At the helm of Singapore’s largest real estate company is a man of great stature – Ismail Gafoor. As the CEO of PropNex, Ismail brings with him a rare fighting spirit that built for him a career in the army as a regular officer. His passion to be an outstanding entrepreneur prompted him to start PropNex, a company that, through Ismail’s dynamism, grew from its tumultuous beginnings to become today’s industry leader. Ismail holds a Bachelor in Land Economics (Hons) from the University of Technology, Sydney. He acquired his first property at the young age of 22 and amazingly made his first million at 28. He is an investor, entrepreneur, and success coach to many Million-Dollar Club Producers in the real estate arena.
If you think that education is costly, try ignorance. Real estate investments are big ticket items that can either put you on the path to riches, or set you on the downward spiral to financial disaster. Are you ready to include real estate in your investment portfolio? Try answering the following questions: • • • • • • • • • • • • • •
What are the different types of loans available to finance my property purchase? What kinds of condominiums provide more stability in rental income? How does the Master Plan affect the value of my property? How much should I pay for Mickey Mouse apartments? Can foreigners buy landed properties in Singapore? Are Executive Condominiums (EC) for everyone? How much is fair to offer to sellers? How do the new policies affect me? Should I consider an old condominium? How long should I hold on to my investment? Should PRs buy HDB flats or private property? Which type of loan should I take to finance my property? Is it wise for me to buy an HDB flat when I can afford private property? Should I do an Addition and Alteration or should I demolish and rebuild?
A fervent advocate of training and lifelong learning, Ismail has institutionalised a complete series of learning programmes that includes developmental seminars, workshops, consultancy services, and legal support for all his property consultants so that they can stay ahead of the competition and deliver the maximum value to their customers.
If you are unsure of the answers to any of the above, it is time to take action. This book contains many of the answers you are looking for on investing in real estate in Singapore!
“Property purchasing is the most important investment decision in life. This book is invaluable not only for the extensive advice but also the personal insights of Ismail Gafoor which makes it compelling reading.”
Mr Ian Macdonald, President Hong Leong Finance Ltd “For those who are looking for a book that helps, this is the book that contains simple yet comprehensive sharing of information on Real Estate Investing!”
Ms Elim Chew, President and Founder 77th Street Pte Ltd “Essential reading for aspiring and seasoned property investors, written by one of Singapore’s most experienced and wellknown industry veterans. Ismail Gafoor advocates a pragmatic and prudent approach to buying property and outlines easy-tofollow investment principles, advice, tips and sample agreements. This excellent book, combined with a passion for property plus online tools, will help you become a successful property guru!”
Ismail Gafoor
“The Ultimate Guide To Real Estate Investment In Singapore” is an extension of Ismail’s desire to educate. Two years in the making, this book is written for everyone who wants to invest in real estate but probably lacks the know-how and the confidence to start. Ismail’s no-holds-barred discussion will benefit any investor who lays his hands on this book.
The Ultimate Guide To Real Estate Investment In Singapore
About The Author
Mr Steve Melhuish, CEO PropertyGuru.com.sg
Incorporates New MND Measures And Estate Agents Act
A Note Before We Start Why This Book Matters To You
I
f you happen to step into your favourite bookstore every once in a while, you will discover that all too often, a new book will have appeared, purportedly teaching you the secrets of real estate investment. Chances are, if you are picking this book up for the very first time, you would have seen many of these books that I have just talked about. I have nothing against these books. They raise the public’s awareness of real estate investments as an effective vehicle for wealth-creation and that alone is enough to spur many individuals like yourself to embark on this wonderful journey. Many of them are written by well-meaning individuals who sincerely want to help, and some of the better ones are written by my contemporaries. My main contention, however, is that many of these books lack specificity of information, and that the advice they dispense are at times so general that we still need more information to take the next step. And thus the reason for this book. This book will serve as a guide to your real estate investment journey. It is written with the rookie investor in mind. Therefore, if you are new to the game, and you want – and you should – to generate immense wealth through investing in real estate, this book is for you. So let’s begin the journey!
What Others Say About This Book “Property purchasing is the most important investment decision in life. This book is invaluable not only for the extensive advice but also the personal insights of Ismail Gafoor which makes it compelling reading.” Mr Ian Macdonald President Hong Leong Finance Ltd “For those who are looking for a book that helps, this is the book that contains simple yet comprehensive sharing of information on Real Estate Investing!” Ms Elim Chew President and Founder 77th Street Pte Ltd “Essential reading for aspiring and seasoned property investors, written by one of Singapore’s most experienced and well-known industry veterans. Ismail Gafoor advocates a pragmatic and prudent approach to buying property and outlines easy-to-follow investment principles, advice, tips and sample agreements. This excellent book, combined with a passion for property plus online tools, will help you become a successful property guru!” Mr Steve Melhuish CEO PropertyGuru.com.sg
iii
“A must-have for budding home owners, novice real estate agents and experts in this industry.” Mr Dennis Pua Managing Director, Specialist Publications SPH Magazines (The Peak Magazine, ICON Magazine) “Ismail Gafoor’s book truly a masterpiece in real estate education, is a revelation to Singaporeans from all walks of life aspiring to be successful in property investment.” Mr Rayney Wong Keng Leong Associate, Advocate and Solicitor Vision Law LLC “A gold mine of information for the real estate investor. Go read it!” Mr Bryan Yim Group Publisher and Managing Editor MillionaireAsia “Property is essential for everyone. Not only does it provide a roof over our heads, but it is also a favourite asset class that brings great wealth! The invaluable sharing by Property Guru, Ismail Gafoor, makes this book a must-read in your real estate investment journey. You will be able to avoid the mistakes committed by novice investors, as well as tap on opportunities that would have been missed by others. This is definitely the Ultimate Property Investment Guide.” Mr Alfred Chia C K CEO SingCapital Pte Ltd
iv
THE ULTIMATE GUIDE TO
REAL ESTATE INVESTMENT IN SINGAPORE
Ismail gafoor
First Published: October 2010 Published by: Ismail Gafoor Email: mohdismail@propnex.com ISBN 978-981-08-7103-1 Copyright © 2010 Ismail Gafoor Typeset and Cover Design by: Rank Publishing (www.rankbooks.com) All Rights Reserved. No part of this publication may be reproduced or copied in any form or by any means — graphic, electronic or mechanical, including photocopying, recording, taping or information retrieval systems — without written permission of the author. Conditions of Sale: This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser. Disclaimer: While every reasonable care is taken to ensure the accuracy of information printed, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The ideas, suggestions, general principles, examples and other information presented here are for reference and educational purposes only. This book is not in anyway intended to give investment advice or recommendations to buy, sell, or lease properties or for any form of property investment. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader. Printed In Singapore
vi
Acknowledgements I would like to thank the following people, without whom this book would not have been possible. Nooraini Noordin Lee Lin Cher Lui Natasha Amanda Fazilla Nordin Goh Kheng Chuan Nizam Gafoor Agnes Tan Siew Chern Wong Keng Leong Alfred Chia C K
Dedicated to those who are relentless in their pursuit of total self-responsibility for a better life.
vii
About the Author Lieutenant Colonel (LTC) (NS) Ismail Gafoor. CEO, PropNex – Singapore’s largest real estate agency in terms of market share. President, Institute of Estate Agents (IEA). Entrepreneur, Millionaire Investor, Inspirational Success Coach. LTC (NS) Ismail Gafoor is the achiever to be reckoned with. Holding a Bachelor in Land Economics (Hons) from the University of Technology, Sydney, Ismail began his real estate quest at the young age of 22 when he acquired his very first property, and achieved phenomenal success when he made his first million at 28. In 2004, Ismail clinched the Singapore Malay Chamber of Commerce and Industry’s Entrepreneur of the Year Award and the Spirit of Enterprise Award. In 2008, the same man was made Association of Small and Medium Enterprises’ Top Entrepreneur of the Year, Overall Entrepreneur for eCommerce, and Singapore Indian Chamber of Commerce and Industry’s Overall Indian Entrepreneur of the Year. Under his leadership, PropNex is no stranger to achievement. In 2003, 2005 and 2007, PropNex property consultants clinched more than 70% of the IEA Awards. In 2008, 2009 and 2010, PropNex won the Reader’s Digest Trusted Brands Gold Award. In 2008 and 2009, the company was the winner of the Enterprise 50 and the 50 Fastest Growing Companies Awards.
ix
As an Operationally Ready National Serviceman (NSman), Ismail leads himself and his men to new frontiers. In 2004, he was awarded NS Man of the Year; and as Battalion Commander of 596 Singapore Infantry Regiment, he was instrumental in leading his men towards the much coveted Best NS Infantry Unit for three consecutive years. He is still dutifully serving the nation as the Deputy Brigade Commander of the 12th Singapore Infantry Brigade. Having been involved in the real estate industry – whether as investor, CEO of PropNex or President of IEA – since mid 1980s, Ismail’s insights and advice are very much sought after by industry experts, market watchers and property investors. While Ismail is an achiever by nature, he is an educator at heart. The desire to inspire, motivate and educate prompted him to write his first bestseller “You Can Fly” in 2005 – a book which His Excellency, Mr S R Nathan, graced by writing the foreword and appearing as the special Guest-ofHonour during the launch.
This second book, “The Ultimate Guide To Real Estate Investment In Singapore”, which took two years in the making, is testament to Ismail’s commitment in sharing his invaluable real estate insights with those who desire to make the best of their investments.
From The same Author In “You Can Fly”, Ismail Gafoor reveals the principles of success through analogies and colourful personal anecdotes. An entrepreneur, a leader and a self-made man who has risen from rags to riches, he believes that the potential to achieve personal success abounds in everyone. The first half of the book deals with the cultivation of an abundance mindset and a positive belief system. He believes that success begins from the way we think about ourselves. He also offers specific techniques to implement the changes needed for one to achieve success. Unique from other self-motivational books on success, “You Can Fly” is built around a parable. Each chapter begins with the story of Little Kit, an eagle chick who begins life in the humdrum existence of a chicken coop and longs to live for so much more. This tale serves as a captivating analogy to impart key principles in the book. Whether you dream of achieving a rewarding career, financial security, or building your own business empire as an entrepreneur, this book will help you take your first steps toward goal fulfillment. What you will find within these pages is an outline of a journey – your journey – from where you are now to where you wish to be in the future, both near and far. The second half of the book covers the crucial skills of money management and other fundamental success factors – cash flow management, business planning and management – to becoming a successful entrepreneur.
xi
“You Can Fly” is the compass for anyone who has set their mind to achieving success and an extraordinary life.
“You Can Fly” was officially launched by President S R Nathan on 25th July 2005, who also wrote the foreword for the book.
“Those who read ‘You Can Fly’ will gain much from the rich experiences of the author.” President S R Nathan “In anything we do, being inspired is important. Mohamed Ismail’s book inspires us to be better than what we are.” BG(NS) George Yeo, Minister for Foreign Affairs, Singapore
Take Your First Step To SUCCESS By Reading This Book Now! Available at Major Bookstores! xii
Content Acknowledgements
iii
Chapter 1: My Story… And Yours
1
The Regime
3
The Revelation
4
The Beginning
5
Our Firsts
5
The Dilemma
6
Taking Stock
7
Am I Bragging?
8
Chapter 2: How The Rich Become Wealthy
9
Top 10 Richest People In Singapore For The Year 2010
11
Why Property Investment Is The Key
13
Fundamental Characteristics Of Real Estate
14
A 7500% Increase In Value In 50 Years – How’s That Possible?
15
So If I Invest In A Property, Its Price Will Increase 7500% Over The Next 50 Years?
16
Will Real Estate Investment Help Me Find My First Pot Of Gold?
18
xiii
Chapter 3: Finding Your First Pot Of Gold In Real Estate Investment
21
Key #1: Start Early – For A Longer Investment Time Horizon
23
Key #2: Don’t Wait To Save Enough For Your Dream Home – That Never Really Happens
25
Key #3: Plan Ahead, Prioritise – Your Lifestyle Determines How Rich You Will Get
27
Having FUN The Right Time, And In The Right Doses
28
The Ideal FUN
30
Chapter 4: Own It Right!
