The logic in Real Estate Sales
REASONS TO BUY Sam Gian Worldview Development Consultant
All rights reserved Š 2009
Title: "REASONS TO BUY" Author: Sam Gian Publisher: Worldview Development Consultant 3 Raffles Place #07-01 Bharat Building Singapore 048617 Tel: (65) 6348 9679 Fax: (65) 6665 5009
ISBN:
Copyright rights Š 2009 by Worldview Development Consultant Worldview Development Consultant reserves the right to prosecute any infringements of its intellectual property rights over this book. Any person or persons found using the contents of this book without the written consent of Worldview Development Consultant shall face legal consequences.
Table of Contents Foreword
1–6
Introduction
7–14
1
Do not start a FIGHT
15–42
2
REASONS Government Wants You to BUY
43–60
3
REASONS ‘Now’ is the Best Time to BUY
61–96
4
What Goes Down Must Come Up
97–116
5
REASONS to BUY Leasehold Condos
117–152
6
REASONS to BUY Landed Homes
153–166
7
REASONS to BUY Singapore Real Estate
167–174
8
Conclusion
175–180
This book is for my wife and my four lovely children. They are the reasons for my contentment.
REASONS TO BUY FOREWORD
FOREWORD
Regardless of our current circumstance, every one of us has a dream life. And in every dream life, there is a dream house. Some people have many dream lives and dream houses. My point is: the future always holds a lot of promises. In the real life, there will be some people who are capable of creating their own opportunities. But the majority of the people just try to take advantage of the opportunities that present themselves from time to time. We certainly did not create the current economic recession so that we can own more than one dream house. But the opportunities have presented themselves for many of us to do so. This is the historic moment where we will be witnessing the birth of the next generation of new billionaires. Logic comes from clear thinking. But in such a tense economic environment, many people are incapable of clear thinking and simple logic has succumbed to negative emotions. People are affected by the bad news being fed to them on a daily basis and they start to fear for their own future so much that their logic has been crippled. As such, the old sale pitch is insufficient to get
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REASONS TO BUY FOREWORD
the prospective buyers to commit to a purchase. This is the main reason of writing this book. LOGIC IS ONLY A COVER – EMOTION IS THE KEY I must state categorically at the onset of this book that the principle driving force behind every home buying decision is EMOTIONS, not logic. [The reason why I devote the whole book to the discussion of logic and reasons to buy is because I feel that agents in general lack interesting talking points to bridge the wide perception gap between the customer’s world and the real world.]
Here is a list of the key emotions that are always responsible for a successful sale. (1) (2)
(3) (4) (5)
I love it. It’s my dream come true [I have always wanted to live in a landed property / condo / an executive maisonette / 5-room flat]. [In ten years time, we will be living in a bungalow] [we always wanted to live in Watten Estate] We want our house to be within 1km distant of [school name] I only want this particular estate / project / or block [because of personal preference] The flat cannot be further than Blk 693 [because I want to enjoy the additional $10,000 in the housing 2
REASONS TO BUY FOREWORD
grant]
(6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25)
It’s near my parents’ place [so that we can save on daily expenses] My children love to swim and they can also invite their friends over. So that the children have their own rooms and privacy. The environment is better or more comfortable. [It’s not so crowded and noisy / rowdy / dirty] We want a safer environment for our children. It will appreciate in value [perception also comes under emotion because it is not a fact] The estate / project / block is more prestigious. We are going for the coveted address. I need more space / rooms / a balcony. All my children have grown up and moved out; I only need a smaller house now. My children are growing bigger. I need to upgrade to a bigger house. The location is good. It’s so cheap. It’s near Orchard Road. It’s near the MRT station. It’s very convenient. It’s freehold. It’s easy to rent out. I can flip it and make some money. It’s nearer to work; we will save on time and 3
REASONS TO BUY FOREWORD
(26)
transportation. I am familiar with the environment here.
I want to quickly deal with these KEY EMOTIONS associated with buying a home from the onset of the book as this topic is taught in every real estate agency’s basic training. There is no additional mileage for me to dwell in them at length in this book. But they are the basic ingredient in every successful sales pitch. Some of the key emotions look like logic, for example, those that have got to do with children’s education, the distance between the home and the school, and those about investment and making money. However, they are not logic because they are aspirations not based on established facts; nor can they be calculated or proven scientifically. Some of them can be called the apparent logic while others are simply assumptions that have not been seriously challenged before. But they are still valid, relevant and valuable, even during a recession.
4
REASONS TO BUY INTRODUCTION
INTRODUCTION
People always mistaken that real estate agents are good talkers – because we are perceived to be ‘making a living’ out of ‘smooth talks’. That might be true in some cases, but not so in most others. In truth, many of us, especially the rookies, don’t know what to say to the customers most of the time - not because the rookies don’t have the common sense, but because the real estate brokerage business is complex, and sometimes, even complicated. It takes some time (e.g. 12 to 18 months) for anyone, regardless of how smart they are, just to acquire some basic understanding of the products and the success factors in real estate brokerage. There are three sets of factors that determine the success of a deal, including: The Market – Demand and Supply The Market is an outcome of demand and supply, and
which by itself is a very tricky proposition – who would
have correctly predicted the recession?
