Category: Miscellaneous

What do rising interest rates really mean for Singapore’s housing market?

Posted on by Natasha Goh

Previously, mainstream media repeatedly pointed to low interest rates as a key factor for the bullish property market.  Now with the US Fed’s focus on combating record high inflation taking centre stage for all market watchers, local media has shifted to blaring high alert on rising interest rates and the strain they will purportedly cause to our housing market. But is there really such cause for alarm?

There’s no denying that interest rates influence the real estate market, and indeed you can see several global real estate markets now beginning to falter in the face of rising rates. However, my personal opinion is that its role in the case of Singapore’s market has been far overestimated – failing to consider the many measures in place here and Singapore’s natural market landscape that help ensure financial prudence, make overleverage impossible, and also provide safeguards in case of economic turbulence. Many of these measures and conditions have been part of Singapore’s market for so long that we take them for granted, but collectively they ensure a property market that is more resilient than most.

 I will start by running through our home loan interest situation, and then go on to explain how Singapore’s world-renowned mandatory social security savings scheme, alongside our multiple tiers of cooling measures calibrated over the past couple decades, have helped establish a more robust real estate market.

This might seem too obvious to state, but somehow it seems to be overlooked in recent news on rising interest rates – there is almost always a premium for fixed rates over floating rates, and it’s usually widest when market is expecting rates to rise, ie right about now. Banks are profit-seeking entities, not charitable organisations – they grant loans in order to generate income, and also need to manage their risk exposure. Whilst news headlines seek to capture eyeballs with the shock-value of say, UOB’s 3.08%pa 3-year fixed rate package, think about what this really means. When a bank is willing to offer 3.08%pa fixed for 3 years today, it’s unlikely that they’re expecting floating rates to hit much higher than 3.08% (if at all) for a protracted period of time during those 3 years. In the meantime, their corresponding floating rate package is currently still around 1.8%pa, being 3M Sora plus 0.8% pa – and this is after the Feds have already imposed three rounds of hikes totalling 1.5 percentage points.

The other thing is this – these fixed rates are offered to new borrowers and those seeking re-financing. How do you think these new packages affect current home owners and would-be sellers? It really makes me laugh when some hopefuls postulate that property prices will drop with “interest rates so high now!” I’ll give you my personal situation as an example: I re-financed my home loan on a 2-year fixed rate of 1.1%pa around end 2021. If I were to sell now, I’d naturally need a replacement home – a choice between paying current high rental, or getting a pricier home on a higher interest rate. If I wish to opt for a fixed rate loan again, it will be at almost 2%pa more than what I will otherwise continue to enjoy till late 2023. If anything, we’re more likely to see a further reduction in resale supplies than a rush of desperate sellers in this scenario.

But how about home owners who are on floating packages, when variable interest rates start hitting around 3%pa rates, won’t these owners feel the heat? Coupled with the economic turmoil, when employees start getting retrenched, how will they keep up on home loan repayments? These figures from Singapore Statistics may surprise you:

Average Personal Consumption Expenditure to Personal Disposable Income Ratio for Select Nations

The corollary of this is of course, that Singapore has higher personal savings rates than most notable developed nations, with the exception of China. In nominal terms, Singapore’s annual personal savings hit $106 billion in 2020, with $261 billion in personal disposable income for the same time period.

Singapore’s impressive savings rate is further bolstered by our national social security savings scheme otherwise known as CPF (Central Provident Board). For the benefit of overseas readers, let me briefly explain. All Singaporean and PR employees below the age of 55 contribute 20% of their wage whilst their employers contribute an additional 17% towards this mandatory enhanced-interest savings scheme, the contribution rate is reduced at various statutorily determined ages after 55. Contributing members may use their CPF funds for certain permitted uses such as property purchases, approved investment schemes and certain medical fees, but are otherwise not allowed to cash out these funds until after the clearing the requisite retirement age.

