How to Identify a Value Buy – Cashew Heights Case Study

Hello again, dear readers!

After the last two articles on how to market your property in a challenging market and case studies on how I achieved record-breaking prices for my seller clients in 2014, we finally have something for readers on the buy side! 

If you’ve been actively house hunting, you are probably familiar with and perhaps rather jaded by the marketing terms, “Value Buy!”, “Star Buy!” and its variations – these catchphrases have been overused and misused far too often. So today, I’d like to demonstrate what a true value buy should look like.

Value Buy Doesn’t Have To Mean Below-Valuation

Firstly, a sound investment doesn’t have to mean buying at a steep discount. (Although this is everybody’s ideal! ) Most buyers (and their agents) seem to think that simply checking past transacted prices for the particular development and then slashing the price by oh, say 10-20%, is The Way to getting a “value buy”.

That, my friend, is more likely to get you a rejected offer and disappointment. Sellers have access to the very same transaction data, so barring severe cashflow problems, a haunted house, or insanity, they’re unlikely to agree to getting ripped off.

A more sensible, realistic approach is to seek out properties that are undervalued, with good latent potential. This definitely takes more brain work and research, but less is left to luck and chance. So let’s get cracking!

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Cashew Heights

Nothing like a live example to illustrate a concept, so let me use an exclusive listing I have at Cashew Heights as a case study. Based on my price of $905psf for a mid-floor 1,658sft unit, I consider this a stellar example of a “Value Buy”, for reasons I shall subsequently explain. Continue reading “How to Identify a Value Buy – Cashew Heights Case Study”

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Selling in today’s market: 2014 Record Breaker Case Reviews

Happy New Year to all readers! Am typing this on my phone while holidaying in Japan, so please forgive me for any typos and editing errors.

As promised in my last post, I will be sharing 3 case studies of record breaker sales I personally conducted in 2014.

Twin Regency
First up, a 980 square foot 2-bedroom apartment I marketed in late April, which subsequently sold in June.

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The Challenge: Third floor unit facing a noisy children’s water play area. All units sold in recent times had been high floor units. Banks had given me valuations of between $1.7-1.78M. Also, many buyers were awaiting release of info on Keppel Land’s Highline Residences at the time. Thus despite plenty of enquiries and frequent viewings, I received only two offers which were below my client’s target price.

The feedback was that they found my asking price too high for a low floor apartment. We also faced a lot of competition from cheaper leasehold projects in the vicinity, including a huge upcoming supply of new units in district 3. We needed to sell within a fixed timeline and at a good price if my clients were to upgrade to a larger home for their new family.

What helped seal the deal:

A relationship of trust between client and myself
Firstly, they entrusted me with an exclusive sale, of which I’ve explained in my previous post, is one of the first things a seller should do if keen to secure the best possible price for their property.

Secondly, they were willing to accept my advice and feedback and we completed some minor repairs in the apartment prior to viewings being conducted.

I recall viewing a bargain apartment with a buyer client previously, where we observed leakage stains on the ceiling. While the owner and his agent assured us that the underlying problem had been resolved, unfortunately the first impression had already been cast. Spending a little money to fix minor things like cracks , a loose tile, or stains on the walls can go a long way towards securing the most favorable price for your apartment.

Thirdly, besides tucking away personal items like family photos and keeping the property neat and tidy for viewings, the owners were able to pass me a set of keys to conduct viewings with just 2-3 hours notice. This turned out to be a critical factor, as the eventual buyers were in fact in town for a very brief window of time, and the second viewing was requested at the last minute before the cheque was secured.

Running a Successful Auction Sale
The reason why we often say sales is an art – different methods are applicable to different situations. In this case, I had built up sufficient genuine interest in the property, however due to the wait-and-see buyers’ market we were in, offers were either too low, or just not coming in.

I realized this after the first few weeks of marketing, and after discussion with my clients, we set a date for a possible auction sale. I began to follow up with both cobroke agents and direct buyers, informing them that if the seller’s baseline was not met, we would be conducting an auction at the end of June.