7
REASONS TO BUY INTRODUCTION
The Real Estate Real Estate is complex, to say the least. And it will easily
take a smarter rookie up to one year just to be able to differentiate facts from assumptions about real estate. And sometimes it takes more than a few years for real estate agents with some ground experience to have a really comprehensive understanding of the unique physical, as well as financial characteristics of the products that they are brokering. The Customers People are highly complex, and difficult to understand
and predict; and some of them are seriously mistaken about many things concerning real estate and badly needed some basic reasoning. Given the fact that 99.9% of real estate agents in from other Singapore are ‘mid-career transferees’ industries, most of us started our sales having to juggle all the three sets of highly complex factors simultaneously, while trying to put food on the table. And when all the factors are mixed together, every minute of an agent’s life has a potential surprise. As such, we sometimes do not know ‘a more suitable way of saying what we mean’ to our customers because every 8
REASONS TO BUY INTRODUCTION
other situation is different from what our previous life experiences have prepared us for. Hopefully, this book will be able to provide the foresight and antidotes. In order for the real estate agents to be able to engage their customer’s opinions (whether the opinions are right or wrong), and correct the misconceptions about real estate and the agents – and in the process make more money, they have to master the following knowledge:
relevant knowledge about real estate as an investment; relevant knowledge about the real estate brokerage business; unique logic of real estate – e.g. the demand and supply interplay and the market cycle – provided you know the range of human emotions involved with buying of real estate; known assumptions about real estate buying and selling that need to be corrected.
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REASONS TO BUY CHAPTER 1 – DON’T START A FIGHT
Chapter 1
DON’T START A FIGHT The entire process of trying to convince someone of the need to first have a housing plan and then soon afterwards take action to own a house; to clarify his doubts on real estate matters; or to change his attitude towards real estate investment, from one of indifference to interest, is called ‘argument’, or a process of reasoning. It is not negotiation. Your prospects don’t have to buy anything from you there and then. What is vital is that the objective of reasoning is to convince your prospects of the opportunities awaiting them during these difficult times. And such opportunities may not return anymore. At the end of the day, if they don’t see it that way, we can agree to disagree and meet again another day to talk about something else. There will be no harm done. I want to remind readers that it is very easy for a conversation to slip into a fierce debate, which is not yours or my intention. We don’t want a debate. Because once there is a debate, you will sure lose the battle because egos will enter the fray and your prospects will never buy from you again. What I am trying to convey in this book is that ‘an argument’ or ‘reasoning’ can be
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REASONS TO BUY CHAPTER 1 – DON’T START A FIGHT
put across in sincere, unhurried, and even light-hearted manners. REASONING IS NOT SELLING YET When you are giving your prospects REASONS TO BUY, you are trying to bring the prospects and yourself closer to a level where you can propose a sale – but you are not paddling anything right now. You are imparting values. This is because when ‘selling’ begins, it is another new ball game altogether. There is an A-to-Z of real estate sales on which I have written six other books. As an agent, you will need to realise that before you even start selling something, you need to win an important argument, that is, to convince your prospects of the reasons to start the buying process now. REASONING IS NOT CLOSING The act of reasoning is carried out to cause a positive action of buying, hopefully sooner, rather than later. But it must be subtle and the eventual outcome may not benefit the person who puts forth the REASONS, because he may lack the closing skills, and another
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REASONS TO BUY CHAPTER 1 – DON’T START A FIGHT
agent may reap the reward of another person’s labour because his closing skills are better. That is the reason why I say ‘reasoning’ is not part of real estate closing, nor is it countering of objections. PRIVILEGE TO REASON MUST BE EARNED The reasoning process may begin in the early stages of ‘generating leads’ and ‘prospecting’. And it can be reinforced during the later stages of follow-up actions, negotiation, closing and repeat business and referral sale. (Remember the nine critical skills?) It can be a very long process – from a few minutes to a few years. The bulk of the reasons and the specific set of logics must be all geared up behind the mind of the agents. In other words, a professional real estate agent must always be ready to put forth a reason or two convincingly during the sales process. To achieve that, you need the right mix of facts, niceties, and the willingness to be fun and entertaining, in order to earn the privilege to reason with your prospect again.