35
Principle #1: Own It, With The Little That You Have – Acquiring Your Investment Property At 33% Cost
37
Principle #2: Own It, The Right Size – Is Bigger The Better?
39
Principle #3: Own It, The Right Number – Owning More Than 1 Property, Are You Smarter?
41
Principle #4: Leverage – Acquiring More With Less
42
Principle #5: Buy It, And Hold It – Using Time As An Ally For A Higher Rental Yield
43
Principle #6: Buy It, If It Makes Sense – “Buy Or Rent?” That’s The Question.
45
Principle #7: Make The Choice – Commercial vs Residential Properties
47
Chapter 5: The Millionaire Real Estate Investor Mindset
49
Consideration #1: Buy At Fair Market Price
51
Consideration #2: Buy Within Your Means
53
xiv
Consideration #3: Buy With A Long-Term Perspective
54
Consideration #4: Buy Where Rental Demands Are Strong
55
Consideration #5: Buy Properties That Yield Positive
56
Cash Flow
Consideration #6: Buy ONLY After You Have Done Your Homework
57
Consideration #7: Start Low With Your Offer
57
Consideration #8: Per Square Feet vs Overall Quantum – Knowing The Difference
59
Consideration #9: Evaluate The Locality Of The Purchase
61
Consideration #10: Check The Master Plan
62
Consideration #11: If It Is A Landed Property, Check The State Of the Property, Foundations And Renovations Involved
62
Consideration #12: Leasehold Or Freehold? That’s The Question
63
Chapter 6: Taking Stock
67
Point #1: Real Estate Investment – It Is A Must For Everyone
69
Point #2: Know Your Budget Beforehand
70
Point #3: Plan Your Move
73
Point #4: Go In For The Long Haul
74
Chapter 7: Flipping
77
Conditions For A Successful Flip
80
Sample Letter Of Nomination And Authority
82
Initial Purchaser’s Profit Agreement
83
xv
Sample Agreement Between Initial And Eventual Purchaser.
83
Differences Between Flipping Projects Under Construction And Resale Market Properties
85
Flipping Involves Risk And Being Active In A Bullish Market
86
The Two Different Types of Flips And Their Associated Loan Limitations
86
Down Market Flipping – Is It Possible?
89
Chapter 8: Understanding Real Estate Opportunities
91
Reasons Why You Should Invest In Singapore Real Estate
94
Prices Of Singapore Residential Properties Since 1975
103
The Singapore Landscape
104
Concept Plan
108
Master Plan
109
The Impact Of The Master Plan 2008 On The Regions
109
Chapter 9: Understanding The Seller
117
What Motivates The Seller To Sell?
119
How To Understand The Motivation Of The Sellers
123
Low-Balling Your Way To The Deal
126
Chapter 10: How Low Is Fair To Offer
129
Knowing Current Value
131
Set Your Price And Objectives, Work Out Your Offer Strategy
132
The Offer and Counter-Offer Game Illustrated
133
xvi
Chapter 11: Buying Foreclosure And Auction Properties
137
The Truth About Auctions
140
A Note For All First-Time Buyers Of Auction Properties
142
Auctions – Boon Or Bane, It’s Up To You
144
Chapter 12: Landed Properties
147
Landed Properties Are Cheaper Than Condominiums? – How Is That Possible?
150
Why Landed Properties Make For Good Investments
151
The Slow Cooker Approach To Investing In Landed Properties
152
Good Class Bungalows – Cream of the Crop
153
Cluster Housing – A New Breed of Landed Homes
158
Intermediate Terrace Houses
161
Corner Terrace Houses
162
Semi-Detached Houses
163
Bungalow
164
Landed Properties At Sentosa Cove
165
Chapter 13: Buying Addition And Alteration Potential Properties
169
What Is An A & A Property?
172
What Should I Consider When Deciding On A & A Properties?
172
Chapter 14: Foreign Ownership Of Landed Properties
177
Conditions To Fulfil When Applying To The LDAU
180
Conditions Imposed On The Applicants
181
Approval In Principle
182 xvii
Chapter 15: Living In Condominiums
185
The Central Region
188
Outside Central Region
189
The Central Region vs Outside Central Region
189
What To Consider When Buying A Condominium
192
Chapter 16: Steps In Buying Completed And New 197 Properties Stages In Buying Completed Properties
200
Offer To Purchase
201
Option To Purchase (OTP)
203
Withholding Tax Obligations On The Buyer Or Buyer’s Solicitor 206 For Purchase From A Non-Resident Property Trader Buying Uncompleted Properties From A Licensed Developer
206
Payment Schedule
207
Other Important Points To Note
209
Paying The Booking Fee
212
Issuing Blank Cheques
212
Financing Your New Purchase
213
Chapter 17: Housing Development Board (HDB) 215 Flats HDB Flats Then And Now
218
To Each His/Her Own Home
219
What Are BTO flats?
220
What Are DBSS flats?
221
What Is An HUDC?
221 xviii
Executive Condominiums
223
Should One Buy A Resale Or Direct Flat?
226
Implications Of Buying HDB Resale Flats
229
I Am Getting Married Soon, But BTO Flats Take 2 Yo 3 Years – Should I Buy Resale Flats?
230
As A Permanent Resident (PR), Should I Buy A Resale Flat?
231
How HDB Prices Influence The Real Estate Market
233
Manner Of Ownership
233
Home Ownership Basics
234
HDB Basics #1: Types Of HDB Flats And Their Average Sizes
235
HDB Ownership Basics #2: Eligibility Schemes To Purchase HDB Flats From The Open Market
236
HDB Ownership Basics #3: Eligibility Conditions To Purchase Direct Flats From HDB
244
HDB Ownership Basics #4: Central Provident Fund (CPF) Grant Available For Resale Flats
245
HDB Ownership Basics #5: HDB Concessionary Loan
251
HDB Ownership Basics #6: Taking Bank Loans
254
HDB Ownership Basics #7: Eligibility For Sellers
256
HDB Ownership Basics #8: HDB Resale Levy
257
HDB Ownership Basics #9: Option To Purchase
258
HDB Ownership Basics #10: Points To Note For Prospective Resale Flat Seller And Buyer
259
Chapter 18: Financing Your Investment
261
Getting Expert Advice
264
You Mean The Banks Are Keen To Finance My Purchase?
264
xix
The CBS And Its Role
265
Debt-To-Income Ratio
267
Mortgage – What Is It?
267
In-Principal Loan Approval
268
What To Look Out For In The Bank’s Letter Of Offer
269
What To Look Out For In Bank Loan Agreements?
269
Keeping Track Of Your Loan
271
Types Of Home Loans
272
Amortisation Period (Or Commonly Known As Repayment 274 Schedule) Sample Amortisation Or Repayment Schedule
275
Repayment Estimates
277
Insuring Yourself and Your Valuable Assets
278
Using CPF Savings
279
CPF Contributions And Different Accounts.
279
Frequently Asked Questions (FAQs) About The Usage Of CPF 281 Savings For The Purchase Of Properties Other Costs
285
Example of Required Provisions In Property Investment
291
Chapter 19: Where Do I Start?
295
How Do I Look For That Property That Will Make Me A 298 Millionaire? Estate Agents Act
299
A Good Agent And His Roles
301
The Other Roles Of An Agent
302
Punishment For Salespersons
303 xx
Chapter 20: Rules Of Becoming A Successful Landlord 305 Rule 1: Make The House Habitable For The Tenant
307
Rule 2: Know Your Tenant
308
How Much Rent Should I Charge?
309
What Is Security Deposit?
310
Do Not Offset Your Security
311
Understanding The Diplomatic Clause
311
Check For Late Payment
312
No Subletting
312
Keep An Eye On Your Property
313
What A 1+1, 2+2 Lease Means
313
Rights And Obligations Of The Landlord
314
The Obligations Of A Tenant
314
Minor Repairs
314
Disputes Arising
315
Letter Of Intent
315
Chapter 21: Selling Your Property
321
Getting The Price You Want
323
Setting Too High A Price To Sell
324
Preparing The Property For Show
324
First Offer Might Be The Best
325
Giving An Exclusive Versus Open Listing
326
Epilogue
329
My Commitment Pledge
334
My List of Acronyms and Meanings
336
xxi
My Story… And Yours
Chapter
1
My Story… And Yours How Ordinary People Like You And I Can Make Real Estate Investments Work for Us
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
Investment Tip “What I am trying to show you is that it’s possible! Yes, if it is possible for me, a newspaper boy and a civil servant to invest and make money from real estate, it will definitely be possible for you!”
My Story… And Yours
L
ike most Singaporeans, I am not born with a silver spoon in my mouth. In fact, if my childhood years were anything to go by, it would not be unreasonable to assume that I was destined for a life of pain and hardship. You see, I was born into a family of six; I have two elder brothers, two younger brothers, and my youngest sibling is a sister. My father was an immigrant from India who made the treacherous journey to Singapore because of overwhelming poverty back home. With little formal education, he could only find work as an assistant in a shop and fill in the shoes of an odd job labourer. Luckily for him, my dad had an entrepreneurial streak in him and started a “mama shop” (kiosk/shop selling provisions) stuck at the end of a building. On top of that, he also started operating as a newspaper vendor. If you haven’t realised, both businesses needed extensive manpower.
The Regime Like all my other brothers, I began helping my father from as young as seven. I would wake up at 4 am in the morning, and go on a two-hour newspaper distribution routine till 6:30 am before rushing to school. After school, my brothers and I would take turns to go on three-hour shifts to help out at the provision shop. And the day would finally end at 10 pm, when we would turn in for the day. This cycle would continue for 364 days a year, and the only rest day (if you can call it a day) was the 26th of December, Boxing Day, the only
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
day when newspapers were not in print and I would have the benefit of not waking up so early.
The Revelation I would have thought that such was the reality of life had that moment of revelation not come through one of my buddies in the army. I was about 20 and was serving my National Service. We were on our way back to military camp on a cool, breezy Sunday evening and we were chattering on the bus as it travelled pass Cavenagh Road. At that moment, our conversation turned, when my buddy commented that his uncle sold his house in 1982 for a profit of a quarter of a million dollars. The revelation simply blew my mind away! To a newspaper boy, the sum of a quarter of a million dollars was not just unimaginable; it was extraterrestrial and somewhat criminal! In my world, every newspaper that was sold yielded a profit of about 4 to 6 cents, and yet, some guy out there had made a profit of a cool quarter of a million dollars by selling a house! Without waking up at 4 am or working too hard!! Deep inside me, I felt that the world was unfair in its remuneration. Yet, as I passed Cavenagh Road every week after that, the impression of the humongous profit sank deeper into me. One day, as I once again passed that fateful street, I decided, without any rhyme or reason, that I wanted to own three properties. And of course, given my status and position as a newly commissioned officer,
My Story‌ And Yours
there was absolutely no logic to whatever I had just decided. But that didn’t matter. The idea was exciting, but more importantly, my paradigm had shifted. My world had changed. Property is the way to go.
The Beginning I started my career in the army and signed on as a pensionable officer in the armed forces. And since my pension was backdated to my recruit days, I was guaranteed one million dollars once I retired at 45. Needless to say, life was secure, stable, and sometimes a little complacent. However, although I was enjoying the benefits of stability and security of a civil service job, I did not lose sight of my aspiration to own three properties. Keeping the goal in mind, I set out to acquire knowledge in property investment, and on 1st July 1995, I made the momentous decision to resign from pensionable service, forgoing every single cent of the one-million-dollar pension that I would get had I stuck to my civil service job.
Our Firsts My journey of real estate investment started at the young age of 22. I was newly married, and my wife and I needed a roof over our heads. For the sake of convenience, and not having much savings, we bought a three-room public housing resale flat which was situated next to my in-laws. Two years after the purchase, we sold the flat and bought our first private apartment at Normanton Park in 1987 for a sum of $95,000.