This gave prospective buyers sufficient time to mull over the best possible price they were willing to pay for the apartment. Under the strict bank loan rule these days, having sufficient financing is a very real concern, and buyers are unlikely to offer before they can ascertain whether their bank will finance their purchase.

I know, I know… This contravenes common salesperson knowledge that you should avoid giving buyers the chance to view alternatives or get cold feet. Hard-selling tactics are most commonly utilized by agents who care more about their bottom line than their clients’ interests, since a closed case ensures money in their pocket, versus holding out for a better offer. And it’s definitely a given when marketing an open (non-exclusive) listing – time is of essence lest the competing agents close the deal before one is able to secure an offer.

As a result of consistently following up with viewers and building up interest to launch an auction-style sale , I was able to secure a price that exceeded my clients’ expectations without a need for ruthless hard-selling.

La Maison
Next, a 1,292 square foot three-bedroom apartment on the fourth floor that I originally listed for rent, and over 3 weeks of sales viewings sold for 8.5% above the last high.

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The Challenge:
This 24-unit apartment block has a great location close to Novena MRT station, but was poorly maintained by the management. Despite the tiny grounds and considerable maintenance fees, the pool decking was rotten and the exterior walls had not been repainted in close to fifteen years.

Of the two layouts available for standard units, the unit I was marketing had the less-preferred one. I faced several objections to the triangular-shaped master bedroom and the development’s proximity to the communicable disease centre and tuberculosis control unit.

Properties like La Maison often lag in performance, as the low frequency of transactions means the price never gets to run up much. This can be observed from the past performance – of the 16 resale transactions that have taken place since TOP, 5 were loss-making. My clients made a respectable 5.6% per annum gain, whereas almost seventy percent of La Maison sellers in the past made losses, or gains below 2% per annum.

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Here’s how we did it

Feeding off feedback
The common misconception is that all successful salespersons have a gift of the gab, or so-called “sales talk”, but the truth is, we gain more sales ammunition from listening, both to prospective buyers and our sellers.

It can sometimes be disheartening to keep hearing negative feedback and objections to properties in our portfolio, however it’s critical to take all feedback in a positive light.

I make it a point to try and gather feedback from all viewers. Constructive criticism can help in conversations with your seller clients – not just what agents commonly term as “staging”, or trying to get sellers to soften on their pricing, but in gaining an in-depth understanding of the of the property as a home too.

For example, in this instance when I updated my clients on viewers’ feedback and objections, they shared with me many of their personal experiences living in the apartment -how they had in fact started out with renting an apartment in the project, enjoying it so much that they subsequently sourced for a unit to purchase, taking a year before finally securing a unit at this rarely available development. This exchange gave me many valuable nuggets of info to present both the tangible and intangible aspects that made the property a great home.

Open House Effect
This is again easier for an exclusive marketing agent to carry out. Open listers would fear requestors enquiring with other listers if they insist on viewers coming down on a specific open house date rather than catering to the prospect’s preferred timeslot.

I held open house viewings over two weekends, with between 4-6 viewers on both dates. This definitely went some way towards creating the right momentum needed for a record breaking price.

Oftentimes I’ve found with ad hoc viewings, the offers tend to be too spaced out in time, which often results in offers stagnating. “Last offer $2M? When was that? Oh, 3 weeks ago? Can I try $2M again?”

Buyers who view during an open house are already given mental preparation that if they view and like the property, they may need to make an offer shortly after.

And true enough, we clocked in a sale $70K above the last record for a similar unit.

Holt Residences

And finally my third 2014 case study that I’d like to share is for a 2,067 square foot 4-bedroom apartment that I secured in September and sold a month later.

The Challenge:This exclusive sale listing had in fact originally begun as a rental listing, but the apartment had gone vacant for close to 3 months, with potential rental having dropped some 25% from what my clients were previously earning.

Having experienced the poor level of interest from prospective tenants, with viewing enquiries being infrequent despite being smack in the midst of the hot leasing period from June to August, and having had negative feedback from tenants on the dated, circa 2000 original interiors and the small grounds with limited facilities and tiny pool, I suggested that we simultaneously market the property for sale.