According to CPF’s website, $1.6B of CPF monies was withdrawn for property ownership in Q1 of 2022. Comparatively, $2B was withdrawn for retirement and $1B for healthcare purposes. Contributions and total interest earned for 2021 amounted to $13.7B and $18.3B respectively. Total CPF balances as at March 2022 stood at $519B. CPF Trends Report for November 2021 stated that about 800,000 members actively use CPF to pay their housing instalments, with 80% of those below the age of 50 having at least 6 months or more home loan instalments set aside in their CPF accounts. Given those actively using CPF for home repayments form just under 20% of all 4.2M CPF members, I believe we can safely presume that many home owners in Singapore would have sufficient CPF funds to fall back on in the event that they find themselves unable to repay their home loans with full cash. That’s a formidable safety net against escalating mortgage interest right there – if bank loan interest exceeds the 2.5%pa their monies would earn sitting in their CPF account, then it becomes more favourable to use CPF to either partially repay their mortgage loan to reduce their debt obligations, or simply meet their usual monthly instalments without the need for cash output.

Now let’s consider investor owners – wouldn’t they be considerably more interest-rate sensitive and moved to sell in the face of rising interest rates? Thanks to Singapore’s multiple rounds of cooling measures, any speculator participation and risky market leverage has been reduced tremendously.

One regularly invoked form of cooling measure has been the tightening of loan-to-value (LTV) – a total of six times since the first phase in February 2010 reduced maximum LTV from 90% down to 80%. In our most recent LTV tightening in July 2018, maximum LTV has been further reduced to 75% (or 55% if loan tenure is more than 30 years or extends past age 65) for first home loan, 45% (or 25%) for second home loan, and 35% (or 15%) for 3rd housing loan; loans for institutional borrowers was reduced to a mere 15% LTV. With LTVs of 45% or less for investment borrowers, rising interest rates do not have the same level of sting as in markets with looser credit.

Table of Housing Loan Data. Source: MAS.gov.sg

If you look at MAS’ Housing Loan Data, you can see from the previous market peak of Q3 2013, outstanding home loan growth has come primarily from owner-occupied properties, with outstanding loans for investment properties actually lower in Q3 2021 than 8 years prior. For new home loans granted, the shift is naturally more dramatic, with own-stay properties going from 74% to 83% of all new home loans. With investment units being a lot less leveraged, investment property loans forming a smaller proportion of total home loans, bolstered by a rental market strongly favouring landlords over tenants for the short to midterm, it’s hard to presume that rising interest rates will hurt investment sellers in a way that would cause a dramatic price fall as what we’ve seen on other international markets.

A common mistake is reading the headlines on mortgage interest potentially doubling, and then imagining monthly instalments doubling too – your monthly instalments are part interest-payment, part principal repayment, so it’s not a direct multiplier. A 30-year mortgage of $1M will be $3,451/mth at 1.5%pa, but $4,216/mth if interest doubles to 3%pa, and since a home owner aged 35 or younger would have needed supporting income of at minimally $8500/mth and a downpayment of at least $333K, a hike of $765/mth shouldn’t be too onerous. As mentioned previously, if cash happens to be tight, it’s still likely that his or her CPF balances should be sufficient to lessen the cash burden.

Furthermore, rentals have increased over the past couple years and show little signs of abating in the near to mid-term. Tenancies here are typically signed for 2-year contracts, so the leases signed today should provide a good cushion for landlords to stomach the higher interest rates. As you can see from the charts below, rentals have generally come up about 20% over the past 3 years. And coincidentally, if you look at the figures used to illustrate the case for a $1M, 30-year mortgage, the doubling of mortgage interest would result in a monthly instalment that rises by approximately 22% (from $3,451/mth to $4,216/mth.) So indeed, investor owners shouldn’t be getting overly anxious about a rise in interest.

Rental Data May 2019 – May 2022. Source: SRI Data Research, URA.

You would think that after the subprime crisis of June 2007, US would be a lot stricter with home financing, but I was shocked to learn that it is widely possible to obtain mortgage loans of up to 95% LTV, although loans within 80% LTV generally enjoy better terms. Online research into the US loan approval process also turned up a disturbing number of ads promising to “improve your credit score with these simple steps!” or similar. There’s an article entitled “How to Get a Mortgage with Bad Credit” on Forbes.com that details how you can get an FHA loan with a credit score of at least 580 and put down as little as 3.5%! (Credit scores go up to 850, it seems that scores below 600 would put borrowers in the bottom 5% of homebuyers.) And FHA loans are still not the loosest home loan available in the US, there’s also the very forgiving VA home loans which allow service personnel, veterans and surviving spouses access to financing with little to no down payment (According to military.com, the Department of Veteran Affairs backed a record 1.44M VA home loans in 2021, so it’s by no means a negligible player in the US property market.) With this in view, it’s understandable that those in the US would equate low interest rates with fast, easy cash – and rising interest rates would pose a serious threat to how well their market will hold out.