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REASONS TO BUY CHAPTER 1 – DON’T START A FIGHT
REASONING NEED NOT BE FORCEFULLY DONE Putting forth a winning argument does not mean that you have to be forceful about it. It can be done very subtly and with a soft touch. For example, when a contact of yours expresses his scepticism about the government housing grant, you may respond by saying: ‘that will be a great help for young families, especially those whose earning potential is good because they will achieve financial freedom sooner. How fast can a newly-wed couple save $80,000?’ And then you allow the other guy to say whatever he wishes to say. Your statement will sink in eventually because nowadays it is hard to find someone with $80,000 savings lying around. I think that is enough to convince any non-believers; because you have already established yourself as someone who is sensible and has some insights into the value of money.
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REASONS TO BUY CHAPTER 1 – DON’T START A FIGHT
HOW TO REASON WITH SOMEONE NICELY You need to find the right touch when you are reasoning with someone. Too quiet, your argument may not register; but too loud, the listeners may repel. Worse, they may start to circulate their negative view about you among your other friends. Too much of the same thing, you become a nag. Too little of it, you seem like you lack conviction. Here are some of the ‘thou should not’ in the art of reasoning. Do not OVERDO it
While you don’t want to underwhelm, neither do you want to hit your prospects or listeners with tons of reasons and render them speechless. You just need to strike the right chord and earn the privilege to speak with the same person again in the near future. Do not always try to WIN
The last thing you want when you are trying to generate business leads is to win an argument but lose the … … … 19
REASONS TO BUY CHAPTER 2 –REASONS GOVERNMENT WANTS YOU TO BUY
Chapter 2
REASONS GOVERNMENT WANTS YOU TO BUY
In the latest Budget 2009, the Singapore government has raised the state subsidies for first time flat owners by another $10,000. In the meantime, the income cap for such subsidises has also been raised from the earlier $4,000 monthly household income to $5,000 monthly household income – in so doing, benefiting more households in the current economic downturn. As of now, more than 60% of the households in Singapore will qualify to enjoy the additional funds when they purchase either a brand new flat from the Housing Board, or from the open market. If the recession worsens, more households will qualify. Why does the government want to give away money to ordinary citizens to buy a flat? Are there any good reasons for the Singapore government to do that? Let’s look at how a property can help ordinary people build their nest eggs.
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REASONS TO BUY CHAPTER 2 –REASONS GOVERNMENT WANTS YOU TO BUY
Dialogue [2] WHY IT IS IMPORTANT TO OWN A PROPERTY? REASON TO BUY: PROPERTY CREATE WEALTH FOR ITS OWNER
Agent:
Mr Customer, do you know why the Singapore government is giving away so much money to ordinary Singaporean families to help them to own their own home?
Customer: Because there is an oversupply of HDB flats? Agent:
No it is not true. Nowadays, the Housing Board will not build any flat units if there is no demand for them. This is called the ‘Built-toOrder’ scheme. There is no oversupply of government flats.
Customer: Then what are the real reasons? The General Election is coming? Agent:
The election part I don’t know. But the real reason to give away $80,000 to eligible households to buy their own flats is to ensure that those families will be able to build up their wealth over the years and become self44
REASONS TO BUY CHAPTER 2 –REASONS GOVERNMENT WANTS YOU TO BUY
reliant and financially independent.
Customer: What is ‘financially independent’? Agent:
When a person is financially independent, he or she has enough money to look after the daily expenses and does not need to borrow from others. Sometimes, a financially independent person may appear to be quite rich.
Customer: How does owning a flat help a person to be rich? Agent:
First of all, there will be a forced savings every month. This is where the flat owners will be forced to set aside certain amount of money every month to repay the housing loan that they take when buying the house. The government housing grant of maximum $80,000 is meant to help Singaporean families reduce the down-payment so that they do not have to borrow a lot of money. With the help of the housing grant, the families will be able to complete the monthly loan repayments in fewer years.
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REASONS TO BUY CHAPTER 2 –REASONS GOVERNMENT WANTS YOU TO BUY
Customer: But once you pay out the money it is no more yours. How does this make a person rich? Agent:
Unlike other investments like stocks and shares, the monthly instalments a property owner pays will accumulate over years. The money will not disappear altogether. The money will grow and one day will become a huge amount because the value of the property will appreciate in the future and that will ensure that the value of the money the household pays every month will also appreciate. In this way, the property owner gains wealth through debt reductions. This is better than putting money in the banks.
Customer: But that is going to take years to accumulate. Agent:
True, it is going to take at least five to 10 years to be able to see the accumulation of wealth. But the good news is that even if you were to sell the property at the same price, you have already earned the subsidy.
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REASONS TO BUY CHAPTER 2 –REASONS GOVERNMENT WANTS YOU TO BUY
Even if the family were to sell the flat later on for the same price, they will get back every cent that they have put into the flat through the monthly instalments. This is what we call ‘capital build-up’ – which is really a form of ‘wealth creation’, though the process is slow. Moreover, the family may be able to make some profits if they sell the flat in a better economy. If the family is able to achieve that, it is called making a ‘capital gain’. People get rich through capital gain when they sell something like what businesses do.