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
For the uninitiated, only Singapore Armed Forces officers were entitled to purchase Normanton Park units then. I was a regular army officer, and together with my wife, we negotiated the purchase from the owner, who was none other than our current minister, Prime Minister’s Office and Secretary-General of the National Trade Union Congress Mr Lim Swee Say. Three years later, in 1990, we sold our Normanton Park unit for $133,000. From the small profit we made, together with some savings, we decided that we should acquire for ourselves a freehold inter-terrace at Guan Soon Avenue. And herein came our first dilemma.
The Dilemma When we decided to buy the house, many people advised us against the decision as property prices had appreciated 35% over the preceding three years. Many of our seniors told us that the purchase decision was unwise, and that we should wait, as prices would come down later. My wife and I did our calculations. Yes, our finances would be stretched, but being young and only 26, we felt that we could afford the house. Thus, we proceeded with our purchase of the Guan Soon inter-terrace house at $610,000 while it was still being built. Barely after the purchase, the US-led war against Iraq erupted. Property prices tumbled as developers were giving better discounts. For the first time, we thought we had failed to listen to the advice of our seniors. But as fate would have it, the war against Iraq was decisive and ended as soon as it started. It lasted less than 6 months, and over the next five years, property prices appreciated steeply. However, my wife and I
How The Rich Become Wealthy
Chapter
2
How The Rich Become Wealthy How The Rich Do It And Why Their Method Works
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
Investment Tip “Millionaires become millionaires NOT by saving pennies, BUT by investing in real estate.”
10
How The Rich Become Wealthy
H
ow do the rich become so wealthy? Are they like the old school miser who scrimps on every penny and hoards his money in a tin can, or do the rich know something that most laypeople have nary a clue about? Since success leaves clues, one just needs to take a closer look at the Top 10 Wealthiest People in Singapore and the answer will reveal itself. According to Forbes magazine, the top 10 richest people in Singapore for the year 2010 are all billionaires and their net worth are as follows: Top 10 Richest People In Singapore For The Year 2010 Rank
Name
Net Worth ($ Million)
1 2 3 4 5 6 7 8 9 10
Ng Family Khoo Family Wee Cho Yaw Kuok Khoon Hong Richard Chandler Kwee Brothers Zhong Sheng Jian Peter Lim Kwek Leng Beng Lee Seng Wee
7,800 5,900 3,600 3,500 3,400 3,300 1,800 1,600 1,400 1,300
(Source: forbes.com)
And among the people in the list: • The late Mr Ng Teng Fong’s Far East Organization and subsidiary Sino Group are developers of more than 700 hotels, malls and 11
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
condominiums in Hong Kong and Singapore. • The Khoo family holds stakes in the Goodwood Group of Hotels. • Although Wee Cho Yaw chairs United Overseas Bank, a third of the family’s fortune comes from real estate holdings including stake in UOL Group, which Wee also chairs. • Kuok Khoon Hong founded palm-oil giant Wilmar International, a company that is involved with, among other things, providing storage services, developing industrial estates, property development, and renting storage facilities. • Even though New Zealand-born Richard Chandler owns R. F. Chandler, a company investing in emerging markets, he started his business by investing in Hong Kong real estate. • The Kwee brothers share ownership of privately-held Pontiac Land, which is a property developer and hotel operator. Its portfolio includes Singapore’s Ritz-Carlton, the Regent, and two office towers near Marina Bay, among others. • China-born Zhong Sheng Jian is involved in the high-end residential property business back in his motherland. • Peter Lim is an astute property investor who also derives his fortune from other investments, such as a 5% stake in Wilmar International. • Kwek Leng Beng chairs City Developments, a property firm.
12
How The Rich Become Wealthy
• Lee Seng Wee, whose siblings’ and children’s assets were included in the calculation, sits on the board of Oversea-Chinese Banking Corporation, and chairs Temasek Trust. • Number 11 in the list are Ong Beng Seng, the managing director of Hotel Properties, which includes Four Seasons and Hard Rock hotels in Southeast Asia; and his wife Christina Ong, who runs Como Hotels & Resorts. The answer is pretty obvious, isn’t it? The richest people in Singapore, and throughout the world as well, are in some way involved in real estate investment. And this leads us to the ultimate truth of wealth creation, and that is: Millionaires become millionaires NOT by saving pennies, BUT BY INVESTING IN REAL ESTATE.
Why Property Investment Is The Key You might be wondering why property investments have been so successful in creating millionaires out of the ordinary people like you and me. Well, as a property investor all my life – and rightfully proud of it as well – I can claim to know the answer, and that is, the fundamental nature of real estate is by itself the key to unlocking the doors to tremendous wealth and abundance.
13
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
Fundamental Characteristics Of Real Estate 1. The long-lasting nature of brick and mortar
All properties are constructed with the aim of lasting through the generations. Houses, buildings and malls are constructed with solid materials that last at least 100 years and beyond. Though maintenance is necessary, the foundations of brick and mortar can last generations.
2. The ever-increasing cost of materials
Taking into consideration the effect of inflation, together with the increasingly greater demand for steel and other materials due to the rapid urbanisation of emerging and developing countries such as China, India and the Middle East, the cost of materials used in construction is set to rise indefinitely.
3. Rising labour costs
The cost of labour is also expected to keep pace with inflation and higher wages in matured cities, thus increasing the price of properties as time goes by.
4. Rising cost of land Overtime, the cost of land also goes up. This is especially so for land in matured estates and commercial hubs, which can effectively drive the prices of real estate manyfold.
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How The Rich Become Wealthy
A 7500% Increase In Value In 50 Years – How’s That Possible? To witness first-hand how a piece of property can appreciate in value over a period of only half a century, you do not have to look far but to simply take a peek at the development of idyllic Siglap over the past 50 years. 50 years ago, during the 1960s, an inter-terrace located in Siglap would cost less than $20,000, while a 4,500 sq ft bungalow would only cost $40,000.
This bungalow with a land area of 4500 sq feet located in the eastern part of Singapore costs about $40,000, 50 years ago. Today, at its original condition, this property is worth at least $4 million.
However, if you take a look at the same two properties today, you would have realised that their prices have skyrocketed. The inter-terrace in its original condition would cost a hefty $1.5m while the same bungalow would cost $4.m. How many times have the properties gone up in value?
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Finding Your First Pot Of Gold In Real Estate Investment
Chapter
3
Finding Your First Pot Of Gold In Real Estate Investment Three Keys To Unlocking The Chests Of Treasure Hidden Within Bricks And Mortar 21
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
Investment Tip “Many of us conveniently and erroneously postpone the decision to invest in a property because we want to save enough to buy the dream property, which usually comes with a huge initial capital outlay… That never really happens.”
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Finding Your First Pot Of Gold In Real Estate Investment
S
ome people say that making it rich is a matter of luck, but based on my own personal experience, and the experience of countless other individuals who have made it, there are certain essential key points that you have to consider if you want to succeed in real estate investment.
Key #1: Start Early – For A Longer Investment Time Horizon There are many benefits to starting early as you would be able to take advantage of the longer time horizon to invest in properties. This is especially so since most buyers would take a loan to finance the purchase of the property. The younger you are, the longer the loan tenure you can secure, thereby leading to a lower monthly instalment. Also, when you are younger, your other commitments and obligations are lower. Using my own example, when I was 26 years old, I invested in my first private property – a brand new inter-terrace – together with my wife. My monthly income as well as my wife’s was $2,500. With our combined monthly income of $5,000 together with some savings, we invested in a freehold inter-terrace house at $610,000 in 1989. Since we were young, we were able to secure a 30-year loan of $480,000 with a monthly instalment of $2,580. The monthly instalments were larger because the interest rates in those days were at 5%. Our CPF account monthly contribution, at that time, was approximately $1,600 and as such, the balance of $980 had to be paid in cash. Today, many of you have a greater advantage as the current interest rates are low. At 2.5%, the monthly instalment would only be $1,896 – the monthly cash outlay is lower. In fact, you could even opt for a 35-year repayment period. 23
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
As we were a young couple – DINKs (Double Income, No Kids) in today’s language – and both our parents were still healthy and working, our commitments were negligible and we decided to proceed with the purchase. As mentioned in the first chapter, many of our senior colleagues advised us not to be rash. They reminded us that investing in a property was a major commitment, and many of them advised us against the purchase because barely four years ago, in 1986, a similar property was only about $400,000 and they were hopeful that property prices would come down soon. Thus, their advice to us – and their strategy as well, if you might put it – was to wait until prices levelled out again. For me and my wife, however, our decision was a carefully-thought out one based on extensive homework done. The factors we considered were: • Our ability to afford the house; • The bank’s willingness to extend a loan to us; and, • Our long-term view on holding on to the property, instead of shortterm speculation. Despite the many naysayers and the fear they tried to trigger in us (out of concern they had for us), we decided that we were more willing to live with a property investment than to squander $1,000 in cash on other lifestyle perks which were luxurious but frivolous. As such, we proceeded with the purchase, much to the chagrin of those who tried to influence us otherwise. As of today, we are glad to say that we have not regretted our decision a single bit. Within the next seven years, a property similar to the one we bought reached its peak price of $1.6m in 1996 before bottoming out 24
Finding Your First Pot Of Gold In Real Estate Investment
at $1.1m towards the end of 1998. The same property would be worth a whopping $2m today. And sadly, many of our senior friends who advised us to wait were NEVER able to enter the private landed homes market as property prices increased at a rate that far outpaced their salary increments. To make matters worse, the older they became, the shorter the loan tenure they were able to secure for themselves. It was a case of missed opportunity for many of my friends who failed to jump on the train to richness and wealth when they were younger. It is therefore clear that starting early accords us many advantages in real estate investment. By starting early, you are more able to ride out the boom/bust cycles that typify any investment instrument; and in addition, it gives you the chance to recover from any investment mistakes you might make so that you are still on course to achieving your goals.
Key #2: Don’t Wait To Save Enough For Your Dream Home – That Never Really Happens Many of us conveniently and erroneously postpone the decision to invest in a property because we want to save enough to buy the dream property, which usually comes with a huge initial capital outlay… That never really happens. Yes, it is true that it is important to save to ENTER the market. More details on financing and reserves are explained in later chapters. However, saving for the dream home without having a foothold doesn’t help either. Therefore, entering the market early even with a smaller
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unit will help you keep pace with the economy and inflation. This is only so because you want the investment to make more money for you enabling you to change the property that you are holding onto into the one you deem to be your dream investment over time. For example, even with savings of less than $20,000, one could always start with public housing, utilising only the CPF funds in the ordinary account while CONTINUING to save towards his or her dream investment. After five years – when the Minimum Occupation Period (MOP) has been fulfilled – and when both the time and price are right, the same person can sell the public housing and realise a small capital gain. With the initial outlay together with additional savings accumulated over the years, and together with the realised profit, one could create a tidy sum to further invest or upgrade to a private property. On the other hand, those who can afford it can take a more direct path to private property investment by starting with the purchase of a small private house. The whole idea – if you haven’t realised it– is to gain a FOOTHOLD (no matter how small) in the real estate arena. The advantage of entering the private property market directly instead of public housing is that you are not bound by the five-year MOP, thus allowing you the freedom to take advantage of the property cycle any time. When you own a property, your property will keep pace with the market (regardless of whether it is going UP or DOWN), and if you have (and you should make sure you have) the capacity to hold out during the down market and increasing interest rates, you will definitely be able to make a capital gain and accumulate wealth that can be re-invested in better properties that come with greater potential in the long run.
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Finding Your First Pot Of Gold In Real Estate Investment
Therefore, it really pays to invest early and NOT wait till you have saved enough for your dream home, which may NEVER happen in the first place.