Contrast this with Singapore, where you must put down a minimum of 5% cash (not CPF) on your first home loan, regardless how pristine your credit history is, and maximum LTV dictates down payments of 25% or more. It has never been a case of people buying homes here because of cheap financing – throughout these years of low sub-2%pa interest rates, loan approvals here have been approved based on monthly instalments calculated using 3.5%pa interest, alongside strict TDSR requirements. Supporting income is trimmed by CPF contributions, whilst those earning variable income like myself actually go through a 30% “haircut” on supporting income for our loan approvals, so what we can borrow is considerably less than what we can actually afford. Our approved home loans are of course also affected by our other debt servicing commitments like car loans – and with cars as expensive as they are in Singapore, the monthly instalments for a 5-year car loan can have a dramatic effect on the loan quantum a home owner can borrow. Let’s illustrate with an example for a 40-year old home owner earning $10,000/mth income: without a car loan, he can borrow up to $1.1M, thus budgeting for a home up to $1.46M (presuming he has the $365K down payment.) If he owns a car, his monthly instalments for a 5-year $55K car loan would be about $1K/mth, bringing his home loan eligibility down an outsized $200K, to just $890K. In event of financial difficulties the more natural thing to go first would be the car, not his property.

I think this discussion point goes a big way in explaining why Singapore’s property investors are generally not of the ilk that jumped in simply because of low rates, nor the sort to jump ship in a hurry when rates rise– our draconian ABSD and SSD controls. Since the first round of Additional Buyers Stamp Duties were introduced in December 2011, we have seen a total of four rounds of ABSD hikes that have local investors and foreign/non-individual buyers paying anywhere between 17-35% in additional taxes after the latest adjustment in December 2021. Prior to that, since July 2018, Citizens buying a second residential property have had to pay 12% ABSD, PRs paid 15%, foreigners 20%, and entities paid 25%. It’s clear to me that anyone serious enough to pay double digit entry fees into the Singapore property market isn’t buying because financing is cheap, but because they believe there is value. As if the sunk costs aren’t enough, there’s also sellers stamp duties of between 4-12% payable if properties are sold within the first 3 years of purchase, so this is really not for fast money.

These multiple measures that have prevented overheating and kept our gains fairly modest in the past decade or so, are also what has helped build a property market that now has a rock solid foundation and is well-equipped to bear out a storm. What is a 1.5-2.5%pa jump in interest rates (buffering by strengthened rental yield) compared to 17-35% upfront fees? Even investor owners who didn’t pay such rates to enter the market previously, will think twice about selling unless prices are attractive enough because their cost of re-investment will be high.

Let’s consider some fascinating data shared in a 14 Feb 2022 Parliamentary Reply to a question posed by Sengkang MP Mr Louis Chua.

Since 2017 was a full year of ABSD holding constant at 7% and 10% for Citizens purchasing their second and third residential properties, we can deduce $5B of transactions in second properties and $1.39B in third or subsequent properties were transacted that year. There was a hike to 12% and 15% in July 2018 making it difficult to determine the breakdown for 2018, but the figures do suggest that a not insignificant number of locals have been paying their dues. That can be confirmed by the next table I’ll share, also share in the same Parliamentary Reply previously mentioned.

From the basic stamp duties data, you can see that foreign purchases now form a modest share of property acquisitions here, whilst the ABSD tab is fairly evenly borne by citizens, PRs and foreigners despite the heftier rates paid by non-citizens. This suggests that buying activity comes from those with a stronger sense of stake holding in Singapore, rather than passing speculators. With our property prices and stamp duties both amongst the highest of our neighbouring ASEAN countries, it naturally filters out buyers with weaker holding power.

