What is uniquely Singapore?
One obvious fact is our obsession with properties. Foreigners who are new to Singapore are often amazed by this property-crazy nation. We have the world’s second highest home ownership rate of 90.4 percent among residents in 2019. We are passionate about property investment. With easy financing and low interest rates, our passion was made possible.
In fact, the whole life of Singaporeans can revolve around properties: First, we apply for a first-hand HDB flat. Next, we upgrade our home to a condominium. Then we plan to buy a second property for investment.
Property is our life goal. It is our source of motivation to toil from dawn till dusk – to save for the downpayment of our first flat, to pay off that 25-year mortgage, or to reward ourselves after years of hard work. At the end, it is also our source of worry when it comes to value depreciation of our 99-year-lease HDB flat, or too much wealth being tied up by our home when we retire.
With real estate occupying a significant portion of our wealth, we pin our hopes on the sustainable growth of property prices. But Singapore has long passed the stage when we had exponential growth in GDP evolving from an emerging country to a developed nation. The good old days when prices of landed properties jumped 75 to 100 times are over. HDB resale flats are still 9.5 percent lower than their last peak in April 2013. Landlords of private investment properties are happy that the rental return can cover outgoing expenses.
The truth about putting money in properties
Being an independent property blogger, I often receive e-mail messages from buyers who regret buying the wrong property at the wrong time, or complain about the developer, their agent or a tenant. To a group of buyers, upgrading to a private home or buying a private property for investment is not a bed of roses.
Many anxious buyers told me that they had no intention to buy before stepping into the sales gallery. But an enthusiastic agent told them this, assured them that, urged them again, and cornered them until they were too “paiseh” to say no. They regretted buying the new unit and asked me how they could cancel the booking and return the unit without penalty.
Some distressed buyers said they heard somewhere that commercial properties could offer higher return. They bought a shop in a new strata-titled mall or a factory unit in an industrial building. Only to find it a ghost mall or an almost empty building ever since the development have obtained its TOP. They couldn’t find a tenant or a buyer and they asked me what to do.
Some desperate buyers shared in pain how they bought an overseas project with poor workmanship, high vacancy, depreciating value or a runaway developer. For foreign properties paid but never delivered, the Singapore Police couldn’t help them because it was not a Singapore property.
Honestly, I couldn’t help much. Instead of looking for me, they should go look for the middleman who marketed the project, sold them the property and pocketed the commission. The marketers have collected their fat paycheck, leaving them to foot the bill. They are keeping all the upside to themselves while passing all the downside to the buyers.
Their stories that no local media have ever published are eye-opening for me. They raise many questions: If buying properties can’t go wrong, why did so many regretful buyers e-mail me sharing their grievances? If investing in real estate is safe, why did so many homes end up being fire sales or mortgagee sales? If putting money in properties is the norm, how could the banks have over 34,000 distressed homeowners asking for mortgage payment deferments as of September this year?
UrbanZoom, a Singapore AI-focused property analytics company, has done a research over 470,000 caveats filed since 1995. Over the last two decades, out of 160,000 pairs of buy-sell transactions, only 63 percent of home sellers achieve a return above 2.5 percent – the minimum interest rate from a CPF Ordinary Account. And even that humble 2.5 percent return is calculated before all the transaction fees (such as stamp duties and legal fees) and holding costs (including mortgage interest, maintenance fees and property taxes).
After taking into account the expenses and inflation over the years, those who really manage to make a decent profit from properties are the minority.
We know too little about property investment
The truth is: Much of the knowledge we learn in school and many subjects we take in public exams we will never have the chance to use them again. But there are a few important things in life that we can never be too good at it, though we need to deal with them our whole life. Human relationship and financial management are two of them.
Unfortunately, because we never pick up finance in primary and secondary school, there is no way we can build a good foundation from a young age. From my observation, less than 30 percent Singapore men and only 5 to 10 percent Singapore women are interested in topics about money. For those who don’t mind a conversation about money, they are only interested in auspicious SingPools outlets, stock insider tips or high-return investments.
Going for a course to study how to buy a home or invest in a property is never a prerequisite before putting down a deposit. The situation is more dire when it comes to private properties. Afterall, most people don’t have the money to upgrade to a private home or invest in one. Few are interested to learn how to do so.
Then the day comes when they have saved enough money or gotten a windfall from somewhere. They think it’s time they dabbled into private properties. That is when they get themselves into troubles.
Many of us don’t know much about property investment. We think we know, but we don’t know. Worse still, we don’t know what we don’t know. Every time we invest, we invest out of ignorance, greed, fear, insecurity, kiasu and herd mentality.
Sharing with fellow buyers and investors what we know
Property buyers often lack the necessary knowledge and experience before they commit to their purchase. Many are buying for the first time with no clue about the tips and traps of buying private homes. Whatever the developers, property agents, industry analysts or the media say, buyers cannot tell whether their comments are fair or biased.
In my new book Behind The Scenes of The Property Market: Finding The Truths and Exposing The Lies of A Not-So-Transparent Industry, I dedicate the first chapter to highlight 11 ways that homebuyers or investors lose money in private home purchase, and how they can avoid repeating the same mistakes.
The book also unveils the lies behind all the property sales numbers, online ads, marketing schemes and scams in the industry. I also highlight the top risks that are faced by the developers, agents, landlords and banks now. There are figures showing us the hidden dangers in supply glut and mounting debts at the moment.
For those who are interested to embark on the path of building wealth through properties, I have a chapter to share my knowledge of property investment and my experience in achieving financial freedom. The last part of the book talks about the demographic and technological trends shaping the future of the industry. The book ends with articles on the new challenges, opportunities and gems in the property market brought by the Covid-19 pandemic.
With no vested interest in the real estate industry, I have the autonomy to cover property topics that matter to homebuyers and investors. This book is a neutral and unbiased sharing of what I see the industry players, including the developers, agents, banks, analysts, media and government, actually doing in the market.
I know my work may upset those who make a living out of marketing properties or property-related products and services. I also know that it is not easy to find buyers and close deals in a small and competitive market. But whether or not marketers can sell their products is their problem. As consumers, when it comes to buying the most expensive item of our life, we have the right to protect ourselves and avoid their product becoming our problem in the future.
You can have a free preview of my book here . Besides ordering online, the paperbacks are also available at Kinokuniya and Popular bookstores.
“Over the last two decades, out of 160,000 pairs of buy-sell transactions, only 63 percent of home sellers achieve a return above 2.5 percent – the minimum interest rate from a CPF Ordinary Account. And even that humble 2.5 percent return is calculated before all the transaction fees.”
Hi, I would like to know if this statistic is before or after considering leverage when purchasing a property. If a property is bought at $1 million 10 years ago and sold for $1.1 million today, is the gain 10% over 10 years, or is the gain 50% over 10 years, assuming that there was only a 200k down payment at the point of purchase? It may be misleading to consider the gain to be 10% over 10 years as I doubt many people purchase properties in cash in full.
Obviously, the data in the study is only based on the buy/sell transaction prices because it is not possible to include the mortgage of each property. As what’s said in the article, “return is calculated before all the transaction fees”.
Whatever asset you acquire with leverage, you have to pay back the loan with interest. If the acquisition price is $1 million, 10 years later the total interest paid is around $280k based on an interest rate of 2.5%. Together with buying and selling transaction costs, selling at $1.1 million incurs a loss. However, there is also rental return over the 10 years which can be positive or negative depending on the rent, mortgage, maintenance fee, property tax and outgoing expenses.