Key #3: Plan Ahead, Prioritise – Your Lifestyle Determines How Rich You Will Get Lifestyle is a CHOICE! It is up to you to decide what you want. Nobody should, or can, force you to invest in real estate if you are not ready. Unfortunately, when we are young, not many of us will realise the benefits of investing in properties. We often fail to plan ahead and more often than not, we squander away our precious earnings in partying and other luxuries. One of the greatest money-wasters is of course our cars. Don’t get me wrong – owning a car can indeed give us the status and lifestyle that so many will envy. However, if you are clear-headed enough, you will soon realise that a car can easily set you back by $1,000 to $2,000 monthly. This $1,000 to $2,000 of hard-earned cash draining away from you comprises the monthly instalment, petrol, car parking charges, Electronic Road Pricing (ERP), maintenance, insurance and repairs; and of course, not forgetting the fines. If you were to save this amount of money prudently over a threeyear period, you will be able to make a substantial investment in your future.
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So let’s prioritise our lives. Please refer to the Life Priorities QuadrantTM which I have used to illustrate the life of an individual living till the age of 80. So when should we have FUN?
Having FUN The Right Time, And In The Right Doses People who have too much fun in the first 20 years of their lives and fail to plan and be disciplined enough to study will probably end up not getting a good education. This will, in turn, affect them in the next three quadrants, i.e. they will not have a well-to-do career in Quadrant B, not have enough for loved ones in Quadrant C, and will certainly suffer in the later years of Quadrant D. Is this kind of fun worth it? It is in fact a huge price to pay to have fun for 14 years of your life, from the time you enter Primary 1 at age seven till you start work at age 20 after serving your National Service. For the remaining 60 years of your life, you will have to struggle just because of the folly in your formative years. You might have seen people who are like this. We feel sorry for such people as they did not receive the right guidance when they were younger.
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Finding Your First Pot Of Gold In Real Estate Investment
Life’s Priorities for a Richer YouTM
Studying
A Formative & foundation years
Reaping
D
Living Life to the fullest with financial independence
Establishing a career and starting a family
Wealth creation & sharing the joy with loved ones
Enjoying
C
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Investing
B
Own It Right!
Chapter
4
Own It Right! Getting Your Property Investment Right The Very First Time
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Investment Tip “Becoming a millionaire requires many variables and constants to work together to give you the success which you so deserve, so long as you are willing to learn and take the step forward.”
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Own It Right!
P
erhaps you have always known, even prior to reading Chapter 2, that property investment is the way to go for wealth creation. However, you have hesitated thus far because you are afraid of getting your fingers burnt. You are worried that you will make a mistake in your investment, and that the price of your “education” will be too high for you to bear. If you have this fear – or should I say irrational fear – then, this chapter is for you. The principles outlined here point the way to owning your property RIGHT from the START!
Principle #1: Own It, With The Little That You Have – Acquiring Your Investment Property At 33% Cost The property investment opportunity our parents had 50 years ago is something we will NEVER have if we invest in property now. However, to say that ALL is lost is to be overly dramatic, for to a trained eye, opportunities still abound for people willing to take the step towards property investment. Let me now illustrate how with only 33% outlay of the property selling price, one is still able to capitalise on the price increase over time and become a millionaire. Take the case of a modest investment of $700,000 in the purchase of a 2+1 (2 bedroom + 1 study room) residential condominium unit. The bank is willing to give a 70% loan for a second mortgage of $490,000; and the remaining 30% of $210,000 together with the stamp and legal 37
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
fees of $20,000 estimated at 3% of the purchase price are paid by the buyer. In other words, the buyer forks out $230,000 in cash and CPF while the remaining $490,000 is taken out as a loan to be repaid within the next 25 years. The buyer then rents out the unit at a monthly rental of $2,700. At the current interest rate of 2.5%, the monthly instalment for a 25-year term loan works out to be $2,200. If the property is rented out over the next 25 years, the buyer would effectively be getting someone else to pay the remaining 70% balance coupled with interest, and after the 25 years, the buyer would be the PROUD 100% owner of the property. 25 years is a long time. It is a quarter of a century, and taking into consideration the passage of time, inflation and the increase in other costs, it is reasonable to expect the price of the property to DOUBLE or even TRIPLE. Let us make a reasonable assumption here. Suppose the price of the property 25 years later is three times the original purchase price of our 2+1 residential condominium unit, then the price of the property will be a STAGGERING $2.1m. And to think that the original outlay the buyer forked out was only $230,000. Now, if you are the one who has invested in the property, what has that made YOU? It doesn’t take a genius to answer that question, does it? Not only ARE YOU A MILLIONAIRE, YOU ARE ALSO A SMART INVESTOR WHO HAS MADE 1000% RETURN ON YOUR INVESTMENT. 38
The Millionaire Real Estate Investor
Chapter
5
The Millionaire Real Estate Investor Mindset Key Considerations For Successful Real Estate Purchase
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Investment Tip “Despite this common logic, many speculators – who prefer to be known as investors – would rather throw caution to the wind by trying to “catch the tides” in a rising market. This method of “investment” is not recommended for novice investors as the risks are high.”
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A
ll successful people think in certain ways, and the same applies to successful real estate investors. Unlike uninformed buyers who make haphazard decisions, and then leave the outcome of their purchase to chance, successful real estate investors base their buying decisions on objective criteria with stringent guidelines. Fortunately, it is not necessary to make multiple blunders before we can learn to think like them. Success leaves clues, and based on my own track record and those of many successful real estate investors I know, those who thrive in the arena of real estate investment base their purchase decisions on a few considerations.
Consideration #1: Buy At Fair Market Price As an investor, it is only wise and logical to buy a property at fair market price. Paying a premium that is well above the market price of the property would usually mean that a person might have paid more than the true value of the said house. This is especially so when 80% of those who pay above the market value of the property do so out of emotional rather than logical reasons. This scenario of paying over and above is especially prevalent in a moving market, when people are caught up and swept away by the irrational exuberance and buoyant sentiments of the good times. Without the proper checks, it is inevitable that these wideeyed investors end up paying exorbitantly high prices for their dream investment. In the case of public housing, this premium over market value takes the form of Cash-Over-Valuation (COV), where home buyers pay a sum of money that is over and above what is deemed to be the value of the
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Taking Stock
Chapter
6
Taking Stock And Getting Ready For The Big Return
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Investment Tip “Many couples in Singapore face a predicament in trying to get a roof over their heads. Their failure to plan ahead – prior to getting married – would mean a two to three-year wait before their Build-To-Order (BTO) flats can be ready. This scenario is hardly ideal, as the lack of privacy for the newly-married couple can frequently be a source of strain and conflict between husband and wife.”
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Taking Stock
R
eal estate investment is a field that promises phenomenal returns. However, for you to benefit from this investment vehicle, you have to commit yourself to staying with this vehicle for the long-term. Like all great relationships, the benefits of investing your money in property will only manifest themselves over the passage of time. Thus, before we even delve deeper into the topic, it will be useful for us here to take stock and to reiterate a few salient points about real estate investment.
Point #1: Real Estate Investment – It Is A Must For Everyone Singaporeans, listen up! There is no excuse for you not to invest in property. In a bid to build wealth and asset ownership among Singaporeans, the Singapore government has been encouraging and facilitating home ownership among its citizens at every income level. Depending on their eligibility, subsidies of $30,000 to $80,000 are available for HDB home buyers of new and resale flats. Coupled with the availability of lowerthan-market interest loans in the form of HDB concessionary loans, even citizens of modest means can comfortably be proud home owners, a happy situation that is often the cause of envy among some people from our neighbouring countries. As said before in earlier chapters, property ownership accrues benefits that are unavailable elsewhere. Other than its ability to keep pace 69
Flipping
Chapter
7
Flipping
Real Estate Game Of Chance
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Investment Tip “…property speculation is not a game for most people, and I shall maintain this same stance throughout this entire book.”
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Flipping
N
o book on property can be considered complete without a chapter dedicated to the topic of flipping. In the previous chapter, I mentioned how property speculation is not a game for most people, and I shall maintain this same stance throughout this entire book. Thus, while I am covering the topic in this chapter, I am in no way encouraging the practice. If it helps, I shall repeat my principal message here – that property investment is a long-term investment and investors must enter the market with a time horizon of 5 to 10 years. That aside, what exactly is flipping? If you guessed it right, flipping is the practice of buying a property and disposing it within an extremely short time frame. In flipping, the intention of the speculator is not to hold the property; instead, his main aim is to realise a capital gain quickly in a moving market. Needless to say, such a practice is only possible within a buoyant market, where prices are spiralling upwards and the mood is exuberant. While it might seem an almost irresistible way to make a quick buck, flipping entails costs and it would be prudent to take such costs into account before trying to do a ‘flip’. As with any property purchase, such costs would include legal fees, agency fees, and stamp duties when buying and selling – all of which would easily amount to 7% of the purchase price of the property, if the property is disposed within the first year of purchase. The stamp duties could be avoided only if the flip is carried out in double quick time by transferring the Option to Purchase to a nominee who will then be liable for the stamp duties. Taking a one-million dollar property as an example, a 7% of the purchase price is already $70,000. Therefore, a speculator selling the property at
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$1.1m only enjoys a $30,000 profit, which is hardly exciting. Without a moving, exuberant market as the backdrop, flipping simply will not work. And the risks are also clear here – the market can take a sudden turn anytime, and should the speculator not flip his property fast enough, a loss is imminent. It is therefore clear that flipping can only be for those with lots of cash reserves. The following sections discuss flipping in detail, what it entails, and what a typical flip will look like. While I discuss this “game” in very extensive terms, I do not, in any way, encourage the average or newbie investor to engage in it. The government also considers it a menace, because it inflates the number of property transactions and prices, which leads to the formation of a property bubble. A sudden burst of the bubble will hurt the economy and weaken the strength of financial institutions, a situation which really no one would like to see.
Conditions For A Successful Flip 1. The Option to Purchase must be addressed to an individual, a company, or a legal entity with the capacity to purchase the property. 2. The words “and/or nominee(s)” must appear after the name of the initial purchaser that the Option to Purchase is addressed to. “Initial purchaser” refers to the individual, company, or legal entity that is attempting to flip a property. The subsequent purchaser that the initial purchaser has found is referred to as the “eventual purchaser”.
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Understanding Real Estate Opportunities
Chapter
8
Understanding Real Estate Opportunities Singapore Real Estate Regions And Districts
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Investment Tip “Being the fourth wealthiest country in the world in terms of GDP per capita, and the second most crowded country after Monaco, Singapore is an island of opportunities where real estate investment is concerned.”
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T
he Republic of Singapore, an island city-state off the southern tip of the Malay Peninsula, is situated 137 kilometres north of the equator, south of the Malaysian state of Johor and north of the Indonesian Riau Islands. Comprising 63 islands including mainland Singapore, the republic has a land mass of 710.2 km2. At its widest point, mainland Singapore measures 42 km across, and barring adverse traffic conditions, one can get to any part of the island within an hour’s drive. Other than that, Singapore boasts of an efficient and integrated public transportation system. With the Mass Rapid Transit (MRT), Light Rapid Transit (LRT) and bus systems existing alongside one another, coupled with a fleet of approximately 25,000 taxis operated by eight taxi companies and independent drivers, Singapore possesses a transportation system that is as efficient as any other cosmopolitan city of a developed country.
Above: The Singapore skyline viewed from Marina Bay.
Right: The Marina Bay Sands.
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With its compact size, Singapore is a microstate and easily the smallest nation in Southeast Asia. However, thanks to its open door policy towards foreign talent, the total population of Singapore – including non-residents – is 5.08 million as at 2010, of which 3.23 million are Singapore citizens, 1.31 million are foreigners, and 541,000 are permanent residents. Among the Singapore citizens, 76.2% are Chinese, 15.1% are Malays, 7.4% are Indians, and the remaining 1.3% belong to other races not mentioned above. Among the permanent residents, 61.4% are Chinese, 20.4% are Indians, 15.2% belong to other racial groups, and 3% are Malays. Within the last 10 years alone, the population of permanent residents has almost doubled, from 287,500 to the current 541,000, proving that Singapore is an attractive place where work conditions are favourable, pay is fair, and the political climate stable. Being the fourth wealthiest country in the world in terms of GDP per capita, and the second most crowded country after Monaco, Singapore is an island of opportunities where real estate investment is concerned.