After sharing all the reasons why the bulk of our sellers will not be too adversely motivated by rising rates, I’ll wrap up by sharing which market segment I feel will be the most affected by rising interest rates – the home seekers who are currently finding limited suitable options within their budget. As rates march towards 3%pa, the banks credit approval process will most likely need to shift their stress test calculations upwards to 4 or 4.5%pa instead of the long-standing 3.5%pa. This means those who require the maximum 75% LTV to support their purchases will find their budgets further reduced – A $1M 30-year loan that could previously gain approval with just above $8K/mth nett income, would need over $9K/mth to support the loan if credit approval were based off 4.5%pa instead. For the borrower earning $8K/mth, his loan would go from around $1M to just under $900K. With demand from home seekers already outstripping tight supply, buyers in the lower price tiers will find competition heating up if buyers who could previously afford larger loans, decide to step down a notch or two and join their fray. As it is, we are already seeing this happening in the HDB market, with home seekers finding themselves competing with buyers who can afford private homes but opt for flats instead- as evidenced by June HDB transactions comfortably crossing the 2000-mark, and consistently over 20 flats hitting past the $1M mark each month since August 2021.

And what do you know, HDB being another uniquely Singaporean product – HDB home owners have always had the option of taking a concessionary loan to from HDB to finance their flat purchases – with interest rates pegged at 0.1%pa above the prevailing CPF ordinary account rate (currently 2.5%pa). I’m hard pressed to think of another country where 80% of the resident population live in public housing, with 90% of these residents owning their flats – as HDB proudly proclaims, that’s one of the highest rates of ownership in the world. So right there, we have our broad base of the country’s most affordable homes, coupled with concessionary loans as a safe guard against runaway interest rates. For all the reasons stated and more, we should be able to navigate the storms ahead relatively unscathed.

Shoebox Sales Data: Falling Demand Or Falling Supply?

Posted on by Natasha Goh

Last week, both The Sunday Times and Business Times carried stories on the rise in demand for bigger homes. I plan to address the market gap for spacious new homes within the $2.5-3.5M budget in a later post, but for today let’s discuss the perceived drop in demand for shoebox units, and the future of home affordability.

In his article “Bigger Homes Back in Demand” published in The Sunday Times on 4th October 2020, Invest Editor Tan Ooi Boon observed the following:

“The data shows a drop in the demand for so-called shoebox-size apartments – those under 506 sq ft in the second quarter. These units accounted for only 10 per cent of total new transactions, down from 14% in the first quarter, when most office workers were still on site.”

Let’s talk actual figures. There were 290 shoebox units transacted in the first quarter, and 193 transacted in the second quarter. Clearly, a fall in numbers transacted – but I disagree with his presumption that this is due to a drop in demand. If you’re a seasoned market observer, you should know that new sales numbers are closely correlated to numbers of units launched during any given period, particularly for in-demand unit types. As a realtor on the ground, working with home buyers and tenants on a daily basis, I know how strong demand is for compact but well-appointed homes. My assertion is that transaction numbers for shoebox units are more reflective of limited supply rather than reduced demand.

In 2012, URA had already introduced guidelines to moderate excessive development of shoebox units – the maximum number of dwelling units (DU) was derived by dividing the proposed gross floor area (GFA) by 70 square metres (~753 sq ft). Four areas, Telok Kurau, Kovan, Joo Chiat and Jalan Eunos, were subject to a more stringent requirement of 100 square metres (~1076 sq ft), to avoid stressing local infrastructure capacity concerns of these high-density residential areas. (I will discuss further tightening on these restrictions later in this post.)

As such, the number of shoebox units offered on the primary market has been steadily dwindling. For example, at one popular new launch project this year, The Woodleigh Residences, none of the 667 homes being built are “shoebox” units – the smallest unit size being 570 sq ft. There are 55 units of this layout (A1a) being built, of which only 3 remain available for purchase at time of writing.

So what accounts for the seemingly dramatic drop in demand for shoebox units? If you’ve been tracking the hot launches this year, you would probably be able to guess – The M. This Bugis project was launched in late February of this year, 138 of the 522 homes launched were below 506 sq ft. These units were sold out in a matter of days, with snaking queues outside the showflat despite the looming pandemic situation at that point in time – the 6 shoebox deals you see transacting at The M after Q1 2020 were in fact bounced-out units- these were very quickly snapped up upon being re-released onto the market.