The project had been experiencing very flat performance since suffering a severe drop in prices back in 2008-09. It made sense to cash out if the the right price was achieved given the lackluster rental yields and limited upside in the short-medium term.

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Recipe for Success

Creating Demand-side Competition
How do you create competition for your property in a market where buyers and tenants are spoilt for choice? Pit tenants against buyers.

We indeed landed up with that situation for this sale, when a letter of offer for rental came in just days before the prospective buyer was due to view. My clients were anxious not to let the prospective tenant go in case the sale failed to materialize, but thankfully the buyer was also serious about snapping up the unit vacant.

Buck the Trend
If you want above-average results, you need to steer away from what the crowd of average joes are doing.

Buyers who buy when others are staying clear of the market have far stronger bargaining power than when everyone is rushing back into the market. Likewise when it comes to selling.

Whilst Holt Residences is a small development, all units aside from the 4 penthouse units have similar layouts. This made it challenging when it came to sourcing for tenants as there were at least 3-4 of the same layout available for rent at any one time.

Units for sale, on the other hand, were in limited supply. Our negotiation power was thus bolstered, as the only other available unit for sale was on a low-floor. The proof is in the pudding- we were able to sell at $3.4M, despite most banks pegging valuation at $3.1-3.2M.

Parting shots
As you can see from the various marketing strategies I employed, it does not require rocket science nor a devious plot to sell well, even in a challenging market. If you or your clients are looking to upgrade homes or rebalance portfolio within the next 5 years, I recommend selling now before the bulk of new supply comes online.

Selling your home in a buyers’ market – The first 3 things you should do

Hello dear readers! It’s been a busy and fruitful year, and as a result, the blog has sadly taken a back seat! But now that the holiday season is upon us, it’s a great time to reflect upon the wealth of experiences notched in 2014!

One phenomena I’d like to discuss today is what I’d term ” The Upgrader’s Dilemma”- you already own a home, but want to shift to a bigger place and/or closer to good schools for the kids’ sake etc. Upgrading makes sense in a soft market, since you can buy your next bigger, better home at more attractive discounts these days (and in the coming months), but the dilemma is – how do you fetch a good price for your current home in a such a “slow” market?

Not sure if I’ll regret sharing these little “secrets”, but to me they’re fairly common sense, and often times it’s not just a matter of knowing but putting your awareness into practice.

Some tips are targeted at home owners, while others are more for fellow agents, so bear in mind some notes may be less relevant to your personal situation. Now, let’s get on with it! Continue reading “Selling your home in a buyers’ market – The first 3 things you should do”

Affordable homes in Singapore? Looking beyond cooling measures.

The 8th round of property cooling measures announced by MAS on 28th June is intended to be a long-term one, put in place not just to tackle the current market situation, but to maintain prudent credit controls in the years to come.

I think at this point it would be timely to remind ourselves why Singapore’s government is so fixated on avoiding a property bubble. Sure, housing affordability is always of certain political significance in any country, but I struggle to think of any other nation where the government is quite so heavily involved in the property market. Having chosen to take on the mantle of providing public housing to over 80% of the population for all these decades and being so closely involved in the control of the private housing market too, it is unsurprising that the electorate considers the health of the housing market a key element when assessing their overall satisfaction with the ruling party’s performance.

As Minister Khaw has pointed out previously, he faces the delicate task of balancing the public’s call for affordable housing, with the need to maintain stable property prices to protect the interests of many Singaporeans whose homes and real estate holdings represent the bulk of their total net assets. Thus in the government’s efforts to provide affordable public housing, they must at the same time avoid a property crash at all costs.

Bending over backward to balance
Bending over backwards to balance

The main focus thus far has been on beefing up rules and regulations: hiking stamp duties imposed on buyers and sellers, and reducing the availability of financing by lowering loan-to-value ceilings, restricting loan tenures, and general tightening of credit controls. But as any honest draftsman or legislator would be able to tell you, it is near impossible to draft a completely watertight book of rules without becoming unwieldy and impractical to implement. And in any case, is there substantive proof that heavy regulatory control is better at maintaining a stable market than free market forces?