Reasons Why You Should Invest In Singapore Real Estate 1. Stable Government And Robust Forward Planning As said many times in this book, real estate investment is essentially a long-term affair. Anyone who puts their money into any form of real estate will want to see growth in their investment over time, and time can only be an ally to investment if a strong and stable government exists.
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1997
1996
1998 1999
Coping With property downturn • Stamp duty payable by buyers of uncompleted properties deferred until completion or subsequent sale.
2000
Consolidation of measures • HDB flat owners to apply for approval before booking private proerty, even if they have fulfilled the fiveyear minimum occupancy period (MOP). Prices Of Singapore Residential Properties Since 1975
101
2001
Impact of Dotcom bust and 911 attacks • Introduction of reserve list for government land sale programme. Plots are not put up by tender until interest and commitment are shown by developers. • Capital gains tax lifted. • Foreigners are allowed to borrow Singapore dollar loans for housing.
HDB Measures • HDB stops building new flats and starts clearing 17,500 unsold flats. • HDB removed queue system for flats and changed to building flats on demand. • Stamp duty rates reduced by 30% for all instruments. • HDB let owners of non-subsidised flats to sell them after a one year of occupation period instead of two and a half year minimum. • Owners of HDB flats can sublet their flats after living them for 15 years or after 10 years provided the entire home loan has been paid up.
2002 2003
For example, 50 years ago, one could buy a 2-storey corner terrace for less than $40,000. Today, the same property would cost $1.5m because the money we have today is worth so much less than before, correspondingly increasing the amount of money we would need to buy the same property today.
While this might not sound too much like good news to the future home buyer, it is definitely assurance that real estate as an investment vehicle is capable of keeping up with, and perhaps, even beating inflation. That is all the more reason you should gain a foothold as soon as possible.
(Data Source: Realis)
44
Summary Of Policy Changes Affecting The Property Market In Singapore From Year 1996 To 2003
Asian financial crisis; reversal of cooling measures • Owners of HDB flats are required to live in flat for five years before they are allowed to buy a private property, instead of booking an uncompleted property that is due to be completed in or after the fifth year. • Stamp duty for sellers suspended.
Anti-speculation Rules • Capital gains tax on properties sold within three years of purchase. • Financing reduced to 80% of purchase value. • Stamp duty on sellers who sell properties within three years of purchase. • Introduction of executive condominiums for families with monthly income of up to $10,000.
The availability of affordable financing is usually reason enough for you to invest in the Singapore property market.
5. A Reliable Form Of Long-Term Investment That Keeps Pace With Inflation Inflation can be positive for a real estate investor. The long-term effects of inflation would Realtoday Estate mean Understanding that a house that costs $1.0m wouldOpportunities well be worth $3.0m in 30 years. An inflation rate of 3%, compounded over a period of 30 years, will have an immense impact on the future pricing of any property.
2006 - 2007
2009 - 2010
AUG 2010
Summary Of Policy Changes Affecting The Property Market In Singapore From Year 2004 To August 2010
102
2004 - 2005
Stimulating demand • Foreigners are allowed to buy land in Sentosa Cove. • HDB reduces the monthly income cap for singles’ housing grants from $8000 to $3,000 but removes restrictions on the sizes of flats they are allowed to buy. • Loan ceiling raised from 80% to 90%. Cash downpayment from 10% to 5%. • Non-related singles allowed to use CPF savings to jointly buy private properties.
Controlling property demand • Withdrawal of stamp duty concession for all property. Buyers to pay stamp duty within 14 days of option granted. • Subletting rules relaxed by HDB to enable owners to rent out their subsidised flats after occupying them for five years, and non-subsidised flats after three years. • Withdrawal of deferred payment scheme for uncompleted private properties. No deferrment of payment for buyers until property is completed.
Help for first-time home buyers • The removal of Interest Absorption Scheme and Interest-Only Housing Loans for buyers. • HDB increases proportion of flats reserved for firsttime buyers in each new project including executive condominiums from 90% to 95%. • Implemention of seller’s stamp duty if property is resold within a year of purchase. Housing loan ceiling lowered from 90% to 80% for all properties except loans from HDB. • Extension of minimum occupation period for resale HDB flats to three years.
30th August 2010 Measures • HDB accelerates the completion time of building new flats from three years to two and a half years. • Sellers have to pay stamp duty if the property is resold within three years of purchase. • Minimum occupation period for resale HDB flats raised to five years. • Private property owners who buy resale flats will have to sell their private home within six months of buying the flat. • HDB allows first-timer households with monthly income of between $8,000 and $10,000 to buy new DBSS flats. • Increase the minimum cash payment from 5% to 10% of the Valuation Limit and decrease the loan to value limit for housing loans by banks from 80% to 70% for property purchases with one or more outstanding housing loans.
THE ULTIMATE GUIDE TO REAL ESTATE INVESTMENT IN SINGAPORE
Understanding Real Estate Opportunities
Prices Of Singapore Residential Properties Since 1975 Residential Property Price Index (1975 Q1 to 2010 Q3) Residential Property Price Index
5HVLGHQWLDO 3 WL
1998 – Base Index 100
2010Q3
2010Q1
2007Q1 2008Q1 2009Q1
2004Q1 2005Q1 2006Q1
2001Q1 2002Q1 2003Q1
1998Q1 1999Q1 2000Q1
1995Q1 1996Q1 1997Q1
1992Q1 1993Q1 1994Q1
1989Q1 1990Q1 1991Q1
1985Q1 1986Q1 1987Q1 1988Q1
1982Q1 1983Q1 1984Q1
1979Q1 1980Q1 1981Q1
1976Q1 1977Q1 1978Q1
1975Q1
(Data Source: Realis)
NB:1998 was set as the new base year for tracking all future property price movements. Thus, all future developments would be tracked against a base index of 100 set in 1998. The graph above tracks the movement of private residential property prices since 1975. As it can be clearly seen, with a few minor bleeps, prices climbed steadily from the 1970s all the way to 1996 – a trend mirroring the growth of Singapore as a nation state – when the Asian Financial Crisis set upon the region. Thereafter, property prices have gone through shorter cycles of increase and decline.
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Understanding The Seller
Chapter
9
Understanding The Seller
And Knowing What He Wants
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Investment Tip “The receptiveness of the sellers to engage in communication and negotiation with an offer lower than the asking price is also a good indicator that they are motivated to sell.”
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Understanding The Seller
H
ave you ever wondered why parents of the worst children on Earth think of their kids as darlings? Or if you are a parent yourself, are you guilty of thinking the best of your little angels, while they might be monstrous devils to everyone else? A Tamil proverb encapsulates this mindset of most parents best, and that is,
“In its mother’s eyes, even a baby crow has that golden glow which is to be cherished.” Similarly, a property owner will always be able to see the positive qualities of his home, while remaining absolutely blind to its negative aspects. A home owner’s relationship to his property is akin to that of the baby crow and its mother – there is always that golden glow to be cherished. Given that, why would a seller even sell his property?
What Motivates The Seller To Sell? Sellers sell for a variety of reasons but no matter what the expressly stated reason is, every seller is looking for a reward in return for selling his property. Thus, in a selling scenario, price is paramount as all sellers want the highest returns for their investment – a return which many would have waited rather long to realise. Other than the obvious aim of realising a profit through the property sale, home owners might sell for any one of the following reasons:
1. Change in lifestyle and commitment
It used to be a house filled with so many people. There was hardly space for anyone then, but now, it is a double-storey semi-detached 119
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house for a retired couple of two – the husband and the wife can each take a level for him and herself. For this couple whose three grownup children are all married, there is simply no need to continue living in such a large home. This motivates them to sell for reasons of easier upkeep and maintenance; and it makes more sense for them as well.
2. Distress situation
A family might be strongly motivated to sell their house due to a need to support their children’s education, a legal suit for defamation or damages to be paid to a third party by court ruling, or due to a loved one’s medical bills that must be paid. The sale would allow the family to set aside the cash that they need, or to immediately get out of an otherwise dire situation.
3. Migration plans
Home owners intending to emigrate would have planned long and hard for their migration plans to take effect. As most migration plans come with a time schedule, home owners planning to relocate will dispose of their property when the time comes. This is a necessary move as selling off their property would unlock valuable cash for them, providing them the means and resources to start their lives afresh elsewhere.
4. Loss of jobs, retrenchment, and business failure
These are sad scenarios for owners to sell their homes, but they do happen. While selling off their homes is really not the best option, those who suffer from these plights find themselves in urgent need of cash, and selling off their properties might often be the only way to alleviate the situation, as they downsize to lower their commitments. 120
How Low Is Fair To Offer
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How Low Is Fair To Offer Paying The Right Amount
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Investment Tip “Knowing that the seller usually marks up his asking price to make room for negotiation, you should always mark out a strategy beforehand.”
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t is only human that every seller will want to sell at the highest possible price, and only logical that the buyer will want it at the lowest possible price. This obvious disparity between the wants of the buyer and seller means that a successful transaction can only be made when both parties meet at an agreed point, when the seller sees it as being a fair price for his property and at the same time, the buyer feels good about buying the property. This means that as a buyer, one has to plan out a strategy in terms of offering and counter-offering before striking a deal.
Knowing Current Value As a buyer, it is of utmost importance that one should know the current value of the property before even considering the purchase or initiating the offer. This is important simply because the financing of a property hinges on the property’s value. Therefore, a property purchased above its value will require the buyer to fork out cold hard cash – a factor which must be taken into consideration from the start. The second reason why knowing the commercial value of the property is important is that it is an indication of the fair price of the property, taking into consideration the current market sentiments, demand, and fair market pricing. Unfortunately, valuation is not a science but more of an art, and the valuation of a single property by two different valuers will possibly yield two different prices. Valuers generally follow recent market transactions as they are used to evaluate the value of the intended property. It will be prudent for you to get a minimum of two indicative values from two
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Buying Foreclosure And Auction Properties
Chapter
11
Buying Foreclosure And Auction Properties Seeing Hope When Others Have Lost Theirs
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Investment Tip “It is easy to get carried away. Bidding at an auction is a competition between different parties vying for the same property, and if you are not prepared, you might end up paying a lot more than what you originally planned for.”
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oreclosure is the process of lenders – usually in the form of financial institutions applying to court to eliminate a borrower’s right of redemption on mortgaged property, and exercising their legal right to repossess and dispose of a property to recover the loan in the event a borrower defaults on the agreed repayment terms. The option to foreclose a property is spelt out very clearly in the mortgage documents, and while banks retain exclusive rights to foreclose such properties in the event of non-payment, most banks will not exercise such rights just because a borrower has not serviced his loan for a few months. Banks exist primarily to earn interest on the loans they dispense, and it is not in their interest to foreclose any property; it is only in instances when the owner clearly has difficulties in meeting the terms of the loan that the bank will move in with a writ of summons and a court application to exercise its right to a mortgagee sale. Usually, a home owner faces the dismal prospect of foreclosure due to the following reasons. One, the value of the property has dropped drastically and the banks require the owner to pay a lump sum in order to reduce the bank’s exposure by reducing the outstanding loan – a demand he is unable to meet, which thereby invites foreclosure. Such instances are extremely rare and more often aggravated by the owner if he defaults on the monthly payments. Two, he might have pledged his property as collateral for further extension of credit lines so as to operate his business – an imprudent move as the act itself is piling credit upon credit. Once the house of cards falls, the owner stands to lose not only his property, but his financial credibility as well – since in many of such cases, bankruptcy is the likely outcome. 139
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Three, the failure to pay the monthly dues over a period of time and the opinion of the bank that the situation cannot be salvaged would also lead to the foreclosure of the property. As one would have guessed, foreclosure properties are not just limited to residential units, but also commercial office space, shop houses, and theme parks. In any case, should a bank decide to do a foreclosure, the modus operandi is clear – auctions.