The fact that there were 138 shoebox units launched and quickly sold (in 2 days!) is reflective of the limited supply and real consumer demand for such homes. The writers’ observations on the fall in shoebox transactions from 290 to 193 – the difference of 97 units between Q1 and Q2 is more than covered by The M’s performance in Q1!

And if we’re to look at Q2 shoebox demand levels – consider Forett @ Bukit Timah – 76 of the 633 homes here are under 500 sq ft, and 32 of these units (roughly 42%) have been sold within 2 months of launch – a rather strong showing considering the location is more suited to families who drive, rather than the typical shoebox dweller. The difference in reception for Forett versus The M shoebox units is illustrative of the combination of features that sit well with shoebox buyers – nobody heads out into the market looking for a tiny home! Demand for shoebox units is primarily a demonstration of demand for the most affordable homes in any given project and neighbourhood.

When we invest today, we need to project our expected returns against the landscape our property holdings will be competing against in 3-5, 10, 20 years time, not based on today’s flavour of the day but our own investment timeline. We should also be careful not to confuse demand and supply from very different market segments – the increase in demand for units larger than 1,200 sq ft post-circuit breaker had little correlation with the fall in transaction numbers for shoebox units, which was more a result of fewer shoebox units being offered up for sale rather than an indicator of falling demand.

What we see offered up on the primary sales market today is what was planned for prior to additional changes to URA’s earlier mentioned building guidelines. For building plans submitted after January 2019, a tighter set of guidelines (first announced in October 2018) will bring average unit sizes even higher. Number of dwelling units for a given plot of land will be calculated based on a Total GFA divided by 85 square metres, a 21% increase from the earlier 70 square metres. In addition, areas under the stricter 100 sq metre formula will increase from the previous 4 to a total of 9: Marine Parade, Joo Chiat-Mounbatten, Telok Kurau- Jalan Eunos, Balestier, Stevens-Chancery, Pasir Panjang, Kovan-How Sun, Shelford and Loyang.

Image credit : URA

What does this bode for the future? For each new shoebox unit built outside of the central region, a corresponding unit of at least 123 sq metres (1323 sq ft), or 153 sq metres (1647 sq ft) if falling within the nine areas identified as high-density, would need to be built. So whilst land bids in future will need to fall to accommodate increased building costs, more challenging sales climate and stricter anti-shoebox planning restrictions, affordability is not going to come down – instead, private home ownership rates will.

To illustrate, I’ve done up a table of all District 3 pipeline projects, as well as the shoebox units or smallest available units in the case of projects that will not be building any homes within 506 sq ft. This gives you an indication of entry prices for new homes in District 3 in the next few years. Note though, that the “Starting Price” indicated is for the lowest done deal from developer whilst “Last Done Price” would be the last recorded price for any shoebox sized unit within the project, or smallest unit size in the case of ARTRA & Riviera as of today. It’s telling to note that whilst shoebox units form just 9.4% of total pipeline, they form 12% of total sold units – and the 63 units left unsold are currently all listing above $1M.

How does one act upon such knowledge? It really depends on what your specific home and investment needs are, but I would advise those who are looking for a centrally-located new home with budgets capped at $850K-1.2M to intensify their search now, and consider the future impact that the URA building guidelines will have when currently available projects planned prior to its coming into effect are already showing a shift upwards in size and affordability.

I’d also advise you to do plenty of homework, not just on paper, but get a real feel of the situation on the ground by visting showflats, and talking to those involved in the market (not just those observing from behind a desk!)- as I hope you’ve come to see, not everything reported in the papers is completely accurate.

You’ll need to be fast and decisive, whilst refraining from being impulsive or allowing yourself to become pressured into a decision. Knowing the market well will help tremendously. Oftentimes data doesn’t convey the full strength of demand – to illustrate, the 36 shoebox units at Avenue South Residences were snapped up within the space of 2 days, on 6-7 September 2019 (These were in addition, much-lauded heritage units that will give future occupants the rare opportunity of living in homes reminiscent of Tiong Bahru walk-ups, yet with modern full-facilities and private lifts!) The 4 deals recorded after these two days were in fact withdrawal units, that were snapped up almost instantaneously upon being bounced out.