An increasingly complex, convoluted series of rules and regulations governing the property market certainly poses a challenge for layperson consumers seeking to purchase or deal with their property holdings. I believe it would be helpful to take a look at trends that have been taking place both in Singapore and other cities for alternative means of coping with rising home prices. Continue reading “Affordable homes in Singapore? Looking beyond cooling measures.”

Hot off the Press: MAS Introduces Debt Servicing Framework for Property Loans

MAS has just announced the introduction of a debt servicing ratio framework, with effect from tomorrow, 29 June 2013.

Whilst the cap of 60% on debt servicing ratios (monthly debt obligations versus monthly income) is not something drastically different from banks’ current practices, my focus would be the impact of the following restrictions:-

  • borrowers named on a property loan must now also be mortgagors (ie. co-owners) of the residential property for which the loan is taken;
  • “guarantors” who are standing guarantee for borrowers otherwise assessed by the bank at the point of application for the housing loan not to meet the TDSR threshold for a property loan are to be brought in as co-borrowers (and therefore, must also become co-owners); and
  • in the case of joint borrowers, that banks use the income-weighted average age of borrowers (based on borrowers’ gross monthly income) when applying the rules on loan tenure (i.e. lower LTV-ceilings for loan tenures exceeding 30 years or extending past a borrower’s 65th birthday ). Continue reading “Hot off the Press: MAS Introduces Debt Servicing Framework for Property Loans”

The all-monies mortgage: Interest rate hikes are not the only risk

If you own private property in Singapore, it’s highly likely that you took up a mortgage loan when you first purchased it. Given the widespread use of mortgage loans here, I find it rather alarming that the vast majority of people who have taken up mortgages in the past are unclear on even the basic terminology used in mortgage loans.

A common mistake laypersons make is using the terms “mortgagor” and “borrower” interchangeably. In simple situations, where for example a home is bought by a single person and the loan is similarly taken in single name, the borrower and mortgagor would indeed be the same person. However, the term “mortgagor” specifically relates to an owner of the property that is being mortgaged, whereas “borrower” refers to any parties that are contracting with the lender bank (the mortgagee) to pay back the mortgage loan granted. By necessity, all owners of a mortgaged property are required to contract as borrowers, thus all mortgagors are borrowers, but not all borrowers are mortgagors.

The distinction between the two becomes relevant when non-owner borrowers are included as co-borrowers to support loan applications. Due to the rise in property prices and the various cooling measures introduced, some property purchasers have resorted to adding non-owner parties as co-borrowers, or buying properties together with parties who are either younger in age or able to provide stronger income documents (or both) in order to obtain larger loans, or loans of longer tenure. Continue reading “The all-monies mortgage: Interest rate hikes are not the only risk”

Singapore Luxury Property: A Dormant Market Worth Exploring

With personal income tax capped at a modest 20% and no capital-gains tax, it’s unsurprising that Singapore has become a magnet for wealth around the region. In a recent survey of 1,000 mobile millionaires, Singapore was deemed the most desirable place to call home in Asia – billionaires Richard Chandler and Eduardo Saverin are amongst the notable individuals who have chosen Singapore as their home-away-from-home.

According to Boston Consulting Group’s 2012 Global Wealth Report, Singapore has the world’s highest density of millionaire households at 17.1% or 188,000 households. At the same time, its popularity as an offshore banking hub is also growing in leaps and bounds, with wealth under management set to overtake Switzerland by 2020. Switzerland currently manages some $2.8trillion in assets, whereas Singapore has seen assets under management grow from just $50billion in 2000, to $550billion by end-2011.

It is somewhat counter-intuitive then that Singapore’s luxury property market has performed dismally in recent years, particularly when the property market as a whole has had a spectacular run. One could blame it all on the whopping 15% additional buyer’s stamp duty payable by foreigners, but ABSD was initially introduced only in December 2011 and raised only recently in January 2013, whereas the luxury market has been slow since the financial crisis of 2008, never recovering its shine unlike the mass-market sector which experienced a rapid rebound beyond previous highs. Sales of non-landed homes above S$5M screeched to a halt between October 2008 to March 2009, and barely hit 400 transactions in the whole of 2012. In 2007, there were more than triple that number of transactions, at a time when there was a lot less money and a lot more exciting alternative investment options competing for a share of the pie.