The Truth About Auctions An auction is defined as a process whereby a property is put on sale by auction houses, usually an established real estate company. Most auctions are held in hotels with the auction houses advertising the properties weeks ahead through the various media channels, property portals and their respective websites. The auction houses attempt to publicise the upcoming auction dates to a wide audience to garner enough interest in the particular property prior to the date of the auction. Interested parties would have been shown the property beforehand. For example, the layout of the property would have been provided to them, and many of the would-be buyers would have viewed the property prior to the auction dates. Other than that, the auctioneer would have been given a reserve price to meet prior to striking a deal with any potential buyer. Auctions – being a method in the selling of properties – are not the sole “prerogative” of foreclosure properties. Owners can also choose auctions as a mode of selling or gauging the highest level of interest for their property by engaging the services of an auctioneer. Auction houses will charge an administrative fee between $500 to $1,000 to carry out the process and
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Landed Properties
Chapter
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Landed Properties The Gold Mine Of Property Investment
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Investment Tip “Investing in landed property requires you to take the slow cooker approach. You need to be able to hold on to the property long enough to see a substantial return.”
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n land scarce Singapore, landed properties will always be seen as the blue chips of property investment. All things aside, when you own a house on a piece of land, you effectively own a gold mine that has the potential to yield pots of gold in the years to come. The reason is clear for all of us to see. For starters, due to the limited amount of land space in our Little Red Dot, landed properties are scarce commodities as the government generally releases very few land parcels for such uses. It is also not in the best interest of the government to increase the number of land parcels for the development of landed properties as such a move would not maximise the economic returns on land. Thus, while landed properties are the dream of many Singaporeans, the supply of landed homes is generally shrinking as many of the older developments would eventually make way for small boutique or other new condominium projects. In other words, a cluster of landed homes would be very much sought after by developers who buy them over and convert them into mid-sized condominium projects.
Landed Property Price Index by Type
Landed Property Price Index By Type
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Landed Property Price Index By Type as at 2010, 2nd Quarter. (Data Source: Realis)
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Landed Properties Are Cheaper Than Condominiums? – How Is That Possible? With the gradual but eventual decrease in the supply of landed properties, coupled with the increase in a population that is becoming more affluent, the prices of landed properties are set to rise in the near future. Despite the pent-up demand, landed property prices are currently still lower than condominiums in the same district on a per sq ft basis. For example, a brand new freehold condominium in the eastern side of Singapore at District 15 will command a price of $1,500 to $2,000 per sq ft. Hence, a person buying a 2,000-sq ft condominium at $1,600 per sq ft will have to pay $3.2m just for a space in the sky. On the other hand, a person buying a three-storey semi-detached house with a builtup area of 3,200 sq ft sitting on a 2,500 sq ft freehold land, within walking distance to the Kembangan MRT Station, would only have to pay $2.8 m. In the latter scenario, the price per sq ft is only $875 based on the built-up area and $1,120 based on the land area, compared to the $1,600 per sq ft one would have to spend on a condominium, which is almost double the price of the landed homes based on the per sq ft of the built-up area. How is it possible that a space in the sky is actually more expensive than land on the ground? The answer basically lies in the rules of land ownership. In Singapore, foreigners are generally not allowed to buy landed homes, unlike condominiums. Foreigners who desire to own a piece of our land must
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Buying Addition And Alteration Potential Properties
Chapter
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Buying Addition And Alteration Potential Properties Transforming The Old Into New
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Investment Tip “A & A (Additions and Alterations) properties are like a pearl that has lost its lustre and it has to project to new buyers its potential in order to drive them to bring its shine back.”
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ou have just bought a landed property that is not so new. Should you demolish the whole house and build a new one, or should you build on the existing structure and try to improve what you have? Both have their own merits and demerits, and the issue of cost and statutory regulations must be taken into consideration before you decide to demolish and build, or to add on and alter. Demolishing the house and subsequently rebuilding it requires a lot of money. The new foundation, with piling, can easily cost anything from $150,000 to $250,000 for a 3,000 to 6,000 sq ft house, depending on the soil conditions, which require different methods of piling. New buildings will be subjected to regulations such as the provision for a bomb shelter, which again will require further cost and space. Also, any redevelopment on an existing plot is subjected to the road line interpretation that may require the new owner to do a setback of the frontage, thereby giving up a portion of the land to the relevant authorities. Doing Additions and Alterations (A & A) to the current property does offer significant advantages over demolishing the whole. For starters, the need for a new foundation is non-existent. Also, there is no need to cater to new guidelines and regulations regarding the inclusion of a bomb shelter. Lastly, the issue of having to cater to a road setback simply isn’t there, since there is no change in the basic structure of the house.
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What Is An A & A Property? A & A potential properties are generally landed properties with building structures equipped with concepts that date back to 20 or more years ago, suiting the lifestyles and preferences of those days. Thus, the structures of such buildings will feature the materials, ventilation, and technology which catered to the lifestyle and needs of owners back then. Some of these properties may not have maximised the built-up areas within the approved plot ratios. Certainly, such properties provide an avenue of great enhancement and value-add to the concept of A & A to cater to today’s present needs, focusing on modern design, infrastructure, and incorporating technology such as solar panels in the building to achieve a chic yet environmental friendly outcome – a highly appealing option in these modern times. In other words, these properties are like a pearl that has lost its lustre, and it has to project to new buyers its potential in order to drive them to bring its shine back. In considering a property for A & A, it is best that the existing foundation and structure suit your basic needs so that you can further alter and add to your new requirements. Also, to qualify as an A & A project, the facade of the building should not be altered by more than 50%. Finally, the inclusion of additional areas is subjected to approval and conformance to statutory building guidelines.
What Should I Consider When Deciding On A & A Properties? Like all decisions related to your real estate investments, it is best that you think through – as management guru Kenichi Ohmae would term 172
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Foreign Ownership Of Landed Properties
Foreigners Require Land Dealing (Approval) Unit’s Approval Before Purchasing A Restricted Residential Property 177
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Investment Tip “It is advisable for a foreign buyer to get in-principle approval from Land Dealings (Approval) Unit before commiting to place a deposit for a purchase of a restricted residential property in Singapore.”
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ince 1973, the Residential Property Act has targeted to achieve a balance between giving its citizens a share in Singapore by allowing them to own landed residential properties within their financial means, and at the same time attracting foreign talent by allowing permanent residents and foreign companies that contribute to economic success to the country to buy landed properties. The Land Dealings (Approval) Unit (LDAU) performs the provisions of the Residential Property Act by: • Processing application forms from foreign persons/companies for acceptance to take on or retain restricted residential property • Providing clearance certificates to Singapore companies • Punishing offences under the Residential Property Act • Handling any form of enquiries about the operations of the Act Thus, while foreigners do not usually purchase landed properties, they are required to apply for approval from the LDAU of the Singapore Land Authority when they do decide to. A foreign person is defined as someone who is not a Singapore citizen, not a Singapore company, not a Singapore limited liability partnership and not a Singapore Society. Permanent residents and converted foreign companies and societies are considered foreign persons.
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LIVING IN Condominiums
Chapter
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Living In Condominiums
Luxury Lifestyle For The Priviledged
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Investment Tip “When buying a condominium unit, you must make sure that you take into consideration your preferred lifestyle, budget and even the time frame that you want to hold your property.”
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he word ‘condominium’, or condo for short, conjures an image of luxurious living in a prestigious neighbourhood set against a backdrop of swimming pools, tennis courts, and gymnasiums right at the doorstep. Other than the three items mentioned, bigger condominium developments such as Mandarin Gardens and Costa Rhu come with full facilities such as club houses, laundry marts, and eateries, restaurants, supermarkets, Automated Teller Machines (ATM) and many others. Essentially, such developments are self-contained entities which offer the amenities of a town in the enclosed area of a development. Of course, where condominiums are concerned, there is always the benefit of a 24-hour security and surveillance. Due to the facilities and security provided, condominiums have always been the hot favourite of expats working in Singapore. Such housing also attracts foreign interest as there is a general restriction on foreigners acquiring landed property and HDB flats. For locals, condominiums represent an upscale living environment, one of the 5Cs – Cash, Condominium, Car, Credit Card, and Country Club membership – that they will strive towards. It is a lifestyle that is much envied by many, which not everyone will attain. That said, not all condominiums are created equal, and the status and prestige of the condo unit that you are buying will depend on where your condominium development is situated. The chart in the next page shows the the prices of condominiums as a whole.
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(Source: (Data Realis) Source:
Realis)
KC: file name “Property Price Indices for KC” The Central Region
The Central Region
Resting in the heart of town, condo developments in the Core Central Region are usually the purview of investors and foreigners with millions to spare. Priced at a hefty $2,000 to $3,000 Resting in the heart of town, condo developments in the Core Central per sq ft, these condominium units are simply beyond the means of the common man – a Region arecan usually of$5.0m investors and foreigners with millions 2,000 sq ft unit easily the costpurview a whopping or more.
to spare. Priced at a hefty $2,000 per sqfor ft,such theseproperties condominium Despite the stratospheric price tag, thereto is $3,000 great demand due to the foreign they generate. Indonesian, and person Indian nationals looking unitsinterest are simply beyondWealthy the means of theChinese common – a 2,000 sq to make Singapore their second home are naturally interested in such properties as they ft unit can easily whopping or more. provide luxurious living cost in a a secured estate $5m in a safe country. In addition, such properties attract foreigners who are looking for a good return on their investment. ToDespite many Singaporeans, a condominium in the Core Central region for is asuch statusproperties symbol which the very high price tag, there is great demand most people would not be able to afford.
due to the foreign interest they generate. Wealthy Indonesians, Chinese, Even in the outer core of thenationals central region, condos would be well above $1,500 per sq Europeans, Indian andmost other investors looking to make ft. A 3-bedroom condo unit of 1,100 sq ft would well cost over $1.6m. Singapore their second home are naturally interested in such properties As such, a condominium in the Central Region is indeed the crème de la crème where as they provide luxurious living in a secured estate in a safe country. In investments in condominiums are concerned. addition, such properties attract foreigners who are looking for a good return on their investment. 188
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Consideration #3: Should I Consider An Old Condominium? How about old condominiums? Should we even bother with them given that they are part of an ageing “population” way past their prime? The answer is a cautious ‘yes’. When considering older condominiums, one should always take into account the remaining leasehold attached to the development. From the point of an astute real estate investor, a condominium with leasehold of less than 70 years remaining will not be that good an investment as the property will experience a sudden dip in value when its balance lease crosses the 60-year mark. Other than that, older condominiums that are not well-maintained will attract lower quality tenants with a lower budget; thus, rental yield associated with such properties will be correspondingly lower as well. Therefore, where older condominiums are concerned, those that promise – please note the word ‘promise’ – the most returns are the freehold ones in areas of low density. Such condominiums have the highest en bloc potential, and when that happens, the owners of these “old” condominiums can realise a windfall many times more than their initial investment. Thus, where older condominiums are concerned, the remaining leases and the development potential of the areas are the key.
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Steps In Buying Completed And New Properties
Chapter
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Steps In Buying Completed And New Properties Knowing The Rules Of The Game
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Investment Tip “Buying a unit on the higher floors of a development under construction, will also allow the buyer to save on the mortgage interest, as the progressive payments will not be required until the various stages of the purchased unit are completed.”
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B
efore I start this chapter, can I ask you a dumb question? What is the process of buying a shirt? If you are like most people, you would be able to identify the steps in detail. In shirt-buying, you just go into the departmental store, try on the different shirts that you like, make a choice, and pay at the cashier. Buying a property is not the same as buying a shirt, and it is unfortunate that some people think that they can own a property in very much the same way that they can do shirt-buying. You can’t just go into your dream house, pay for it, and get the title deed to the house transferred to you immediately. The following sections outline the stages in buying completed properties, and payment stages to look out for when you buy properties under construction. Please familiarise yourself with the stages, and hopefully, buying a house will be as easy as shopping for shirts.
“A thorough understanding of the steps involved in buying a property ensures a hiccup-free transaction.”