Customer: What about something that can be gained immediately? Agent:
For public flats, the owners cannot rent them out immediately; but if certain conditions are met, the flat owners can monetise their flat quite easily by sub-letting the flat with the Housing Board’s approval. The rent that the flat owners collect every month is called passive income, because they don’t have to actively work for the money.
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REASONS TO BUY CHAPTER 3 – REASONS ‘NOW’ IS THE BEST TIME TO BUY
Chapter 3
REASONS ‘NOW’ IS THE BEST TIME TO BUY?
We are right now in the worst economic recession Singapore ever faces in the past 44 years. There is no point trying to deny the fact. Nor should we ignore the market condition and continue to sell, Sell, SELL. You don’t want to be a hard seller either. We cannot fool ourselves for long. After a while, the hard sellers will run out of all business leads because everybody will be avoiding them. That may be the worse strategy to cope with a recession. But rather than brooding all day, we might as well try to find new opportunities and identify new business ideas and growth areas in this difficult times. Being able to take adversity is a prerequisite for success. In the interim, life must go on. There are many people out there still needing a roof above their heads. There are still prospective buyers out there hunting for their dream homes. Except that, given the more subdued buying sentiments, the prospective buyers are not going to make hasty decisions at the slight prod of the agents (you can see why hard selling is not the best policy). The prospective buyers will be looking for good
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reasons to buy now – after all, they firmly believe, the
longer they wait, the further the prices will fall. Such mentality among buyers can further depress home prices if we do not have the skills to win the greatest argument of our life, that is, there are good REASONS TO BUY because real estate is complex proposition. It has many unique characteristics and advantages with which no other investments can compare, such as its heterogeneity, immobility, and its inherent ability to create wealth for many people over many generations. This is why ‘timing’ is crucial in every real estate purchase. This chapter offers some useful ways to reason with customers and persuade them to buy sooner rather than later.
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Dialogue [6] WHY SHOULD I BUY NOW? I WANT TO WAIT FOR THE PRICES TO DROP SOME MORE. REASON TO BUY: CAN’T GUARANTEE YOU THAT YOU WILL FIND ANOTHER HOUSE YOU LIKE SO MUCH
Customer: Tell me Sam, since you just said that prices are falling, why should I buy now? Agent:
First thing first, sir. Before I answer this question, may I know whether you like the house?
Customer: Yes I do but I think the price a little historic. I seriously don’t mind waiting for a while to get it at lower price. After all, there are going to be so many other choices available. Agent:
This may not be a very wise move especially when you like the house. I cannot guarantee you that you will find another unit which you like so much. Moreover, your logic about property prices might not be very accurate. Historically, we can see that for a sound economy such as Singapore’s, the capital appreciation of real 63
REASONS TO BUY CHAPTER 3 – REASONS ‘NOW’ IS THE BEST TIME TO BUY
estate follows a certain healthy pattern, that is, the ‘new low’ will not be lower than the ‘previous low’ and the ‘new high’ will always be higher than the ‘previous high’. This is especially so for a city state with limited living space and a vibrant economy.
Customer: But I thought there will be much more supply coming on stream from next year onwards? Don’t you think more supply will bring down the prices? Agent:
In theory I will have to say yes. But sir, do you seriously think that all houses are the same? For that matter, do you like each and every property that you have seen so far? I bet the answer is no. Therefore, in theory, higher supply causes the price to go lower when the demand remains constant; but in reality the higher supply of new homes may not occur in more desirable locations, such as here.
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Dialogue [7] HOW LOW CAN HOME PRICES GO? REASON TO BUY: NOBODY WILL SELL CHEAP WHEN THEY ARE ENJOYING SUCH A HIGH RENTAL YIELD
Customer: Tell me Sam, how low do you think the property prices will drop to? Agent: This is always a tough question to answer. But a quick answer will be as low as a high rental yield of five percent with a sitting tenant.
Customer: What do you mean by this? Agent: Assuming you are the owner of a 2-bedroom Jurong East condo unit which is being rented out at a monthly rent of $3,000 or over $3.80 psf. Let say I offer you $500,000 to buy over your unit with the tenancy, would you sell to me?
Customer: No, why should I sell at such a low price? Besides, most of my neighbours are asking for prices between $560,000 and $650,000?
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REASONS TO BUY CHAPTER 4 – WHAT GOES DOWN MUST COME UP
Chapter 4
WHAT GOES DOWN MUST COME UP It is the universal truth that when property prices had gone too high, they will come down; and when the prices had done down too low, they will come back up! Such dynamics form the very basis of the real estate cycle. In this chapter, I would like to discuss the real estate cycle, hence the title ‘What goes down must come up’.
The Natural Order of Ups and Downs
Over the past decade, we have witnessed the Asian Currency Crisis, followed by the Dot.com bust and the September 11 attacks – one shortly after another. All three crises induced the Singapore property market to plunge. However, each time it rebounds with a vengeance and becomes better than before the crises.
