on me that real estate and the riches it generates is a but secondary product of innovation and economic growth.
Property prices are a derivation of the state of the economy, and real estate cannot and will never be the primary driver of growth. When a property investor transacts a property, he or she props up the economy but technically adds little value to it.
When the entire country or society focuses their attention on getting rich through real estate investment, it is inevitable that there will be fewer people out there innovating, building products and creating solutions. It is a deep-seated structural problem and there is no easy solution in sight.
The Righteous
I asked Swee Yong about the market slowdown, and how many property agents have turned to innovative methods of acquiring clients.
The situation bears resemblance to what happened in 2009, he suggests. That year, the market has slowed down and units were not moving in the market. He noticed then that there were also a number of people who have come up with creative solutions for investors to own multiple properties with little money down.
Do you really think you can own 34 properties without any money down? How is that even possible?
Factually speaking, there is only one way to own anything without any money down, and that is to leverage and take on a huge amount of debt. When times are good, investors are seduced by the supposed high yield and the potential for capital appreciation. They fail to consider the huge amount of risk they are subjecting themselves to.
The subprime crisis arose under the same set of circumstances, albeit on a much grander scale. It was irresponsible for banks and financial organisations than to repackage risky debt and offload them onto unsuspecting counter-parties.
It is just as irresponsible for marketers now to encourage risky agreements and high debt levels.
The Teacher
Swee Yong now teaches at Ngee Ann Polytechnic and Singapore Management University.
When I was invited to teach the last few years, I happily agreed despite teaching being a big demand on energy and commitment.
Ku Swee Yong
Through teaching and working with tertiary students, he hopes to correct many of the misconceptions our younger generation have with regards to real estate.
Many of these ideas have been inherited from the older generation, including how a property investment is the best hedge against inflation and the best source of passive income.
A property investment is not a good source of passive income. The worst property investors are those who think they can fire and forget. A property may not be a good hedge against inflation. I am trying to address these issues from a university level, to put things in the correct context for them.
I hope that by doing so, my students will be able to educate their family and make better decisions when it comes to properties.
Ku Swee Yong
For adult learners who would like to learn more, Swee Yong will be conducting a workshop for property investors in which he shares his experiences and his knowledge.
The one day workshop on the 25th May will include modules on How to Evaluate Investment Potential, Calculating Returns and Cashflow, Financing Property Investment and Putting Theory into Practice.
If you are looking for ways to buy 34 properties without any money down – this is not the workshop for you.
If you are a couple with $6,000 monthly income and believe that it is possible to sell your HDB flat, upgrade to two condominium units, rent out one for passive income and live happily ever after in the other unit, this is also not the course for you.
On the other hand, if you are looking to up your property investment game, or if you see opportunities looming and you are looking for like-minded investors to bounce ideas off, and if you are searching for a factual, no bullshit property investment workshop, then look no further.
This is not a sponsored post. At Dr Wealth, we take our responsibility to our readers seriously. We are trainers ourselves, and we know a true practitioner when we see one. See you at the workshop!