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Withholding Tax Obligations On The Buyer Or Buyer’s Solicitor For Purchase From A Non-Resident Property Trader The buyer of a real property or his solicitor is obliged under Section 45D of the Income Tax Act (ITA) to withhold tax on the rate of 15% on the payment made to the seller if he is a non-resident property trader. Form IR 37A is to be filed by the buyer or his solicitor at the time the tax is to be accounted to the Comptroller of Income Tax. In instances where the buyer or his solicitor has reasons to believe that the seller of the property may be a non-resident property trader, the buyer or his solicitor may then ask for a letter of confirmation from the seller to state that either he or the company has not been treated as a property trader for tax purposes. If it is accertained that the seller is not a non-resident property trader, the solicitors need not withhold the 15% tax. Under the Income Tax Act, a non-resident person is any person who has income from the disposal of any property liable for tax under Section 10(i)a. The buyer shall immediately deduct 15% on every dollar before paying to the non-resident person any money which is the whole or part of the consideration for the disposal of the property, notwithstanding any other written law.
Buying Under-Construction Properties From A Licensed Developer Unlike buying completed properties, buying properties under construction from a licensed developer or vendor will require the buyer to pay the purchase price in progressive payments based on the completion of each stage of the construction phases. Highlighted on the next two pages is the payment schedule at different stages, to be paid by the purchaser to the vendor. 206
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may serve on the stakeholder and Vendor a notice of deductions from the Purchase Price. 5 The notice of deductions must be given to the stakeholder and Vendor at the same time and by the stipulated period stated in the Agreement. 6 Errors, Omissions and Misdescription: The Vendor shall furnish to the Purchaser a certificate issued by a registered land surveyor certifying that the area of the Unit is the area derived from the dimensions shown on the plans approved by the Commissioner of Building Control and other relevant authorities. Any error, omission or misdescription of the area of the Unit does not annul the agreement nor does it give the Purchaser the right to be discharged from the purchase. However, should any such error, omission or misdescription of the area be discovered on completion of the title survey as approved by the Chief Surveyor, the Purchaser has the right to an adjustment of the Purchase Price calculated as highlighted below: a) Upon completion of a title survey as approved by the Chief Surveyor, the area of the unit on resurvey by the Government is less than the area stated in this Agreement, the Purchase Price is to be reduced as follows: Deficiency
Reduction
(A) Not more than 3% of the area No reduction stated in the Agreement Reduction of Purchase Price based on (B) More than 3% of the area stated the per square metre unit price paid in the Agreement for every square metre of deficiency which is in excess of 3% of the area stated in the Sale and Purchase Agreement. 210
Housing Development Board Flats
Chapter
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Housing Development Board Flats Owning An HDB Property Provides The Stepping Stone To Eventually Owning Your Dream Home 215
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Investment Tip “Young couples should plan far ahead and apply for the Build-To-Order flats to take advantage of the subsidised price by the government.”
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ooking around at the modern buildings that we have today, it’s no surprise that many of our youths have forgotten how it was like in Singapore just 50 years ago. The slums that were the homes of many lacked privacy, clean water, electricity, and space. These makeshift homes also threatened the lives of those living in them – the lack of proper hygiene and materials to build the homes allowed easy passage for diseases and fires, much like how a single fire ended in thousands being relocated as it levelled the entire settlement of Bukit Ho Swee in an afternoon. The Housing and Development Board (HDB) was set up in 1960 to tackle the problem, when it was already obvious that homes were not being built fast enough by the then Singapore Improvement Trust (SIT). HDB increased the number of buildings at a pace so rapid that they built enough houses to solve the housing problem within 10 years. But these houses were rented to families, not sold to them. To create a nation of home owners as envisioned by former Prime Minister Mr Lee Kuan Yew, the families needed a way to affordably pay for the flats. The Home Ownership Programme was created in 1964 to give citizens an immovable asset in the country, a means of financial security and a hedge against growing inflation. This initiative for home ownership also helped in the overall economic, social, and political stability. In 1968, the government further allowed the use of Central Provident Fund (CPF) savings to aid housing payments. Later in 1971, flat owners were allowed to sell their flats in the open market. This changed the real estate landscape of Singapore in the years to come.
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HDB Homeownership Pyramid
Executive Condominium
Private property concept with swimming pools and facilities for those who desire a better lifestyle. Buyers with an income ceiling of up to $10,000 qualify to purchase with $30,000 CPF Grant for first timers.
Design, Build, and Sell Scheme (DBSS)
Resale Flats
Income ceiling of $8,000 for those applying for HDB Concessionary Loan. Those earning $8,000 to $10,000 are also qualified to buy DBSS. However, they may only apply for bank loans and 1st timers can also qualify for a $30,000 CPF Grant. No income ceiling. Buyers could qualify for up to $40,000 CPF Grant; lower-income buyers qualify for an additional CPF Grant of up to $40,000, totalling up to $80,000. Usually, 4 and 5-room premium flats come with better designs and fittings. Income ceiling not exceeding $8000.
Build-to-Order Flats (Premium)
Build-to-Order (BTO) Flats (Basic)
Income ceiling not exceeding $8,000. Additional CPF Grant of $5,000 to $40,000 for those with an income of $5,000 and below. 2-room and 3-room flats are available only to those with an income less than $2,000 and $3,000 respectively.
What Are BTO flats? Build-to-Order (BTO) is a system that allows for buyers to apply for flats that they want. Flats that are offered under the BTO system range from studio apartments to 5-room flats, with standard or premium finishes. Standard flats have minimal fittings, such as basic tiles, while premium flats come with ceramic floor tiles and timber strip flooring. 220
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Should One Buy A Resale Or Direct Flat? The resale price index for HDB flats has reached historical highs and HDB resale flats are no longer cheap since a 5-room flat in a central location can well exceed $600,000 in price. Today, young and newly married couples are especially unhappy because they feel that resale prices have gone through the roof. In the second Quarter of 2010, resale HDB properties were transacting at a median COV of $30,000.Young couples, given their limited financial resources, are unable to fork out such a high amount of cash and their “plight� has become a national issue worth discussing at most public forums. In my personal opinion, the appreciation in HDB resale prices is a positive thing since 82% of the population with more than 900,000 homes own a property, which only means that a greater appreciation of the property prices will result in better options for these owners. For example, retirees who sell their properties can cash out, downgrade to a smaller flat or opt for a lease buy-back based on the appreciated value. For that matter, it allows people to sell the property, and the capital appreciation allows them to use the money as a deposit to upgrade to a private property, or as seed capital for other investments. So am I trying to say that if we are young and newly-wed, we should not buy a roof over our heads? Absolutely not! What you should do is plan far ahead and apply for a BTO flat. Why BTO? Simply because BTO flats are priced about 25% lower than resale flats, as they are subsidised by the government and there are no COVs to contend with. Therefore, a person buying a 5-room flat from the resale market at $420,000 would be able to find a similar BTO flat at $320,000, saving a cool $100,000. 226
Financing Your Investment
Chapter
18
Financing Your Investment Using Other People’s Money Towards Wealth Creation
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Investment Tip “Even when you have millions to spare, it may be worth considering taking a loan to leverage on the equity as property investments are less liquid compared to other investments.”
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Financing Your Investment
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f you haven’t realised by now, property investments are considered a major investment amongst the portfolio of other investments you hold. Whether as a home in which they stay in, or as one of the many instruments in an investment portfolio, 90% of investors buy properties by means of some kind of debt instrument and home loans. Firstly, the majority of would-be investors in property would NEVER be able to save enough CASH to purchase their first property. Unless you are a multi-millionaire investor with loads to splurge, it is unlikely that you will ever have enough cash to buy your property in one lump sum cash payment. In fact, in mid-June 2010, a foreign buyer made the news by purchasing a bungalow at Sentosa at a record price of $36m and paying the whole amount in cash with no loan. However, how many of us can even afford a $2m investment without taking a loan? Even if we could, would that be the best way? Secondly, even if you DO have the millions to spare, you would still want to take a loan – albeit a smaller one – so that you can leverage on your equity. After all, it is a known fact that cash is king and property investments are not as liquid as other investments; in fact, it can take months to free up the cash invested in a property. In the earlier chapter, we touched on leveraging, whereby, you can take up a bank loan to buy more than one property or buy a bigger property. Property tycoons all over the world have acquired many properties and amassed a fortune not by buying properties with cash entirely, but by leveraging and using some form of financing. Hence, it is important to have a good understanding of the various financial options that are available and obtain one that suits your requirements
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best. Unfortunately, many investors think that taking a bank loan is a simple process of walking into a bank, instantly securing a loan and signing on the dotted line. Nothing is further from the truth. You need to know how banks function, why they will or won’t grant you a loan, and the different types of loans available to you. Reading this book is the first step; getting expert advice is the second.
Getting Expert Advice There are many mortgage planners or financial advisors who are not only knowledgeable but also keep tab of the latest bank mortgage loan packages and promotional incentives available. Due to their specialist knowledge, they can assign and recommend the best package available in the market to suit your needs. One such company that we have frequently worked with is SingCapital Pte Ltd, a company that has helped many of my clients not only to secure the best deal possible, but also worked with financial institutions on unusual cases. It may be prudent on your part to consult such financial advisors who can help you understand the merits of mortgage planning for your investment.
You Mean The Banks Are Keen To Finance My Purchase? Banks exist to make a profit by charging interest on the loan amount extended to borrowers. As the saying goes, “When we save our cash in the bank, we earn interest while we sleep.” This is exciting to those who
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Financing Your Investment
Repayment Estimates The repayment table below shows the monthly instalment amount for every $100,000-loan for different terms of loans with varying interest rates. One can use this table to estimate the monthly commitment based on the intended loan amount. For example, a $500,000-loan over 25 years at 3% will mean a monthly instalment of $2,370 ($474 x 5).
Repayment (S$) Per S$100,000-Loan Table No of Years
5
10
15
20
25
30
35
1731 1742 1753 1764 1775 1786 1797 1808 1819 1830 1842 1864 1887 1910
898 909 920 931 943 954 966 977 989 1001 1012 1036 1061 1085
621 632 644 655 667 679 691 703 715 727 740 765 791 817
483 494 506 518 530 542 555 567 580 593 606 633 660 688
400 412 424 436 449 461 474 487 501 514 528 556 585 614
345 357 370 382 395 408 422 435 449 463 477 507 537 567
306 319 331 344 358 371 385 399 413 428 443 473 505 537
Interest
1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00% 4.50% 5.00% 5.50%
The calculations shown in the table should only be treated as a guide. The repayment schedule is based on a monthly rest calculation and rounded up for the purposes of illustration.
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Where Do I Start?
Beginning Your Real Estate Quest
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Investment Tip “A professional agent can greatly aid you with his expertise, knowledge and protect your interest.”
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I
f you have no prior knowledge about real estate, I am truly confident that after reading this book, you will be empowered with knowledge that will put you ahead of many novice agents and other property owners. Attending seminars is one of the greatest ways to increase your knowledge of real estate. Many free seminars are conducted at expos or investment fairs, where you can get to hear from different speakers in order to understand the current market situation and pitfalls in the various investments. That said, you have to be discerning, as many speakers might be putting up a sales pitch to push a product, and if you are caught emotionally without doing the necessary background work, you might end up with a property in Alaska! Despite this obvious pitfall, such seminars usually do expose you to a better understanding of the real estate market. Hence, it is vital to have a clear mind as to what your needs are. PropNex also conducts a quarterly public seminar, and the dates are regularly updated via the website at www.propnex.com. These seminars have the sole objective of educating the public on the current market trends to enable them to make better informed decisions in their pursuit of wealth through real estate. One can always sign up as a privileged member, which is free of charge at www.propnex. com/propnexmembership.aspx. Members will be invited for public seminars, property launches and will be periodically updated about property news. A word of caution – do be careful of going to certain property seminar previews in which the sole motivation is to sign you up for their courses,
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which may well cost thousands of dollars. At the end of the day, it is really up to you to make a choice as to whether you want to enrol for these seminars; if you sincerely believe it will be highly beneficial to your knowledge of real estate, by all means, please go for it! Life Mastery Academy conducts FREE weekly property education seminar with the sole objective to empower consumers with greater knowledge. You can visit www.lifemasteryacademy.com for more information.