Why should this crisis be any different
If we liken this crisis to the Australian forest fire that raged on for two weeks in early February 2009, claiming hundreds of human lives and millions of dollars worth of natural as well as man-made resources, the fire will die
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down, the forest will grow back, and the people will come out of refuge and return to rebuild their community. I am sure the people there are going to look at the positive side and start rebuilding their lives sooner rather than later. By the natural ecological order, the forest ground will now be more fertile and new trees will grow back. The people will become more united in the rebuilding process and a new community will emerge – stronger, tougher and more prepared to cope with future setback. The following imaginary dialogue between an agent and I is intended for readers to understand that the cyclical order of the property market, and regardless of the market situation, there will be buying activities, except that the buying strategy may be somewhat different.
Dialogue [17] WHAT SHOULD I SAY TO CONVINCE THE SELLERS THAT I AM WORKING VERY HARD?
Agent: Sam, the market is so bad now. What should I be saying to my customers? SAM GIAN
First of all, anyone who wants to excel in this real estate brokerage business must not forget 98
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to tell their customers that ‘real estate market moves in cyclical patterns’.
We are now in a ‘down cycle’, but it does not mean that we will not move into the ‘up cycle’ soon. What comes down must go up again. Since you say that the market is ‘slow’ now, I presume you will have more time to speak with your customers for a longer time. Agent: True, I have more time now to speak with them, but I am afraid to call them because they will chase me for buyers. SAM GIAN
Okay, they will chase you results because they are hard pressed themselves given the uncertainties now. Maybe you can tell them how you have been trying to convince buyers to come forward. Have you shown the REASONS TO BUY to your customers?
Agent: Show me how to do it. SAM GIAN
One can build wealth in any real estate market, fast or slow. For example, during a market bullrun where property value appreciates overnight, speculators would move in quickly, grab a few
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properties, mostly at high prices, and re-sell them quickly for even higher prices. This is what we call capital gain – the oldest way to get rich. But not everybody succeed because such a buying strategy is highly speculative, involves high risks and requires a lot of guts. The timing must be right, and when it is executed correctly, the deals can produce obscene profits. This is what we call the ‘high risk high return’ strategy. This strategy is often used during the market boom phase 1 – which means the market is experiencing high sales volume and soaring prices every day.
Agent: But the bull run is over. That is why I am having problems trying to get buyers to come forward. SAM GIAN
It is true that the market condition is different; but it is not true that no buyers are forthcoming, except that they are adopting a different buying strategy now. Let me explain. In a lull market, investors who are risk averse would come in and slowly pick and choose the
1
There will be a discussion on the ‘real estate cycle’ at the Annexe of this chapter.
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right properties with much greater care than the speculators. The risk averse investors do not rush themselves and they hate to be rushed, especially by real estate agents. They do not offer high prices for any property and will never overpay for property. They will negotiate for the lowest price and the most favourable terms, so that they can ‘buy low and sell high’. This is a safer buying strategy which today’s buyers are adopting.
Agent: What is the difference between the two buying strategies? SAM GIAN
The principle behind the ‘buy low sell high’ strategy is still capital gain – the surest way to be wealthy at the end of the day. But it takes longer time, sometimes 20 to 30 years.
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REASONS TO BUY CHAPTER 5 – REASONS TO BUY LEASEHOLD CONDOS
Chapter 5
REASONS TO BUY LEASEHOLD CONDOS In Singapore many people will tell you that it is better to own a freehold property. This is an old real estate assumption that needs to be corrected. The reason they give is because 99-year leasehold properties are less valuable because when the lease period runs out, you will have to return the property to the government. Theoretically, the argument is correct. The lessees of 99year leasehold properties must return the land to the freeholders at the expiry of the lease. But, the end game of every real estate investment, whether the tenure is freehold or leasehold, is ultimately collective sale. No investors will still hold on to the property when it is already 50 years old. The project would have been collective sold by the 40th year. Moreover, the leasehold period can be topped up to the full 99-year tenure after some years. In 2007, we saw leasehold properties being collectively sold for multimillion dollars. In fact, the largest en bloc deal was Farrer Court, a leasehold estate which was sold for $1.3388 billion. 117
REASONS TO BUY CHAPTER 5 – REASONS TO BUY LEASEHOLD CONDOS
In this Chapter, I will explain in details why 99-year leasehold condos are as good as freehold ones, if not better. There will be two detailed case studies to prove, once and for all, that if your investment objective is to make money, why do you care whether the investment vehicle is freehold or leasehold. At the end of the day, everybody will go for collective sale.
Dialogue [20] LEASEHOLD PROPERTIES GIVE YOU AS MUCH CAPITAL GAINS AS FREEHOLD PROPERTIES REASON TO BUY: CAPITAL GAINS ARE ALL THE SAME OVER A PERIOD OF TIME
Customer: I am actually waiting for the launch of the FREEHOLD project nearby. Agent:
Do you intend to buy it for investment or own use?