The Marq by SC Global
The Marq by SC Global
The Ritz-Carlton Residences
The Ritz-Carlton Residences

Continue reading “Singapore Luxury Property: A Dormant Market Worth Exploring”

Stratum – First Impressions

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Let me start by stating upfront that my agency SLP is one of the joint marketing agents for this project, thus it would be improper for me to voice overly critical views on Stratum. Happily for me, after studying the marketing information provided to agents and conducted my own independent research, I have to say I’m suitably impressed and feel I’m able air my opinions here without fear of offending the developers. As I believe there’s sufficient marketing material available to readers, I shall be sharing my own personal viewpoints here, so excuse the semi-casual tone of this piece.

When assessing a real estate target, my usual practice is to start with rental yields as leading indicators for future price movement. I was heartened to see that based on 2012 Q4 rental data, projects around the area like Livia and Ris Grandeur both enjoyed a healthy 3.9%p.a. gross yield.

Bearing in mind that there are several residential projects underway, one would be concerned about new supplies putting downward pressure on the rental yields. However, my sense is that this is a neighbourhood with relatively high owner-occupancy rates, thus the supply of units available for rent should form a low percentage of the total number of units coming online over the next few years.

The numbers appear to support my hypothesis. Thanks to the good folks at squarefoot.com.sg, I was able to determine that there were a total of 43 rental contracts concluded at Ris Grandeur in the year 2012. Assuming that most units are leased for 2-year periods, and that the average number of rentals concluded each year is fairly stable, I estimate that roughly 86 or so units at the 453-unit Ris Grandeur are likely to be investor units, a low 20% of the total number of homes there. And of course, with the Additional Buyers Stamp Duty introduced since 7 December 2011 and further increased on 11 January 2013, the percentage of investor owners of upcoming projects in the vicinity is likely to remain low. I don’t expect rentals to be too badly affected by the supplies of new units coming online over the next few years, as the bulk are being bought by end-users. Continue reading “Stratum – First Impressions”

Beware the Waiting Game: Some Points to Ponder While You Wait.

dreamhome
Market naysayers claim that cheap financing has resulted in hot money, which has in turn created an unsustainable property bubble. While I constantly remind young, first-time home buyers not to overstretch their budgets by projecting affordability on the basis on today’s abnormally low interest rates, the continued upward march of property prices here was certainly not due to low interest rates alone. In any case, with the various phases of loan-to-value and loan tenure restrictions introduced since February 2010, the capacity for interest rates to create heat in the property investment market has been brought down to a minimum. (After the latest cooling measures in January 2013, the maximum loan-to-value in certain situations is a mere 20%.)

And so, when a property agent friend recently asked me for my opinion on whether she should advise her home-buyer client to “wait for property prices to drop”, I responded with a question in kind, “how long can she wait?” If you ask me for my honest opinion, today’s market is indeed a challenging one for buyers seeking an investment unit in the residential sector, and it takes a sharp eye to spot a gem worth surmounting the ABSD payable(there ARE such gems out there, I can personally vouch for that!). However, for those without a home to their names hoping to eventually get out of the rental cycle, I silently worry when they confide that they are waiting for prices to drop. (I stay silent in such cases, as my policy is never to give unsolicited advice, the opinions shared on this blog are for you to consider only if you choose to.)

Continue reading “Beware the Waiting Game: Some Points to Ponder While You Wait.”

Investing in Property: Property Shares

Now that the government has clamped down on buying and selling of property, perhaps it is time to look at other ways you can invest in property. One of these ways is to buy shares of companies that deal with property, whether as developer, contractor or owner-manager. Some such counters are Capitaland (developer), Ho Bee (developer), Wee Hur (developer, contractor), Suntec REIT (owner-manager).

Continue reading “Investing in Property: Property Shares”