How Do I Look For That Property That Will Make Me A Millionaire? 1. Scrutinise the Straits Times Classified Ads (CATS)
The ST CATS is a good way to put the skills that you have acquired from this book to practice. Regularly flip through the CATS pages to those areas you are keen on. To have a better understanding of the asking price of the properties and the number of properties that are available in the market, you should highlight properties that are of interest to you. Start calling the agents and owners to enquire more details about the conditions, price, and motivations of the sellers. By doing this, you will gain a good understanding of the comparative market prices of the intended investment. This will put you at a greater advantage when you decide to make an offer for a particular property.
2. Browse the major property portals and major agencies’ website
There are existing property portals you can explore, such as www. propertyguru.com.sg and www.iproperty.com.sg. From time to time, there will also be other new portals. This is a good channel to sieve out properties of interest to you. There are few established and 298
Rules Of Becoming A Successful Landlord
Chapter
20
Rules Of Becoming A Successful Landlord Getting Someone else To Pay For Your Investment
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Investment Tip “The emotional connection that a tenant makes with the property determines the rental price and the take-up rate of the property.”
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e have heard of landlords who seem as though they are out to cause as much trouble as possible to their tenants. Smart property investors know that they will have to play the role of a landlord, and that they must do so successfully, unless they want to “bite the hand that feeds”. The rules of becoming a successful landlord are simple. Being a landlord is like conducting any other business. In any business, you deal with uncertainties, like problems from tenants and technical problems such as maintenance of the property. Therefore it is important to learn the ropes of being a successful landlord so that you will have fewer problems to deal with.
Rule #1: Make The House Habitable For The Tenant As a landlord, you need to understand that you collect rent in exchange of renting your place to a tenant for his quiet, enjoyable stay at the premises. It is the responsibility of the landlord that the property put up for rent is clean, safe, and properly functioning. An unkempt property takes longer to rent, collects lower rental fees and lower quality tenants. Therefore, prior to putting the property up for rental, it is vital for a landlord to do a thorough cleaning of the premises, and ensure that common household items and features such as the refrigerator, basic furniture, toilets, and stoves are in a condition that would attract a tenant’s heart. An easy rule of thumb would be to put yourself in the shoes of the tenant’s and ask, “Would I rent this house for myself?” The emotional connection that a tenant makes with the property determines the rental price and the take-up rate of the property. A clean and neat property will often be rented earlier because these homes allow 307
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for a tenant to make an emotional connection to the property. For example, a house that has a $400 newly-equipped stove hob installed will appeal more to tenants and this will increase the overall appeal of the house. A landlord may then increase the rental by $100, resulting in an extra earning of $1,200 over a year. Notice the difference that an investment of a $400 household upgrade can make?
Rule #2: Know Your Tenant Know your tenant: Every landlord hopes that the tenant is a responsible person who will take care of the property during the period of his tenancy. An irresponsible tenant may cause more damage to your assets and you might also have to put up with late rental payments, resulting in you having to continually chase him for money. Broadly, tenants can be classified into the following groups:
1. Corporate tenants The lease is signed by the corporation or company on behalf of the tenants. For tenants in this category, it is seldom that landlords face problems with their monthly rental fees being paid on time.
2. Expats, foreign talent and professionals Generally, this group of people are well-paid and their employment often comes with a rental allowance for their temporary accommodation as part of their pay package. Again, this group is usually responsible and abides by the rules and regulations stipulated in their contract.
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Selling Your Property
Chapter
21
Selling Your Property Living Your Dreams Towards Financial Independence
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Investment Tip “Setting too high a selling price tantamounts to killing the sale as buyers will not pay way above the market norm.”
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Selling Your Property
Getting The Price You Want
I
t is understandable that every seller wants the highest price for their property. On the reverse, every buyer wants the lowest price for a property. Therefore, as a seller, asking the highest price beyond the market norm will likely result in the property being left without a buyer and eventually the property will continue to be left on the market for a very long time. As a seller, you can carry out these actions: Do some groundwork, understand the current price situation, do a comparative study by visiting the URA or HDB website on the latest transacted prices for similar properties, or engage property consultants to provide the current comparative market analysis (CMA) report on your property. Besides this, you can also contact your real estate agent indicating your intent to sell and ask him to provide an indicative value for the property. With this relevant information, say an indicative value of $1m for your property and with the current CMA pricing ranging from $950,000 to $1.05m, you will have a clear indication of how much you can price your property to start with. The recent transaction is a benchmark and the current value is an indication of the price any buyer is willing to pay as fair price. In a seller’s market – defined as bullish with more buyers keen to own a property – you could well set a target slightly above the valuation for the property, usually not more than 10%, as a fair price to start with. Realistically, more than 80% of transactions are done at valuation.
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One thing to note though, if you purchase your property on or after 30 August 2010 and you are selling within three years of purchasing, you will have to pay a Seller’s Stamp Duty (SSD).
Setting Too High A Price In the same instance, if your property is valued at $1m, setting the selling price at $1.4m is tantamount to killing the sale.
This is simply because the price set is unrealistic. One good way to understand what a realistic price is will be for the seller to put himself in the shoes of a potential buyer. If you are going out to buy a property, it is probable that you will not buy the first property you view. As such, after viewing six to 10 properties, you will have a good understanding of the current market situation and the price of other properties. Obviously, by then, you will be more aware of the pricing range and will not buy a property that is priced way above the market norm.
Preparing The Property For Show The first impression of any property will make a huge difference to potential buyers. As most purchasers commit to a buying decision because they are emotionally connected to a property, it is vital that the properties appeal to potential buyers during the first viewing. An organised and uncluttered home that exudes a spacious outlook will always be preferred as it reflects the true potential and value of the property from the buyer’s perspective. These are some ways to prepare your property for show: 1. Remove and throw away any unwanted items in the house to prevent a cluttered feel. 324
Epilogue
Epilogue All Of Life Come To You With Ease, Joy And Glory!
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Investment Tip “Knowledge is limited power, however knowledge with right action is financial independence.”
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T
he path of wealth creation is a never-ending quest. Only those who continually learn, unlearn, and re-learn will be able to attain the wealth that they have envisioned for themselves. Your journey of wealth creation has just started, and real estate investment is going to be the vehicle that will take you there. I started on the journey about 25 years ago, and looking back, what I can say is that the journey has both been rewarding and fulfilling. This book contains much of the lessons and experience that I have accumulated over the years. However, this book shouldn’t be the end for you; instead, it should be the springboard for you to further delve into the wonders and rewards of property investment. As such, let us not end it right here and now; rather, let us continue this journey together. I would like to invite you to join us as one of our PropNex Privileged Members (PPMs). PPMs regularly receive updates on the latest property news, courses and market trends, and also enjoy priority reservations at our FREE quarterly property seminars. More importantly, as a PPM, you will be well on your way to financial independence and success you deserve! Simply visit www.PropNex.com/PropNexMembership.aspx and register yourself as a PropNex Privileged Member. Don’t worry, this lifelong membership is also completely free for life. To top it all off, there is just one more gift which I would like to offer you. Life Mastery Academy, a sister subsidiary of PropNex, will conduct FREE weekly property education seminars. “The Ultimate Seminar On
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Singapore’s Real Estate Investment� aims to empower consumers like yourself with greater knowledge, understanding and awareness of the current market trends and industry policies. In that way, you are better equipped to find your pot of gold by investing in Singapore real estate. This property education seminar will share a wealth of information that other consumers will not receive. It will set you apart from other real estate investors and I strongly suggest that you do not miss it. To sign up for one of these property education seminars, please visit www.lifemasteryacademy.com. I wish you all the best and encourage you to take the commitment pledge on page 334 and work your way toward financial abundance for your retirement. I look forward to seeing you soon.
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The Ultimate Seminar On Singapore’s Real Estate Investment Dear friends, • • • •
Do you want to have a proven system of finding your pot of gold in Singapore’s Real Estate? Do you want to know how the current market is performing and how it affects you? Do you want to know how new regulations from the government will affect the property prices? Do you want to understand Buyers’ and Sellers’ rights and your Agents’ roles?
If you answered “yes” to any of these questions, then this is one seminar you cannot afford to miss. In just 3 hours, you can have all your questions answered and learn how you can finally create wealth through investing in Singapore’s Real Estate.This is a 3 hours no nonsense and no hype seminar that WORKS, 100% relevant to investing in Singapore’s properties.
Seats are limited, take immediate action and register now! Venue : Toa Payoh HDB Hub East Wing #10-01 Date :Every Friday except public holidays (For confirmed dates, please visit www.lifemasteryacademy.com) Time :7pm – 10pm Fee : FREE (This seminar is purely to educate consumers) For more information or to register, simply visit : www.lifemasteryacademy.com or SMS <Your Name> space <Email Address> space <Seats Required> space <date of seminar> to 8298 6888
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At the helm of Singapore’s largest real estate company is a man of great stature – Ismail Gafoor. As the CEO of PropNex, Ismail brings with him a rare fighting spirit that built for him a career in the army as a regular officer. His passion to be an outstanding entrepreneur prompted him to start PropNex, a company that, through Ismail’s dynamism, grew from its tumultuous beginnings to become today’s industry leader. Ismail holds a Bachelor in Land Economics (Hons) from the University of Technology, Sydney. He acquired his first property at the young age of 22 and amazingly made his first million at 28. He is an investor, entrepreneur, and success coach to many Million-Dollar Club Producers in the real estate arena.
If you think that education is costly, try ignorance. Real estate investments are big ticket items that can either put you on the path to riches, or set you on the downward spiral to financial disaster. Are you ready to include real estate in your investment portfolio? Try answering the following questions: • • • • • • • • • • • • • •
What are the different types of loans available to finance my property purchase? What kinds of condominiums provide more stability in rental income? How does the Master Plan affect the value of my property? How much should I pay for Mickey Mouse apartments? Can foreigners buy landed properties in Singapore? Are Executive Condominiums (EC) for everyone? How much is fair to offer to sellers? How do the new policies affect me? Should I consider an old condominium? How long should I hold on to my investment? Should PRs buy HDB flats or private property? Which type of loan should I take to finance my property? Is it wise for me to buy an HDB flat when I can afford private property? Should I do an Addition and Alteration or should I demolish and rebuild?
A fervent advocate of training and lifelong learning, Ismail has institutionalised a complete series of learning programmes that includes developmental seminars, workshops, consultancy services, and legal support for all his property consultants so that they can stay ahead of the competition and deliver the maximum value to their customers.
If you are unsure of the answers to any of the above, it is time to take action. This book contains many of the answers you are looking for on investing in real estate in Singapore!
“Property purchasing is the most important investment decision in life. This book is invaluable not only for the extensive advice but also the personal insights of Ismail Gafoor which makes it compelling reading.”
Mr Ian Macdonald, President Hong Leong Finance Ltd “For those who are looking for a book that helps, this is the book that contains simple yet comprehensive sharing of information on Real Estate Investing!”
Ms Elim Chew, President and Founder 77th Street Pte Ltd “Essential reading for aspiring and seasoned property investors, written by one of Singapore’s most experienced and wellknown industry veterans. Ismail Gafoor advocates a pragmatic and prudent approach to buying property and outlines easy-tofollow investment principles, advice, tips and sample agreements. This excellent book, combined with a passion for property plus online tools, will help you become a successful property guru!”
Ismail Gafoor
“The Ultimate Guide To Real Estate Investment In Singapore” is an extension of Ismail’s desire to educate. Two years in the making, this book is written for everyone who wants to invest in real estate but probably lacks the know-how and the confidence to start. Ismail’s no-holds-barred discussion will benefit any investor who lays his hands on this book.
The Ultimate Guide To Real Estate Investment In Singapore
About The Author
Mr Steve Melhuish, CEO PropertyGuru.com.sg
Incorporates New MND Measures And Estate Agents Act