Customer: I will decide later. Agent:
How important is ‘capital gain’ in your buying decision?
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Customer: Of course, everybody hopes to make money from real estate investments. Agent:
And how long do you expect the investment will take to realise 100% gain in your capital value?
Customer: I expect three to five years after the economy is back on the roll. Agent:
Good, at least you are not expecting to flip it in 3 days and make a 100% gain.
Customer: I am not a speculator. Agent:
I can see that. Would a 100% gain in less than 10 years be a good result for you?
Customer: The shorter the better. Agent:
I have with me some statistics of 99-year leasehold properties that were launched during the previous post-recession periods, such as 1999 and 2002. [Show statistics] Look at the 100% gain they have achieved even after the 2007 bull run. I wouldn’t want
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REASONS TO BUY CHAPTER 5 – REASONS TO BUY LEASEHOLD CONDOS
to show you their transaction prices in 2007 because that would amount to misrepresentation. Water Place
2002 2008
Lowest
Sale Prices Highest
Median
544,390 1,225,000
1,309,740 2,154,180
821,360 1,560,000
Lowest
Sale Prices Highest
Median
130,000 710,000
870,000 1,275,000
605,000 865,000
Lowest
Sale Prices Highest
Median
Emerald Park
1999 2008 Bayshore Park
1999 2008
173,469.38 1,550,000 220,000 2,600,000
550,000 810,000
Customer: But I still prefer a freehold project. Agent:
What are the reasons?
Customer: The value of freehold projects is still better. Agent:
In fact, I have already proven that 99-year leasehold condos, like the freehold ones, can also offer very good capital appreciation in the medium-term of five to 10 years; and provide the capital gains that you are looking for. 120
REASONS TO BUY CHAPTER 5 – REASONS TO BUY LEASEHOLD CONDOS
Moreover, Leasehold Condos are cheaper to acquire; hence offers lower financial risks.
Dialogue [21]
IS IT WORTH THE RISK TO INVEST IN 99-YEAR LEASEHOLD CONDO? REASON TO BUY: RENTAL YIELD FROM LEASEHOLD PROJECTS ARE BETTER BECAUSE OF THE LOWER SALE PRICES
The answer is a resounding ‘Yes’ as rental yield is still attractive at gross yield of over 4% per year. I have done a case study on the rental yield of 99-year leasehold properties and the findings are favourable. I took three examples from the recently completed 99year leasehold condos, and three examples from an old condo and work out the investment yield. The basic assumption in the workings of the investment yield is that the property is ‘80% leverage at an interest factor of $436 for every $100,000 borrowed’.
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REASONS TO BUY CHAPTER 6 – REASONS TO BUY LANDED HOMES
Chapter 6
REASONS TO BUY LANDED HOMES The number of landed property transactions has come down considerably from the final quarter of 2007, after the US subprime mortgage crisis first reared its head. The brief sanity in the property market in general has been replaced by a pervasive sense of apprehension, in stark contrast to the buoyant mood in the first half of 2007. The landed property market hit its peak in May 2007, with a very impressive sale figure of 778 a month – about four times the size of the resale flat transaction of 190 flats in the largest HDB estate in Singapore. But, the buying frenzy lasted only three months and transactions per month trickled down to 191 units by the December 2007.
Dialogue [26] IS THIS A GOOD TIME TO BUY LANDED PROPERTY? REASON TO BUY: QUANTITY IS FINITE OVER THE NEXT FEW YEARS
Customer: Is this a good time to invest in landed
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REASONS TO BUY CHAPTER 6 – REASONS TO BUY LANDED HOMES
property in Singapore? Agent:
My answer to this question is always a resounding YES because ‘God does not make this thing anymore’.
Customer: It’s true. But what about the specific market timing. Will I get a better deal at a cheaper price if I wait for a little while longer? Agent:
I think as far as landed homes are concerned, the specific factors connect to location are very important. For example, the residential district the house is in, such as District 10, 11, 15, 16, 19, 20 etc. The next factor will be the plot size, plot shape and orientation. For land, the plot size is the bigger the better. The shape must be regular, without any sharp angles. A northsouth orientation is preferable. But if it is semi-detached and bigger, you don’t really have any leeway because the house will be exposed to hot sun in more ways than one.
Customer: So, you are saying the factors of location, size, shape and orientation is more important than price itself.
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Agent:
Yes, I don’t think you want a cheap house on a tiny triangular plot far away in a remote corner near a rubbish disposal plant. Where are the comfort, prestige, pride and joy factors?
Customer: Yes, I totally agree with you. But I will be very happy if I am able to own my dream house cheaper? Agent:
Yes, I understand your feeling perfectly. My view is that there are no compelling reasons for landed home prices to go below the 2006 price level. The current prices for landed homes across the country are sustainable, though the number of transactions may come down a shade lower due to the uncertainties in the near term.
Dialogue [27] WHAT IS THE PROSPECT OF LANDED HOME PRICES? REASON TO BUY: LANDED HOME PRICES LESS LIKELY TO FALL DUE TO LACK OF SPECULATION
Customer: Am I being unrealistic to expect the same price trend in the high-end and mid-market condo 155
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segments in 2008 in the landed property segment? Agent:
I am afraid I have to say that you will be considered unrealistic to expect the prices of landed homes to fall drastically.
Customer: On what basis do you say that? Agent:
Landed homes are different cattle of fish, so to speak. They have the scarce resources, i.e. land, to underpin their value. The profile of landed property owners is also different from condos and apartments.
Customer: How different? Agent:
First of all, there are fewer speculators to begin with. Landed homes generally cost higher prices and require higher upfront cash payment in the purchase. As such, they are less vulnerable to speculative buying, though there were a number of isolated cases of ‘flipping’ of bungalows being spotted last year.
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In fact, according to the news reports, foreign investors had contributed significantly to the speculative bubble in 2007. Fortunately, foreigners, including permanent residents and foreigners not residing in Singapore, have to obtain special approval to own a landed property for their own use. They can only own one landed property and are not allowed to rent out the property under any circumstances. Due to the stability in buying behaviours, there should not be much fluctuation (e.g. fire sales from speculators using the Deferred Payment Scheme to book their condo units) in landed home prices from this point on.
Customer: What other factors to underpin landed home prices?
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Chapter 7
REASONS TO BUY SINGAPORE REAL ESTATE – WHEN YOU CAN BUY US
Slumping United States real estate prices are proving to be irresistible to many overseas investors, such as the newly rich from mainland China, who are planning to snap up cheap US real estate in a big way like the Japanese did in the 1980s. There is a growing number of Chinese who are joining tours organised especially for investors who want to take advantage of slumping US real estate prices in large cities like New York and Los Angeles. Though the super-rich Chinese have been buying property in the US for some years, such property tours are only recent phenomena. So far, more than 100 Chinese buyers have joined such tours since late 2008. It is very easy for the Chinese to justify the risks of taking the plunge now as property prices in the US are still melting. Some are purely looking at the knock-down prices of US real estate, while others are having longer term plans, such as migrating to the US or sending their children to colleges there.
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China had the world's fifth-largest population of millionaires in 2008 with 391,000 high net-worth individuals. And high-level incomes in China continue to rise despite the apparent economic slowdown. This has prompted many to ask: ‘Would Singapore real estate be ignored once the United States are on the road of recovery?’ In other words, why does anybody want to buy Singapore real estate when they can buy US?
Dialogue [30] WHY BUY SINGAPORE REAL ESTATE – WHEN YOU CAN BUY U.S? REASON TO BUY: SINGAPORE REMAINS A CLEAN, GREEN, AND SAFE CITY – IDEAL TO RAISE FAMILIES
Customer: Will foreign investor who used to invest in Singapore real estate turn to the United States since the real estate prices there are now at rock bottom? Agent:
In theory, real estate prices in the US are really at rock bottom. But price is not the only decider in real estate investment. There are many other practical considerations.
Customer: What are the considerations?
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Agent:
The investors must have a clear buying strategy which includes the specific neighbourhood to buy into, the costs of fixing the run-down property, the recurring costs, managing the property, and other legal costs. It is not as easy as picking up the phone and ordering a piece of real estate.
Customer: But how is the investment potential compared to Singapore’s? Agent:
The US is a vast country and not every city will enjoy an equal chance of smooth recovery. Public administration services, public health environment in the cities, poor transportation system, and high crime rate are the major stumbling blocks for overseas investors to buy in bulk. As a consequence to the financial tsunami, the public administration services in many US cities are virtually bankrupt. I don’t think it is a good idea to buy any US real estate at this moment.
Customer: What is your reservation?
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Agent:
Many of the two over millions vacant houses for sale are in serious disrepairs. My concern is the high costs of maintaining such properties in a country now plagued by insolvent local governments. Moreover, there are still a lot of uncertainties in the recovery process.
Customer: What about Singapore real estate? Do you think the foreign investors will return to invest in Singapore? Agent:
Yes, they will return to Singapore. Like I said earlier, price is not the only consideration. Whether the investors feel good or not when they arrive in Singapore is a critical factor. Singapore is renowned for its Clean and Green image and the very efficient public administration. The entire city is still spanking new. Many foreigners are pleasantly surprised to see many trees lining all the city streets in Singapore.
Customer: How does a green image help our real
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estate? Agent:
I was only talking about the first impression. I think the main considerations for foreign investors to come back to Singapore are our STABILITY and SAFETY. Their uppermost concern will be whether they are able to unlock profit easily and safely. And in this respect, no other countries in the world are as predictable as Singapore. Singapore’s public administration efficiency is world renowned. I think given only one choice, many investors will pick Singapore over any other countries.
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CONCLUSION
At the end of the day, pure logic does not compel customers to buy. Emotions do. Logic is the bridesmaid. It functions as an excuse to cover up customers’ emotions. This is because somehow people perceive that a ‘decision from the head’ is better than ‘a choice from the heart’; and they believe that others will respect them more if they are perceived to be using their head, not their heart. But real estate salespersons must not be fooled into believing that the human brain will one day evolve into a logical thinking machine. No, emotions will continue to rule till the end of time. As far as real estate brokerage is concerned, without emotions, no marketing strategies will work. People don’t buy house just because they need a shelter to protect themselves from the elements; but also because they need a property to match their social status and individual personality. And ‘status’ and ‘personality’ are hugely emotional.
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Why would a family of four members need to live in a 5,000 sq ft house? Because it brings self-esteem, pride, satisfaction, joy to the family. These are all human emotions. But when they are choosing the house, they will try very hard to find some logical reasons to justify the buying decision, such as the traffic condition, the distance between work place and home, the investment yield, etc. All of us are driven by emotions every single minute of the day – the colours that we choose (a choice is emotional) for our curtains, our cars and our apparels are all emotional outcome. What we drink and eat and are predominantly choices that are an emotional outcome as well. When it comes to buying a house for our loved ones (emotion), the entire process is very emotional. Since buying a house is very emotional, naturally our customers will seek the grandest logical reasons to justify the choice.
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MORE LOGICAL REASONS NEEDED TO BOOST SALES DURING RECESSION
In a recession when the buyers are uncertain (emotion) of their financial future, choice becomes tougher because they need more logical reasons to reassure (emotion) themselves that they are not taking unreasonable risks (the assessment of which is ruled by emotions as well). I believe the buyers become apprehensive (emotion) because of the confusing (emotion) environment and they need someone close by to encourage (emotion) them and revalidate (emotion) their choice of a house. Once the emotional demand is satisfied, the customers now need a set of larger logical reasons to justify the largest emotional moment in life, i.e. making the purchase. TWEAK THE EMOTIONAL PITCH TO INCLUDE MORE LOGIC
It is my proposition in this book that while the current set of real estate agents has already mastered the art of emotional selling, they have not been successful in tweaking the emotional sales pitch to include more logical reasons to suit the current economic climate.
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In a recession, you can’t really fault the buyers for wanting more benefits, such as lower prices, better terms, more gifts, more concessions (e.g. free maintenance fees for 3 years), lucky draws etc to compensate for their courage. They feel that there should be reciprocity, in the sense that ‘if I support you during bad times and you should give me more goodies. So, unconsciously they expect higher intensity in the feel good factors – more savings, more joys, more safety, more features, more assurances, more pampering, and more logical reasons. BRING MORE TO BEAR DURING BAD TIMES
But did the prospective buyers receive more such feelgood factors in 2008? No, the same old service package, the same old service attitude, and the same old sales pitch that were designed for a booming market were still being thrust upon the customers in such a different market situation. There were no new surprises or fresh perspectives in the sales pitch. There were no preparations whatsoever to deal with a wider range of buying emotions that now include the need for reassurance, attentiveness, and very importantly, more logical explanations to back up buyers’ buying impulse. While the salespersons’ skills stagnated on the one hand, the fear factors in the real world
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intensified, on the other. The end result is the worst sales performance in a decade. A NEW SELLING PROPOSITION – GIVE THE CUSTOMERS MORE REASONS TO BUY
From now on, the new selling proposition should include intensifying the entire range of buying emotions and backing it up with more logical reasoning. That means, the salespersons must continue to tap into the buyer’s emotions that motivate them, including emotions such as ‘pride of ownership’, ‘confidence’, ‘selfesteem’, ‘prestige’, ‘joy’, ‘a new found status’, ‘improvement’, ‘happiness’ ‘self-image’, ‘victory’ and in the meantime, back up such emotions with solid reasons to buy.
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We cannot pretend that the current recession did not take place. We will lose our credibility, or worse, be considered by our prospects as ‘losing touch’ with the market reality, if we ever say that there is no recession. Quite the contrary, we have to deal with the current topic of recession and provide some fresh perspectives and optimism, such as channelling their attention to the opportunities that present themselves, rather than harping on the setbacks. In this context, it is correct to dress well and speak confidently. But regardless of the market condition, it is wrong to pretend to be a person ‘who you are not’. Do not pretend to be wealthier than you really are. It is okay if your customers thought that you had $20 million in your savings account. But it will be silly if you try to create a false impression that you ‘have already made it in real estate sales’, if you still need the paycheques. The real estate brokerage business requires some honest enterprise and labour. The work involves a lot of down-to-earth hard works and personal sacrifices of family time and personal hobbies. It is no instant ticket to richness.
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