I would want to delve further into the demand for compact homes on the rental market, but I’ve already went on for longer than I’d planned! Let’s revisit that in another post! Till then, keep your story ideas and questions coming!

Negotiating in Today’s Market: When and How to Bridge the Buyer-Seller Gap Through Non-Price Strategies

Posted on by Natasha Goh

In my past posts, I have described the prevailing climate as a buyer’s market, but my experience in 2015 has coloured my view slightly. To be more precise, we are in a negotiator’s market- there are bargains to be struck, but they’re not screaming out for takers like a bargain basement store. There is still a pricing gap between buyer and seller expectations at this point in time, but increasingly, I’m finding it possible to use non-price bargaining chips to persuade a seller into inking the deal.

I’m going to share some personal experiences culled from deals I closed in the past few months, but as my blog is a very public resource and I represented mostly buyer clients in these deals (some of which are still pending legal completion, in fact two were exercised just before the Jubilee weekend) I am not at liberty to disclose in quite as much detail as my earlier post on Record Sale Case Studies which were completed trades where I represented solely sellers.

“The ABSD Conundrum” – how to work it in your favour! As you likely already know, ABSD (or Additional Buyer’s Stamp Duties) refers to the additional stamp duties payable by buyers, rates depending on residency status and count of residential properties owned. Besides adding to the cost incurred by local investors and foreign home buyers here, it presents a sticky situation for those seeking to upgrade (or downgrade) their homes, as they will need to either time their home sale and next purchase very neatly, or consider selling and then renting till they buy their next home in order to avoid incurring ABSD on their next home purchase. This logistical nightmare is further complicated by current home loan restrictions, which make it hard for buyers to get maximum financing on their new home if they have yet to sell and discharge the mortgage over their old home. The good news is that this potential stumbling block can be leveraged upon if you’re a buyer who has time on his side. (Another reason why you should not hold off home purchase decisions till the last minute!)

In fact, three of the resale deals I closed in 2015 so far involved using this tactic – crafting an offer that provides a solution to this issue for the seller – purchase with leaseback by seller. In simple terms, it allows the seller to get his sales proceeds and redeem his first home loan upon legal completion of the sale, but continue living in the property for an agreed period and rental rate while the logistics of his next home are being ironed out –  typically sourcing for that next home, securing the deal, obtaining financing, awaiting legal completion, and then renovations if necessary. In the first such case, which I shall call Duchess-3A, we managed to deal at almost 8% below the seller’s list price (despite his asking price at the time being a good $100K lower than all but one other 3-bedroom units listed for sale at the development, and the property being in great condition), because we were able to offer a 6-month leaseback period after completion. In the second such deal (Cashew-3A), I represented the seller, and my client eventually agreed to an offer slightly below our last received offer because the buyer was willing to grant an extended rent-free period to her. And in my most recent case involving post-completion stay (Duchess-2A), my purchaser client was able to knock off slightly more than 8% from the seller’s asking price, in part due to our willingness to extend a 3-month rent-free period to the seller. This was in spite of the unit already being advertised at valuation, and a good 10% below what the closest competing unit was asking.

Now, if you’re looking to use this strategy, there are several permutations and ways of going about it depending on the circumstances of the case. I was recently referred to a landlord, who purchased a property on his own some six months prior to our introduction. He too, had bought with a lease-back arrangement from the seller. Unfortunately, without proper advice, he had taken the option of purchasing with a one year leaseback arrangement. The seller had agreed to rent the property for a year post-completion, at a rate slightly above market, and the buyer had agreed to the purchase price with this in mind. After half a year, the seller decided to unilaterally terminate the leaseback agreement. To make matters worse, there was no form of security taken by the buyer, to ensure that the seller then held up to his end of the bargain. He would have been far better off getting an outright discount on the purchase price.

There is more to be said about how leaseback terms and conditions should be drafted, but perhaps I shall leave that for a separate discussion on how to negotiate contractual terms in a manner that covers your legal bases while ensuring the deal actually goes through.

Here’s something new- don’t be an ass! Fortunately I don’t encounter these too often, but such folks are definitely out there- the buyers who think that they can push down the price by being aggressively critical. This is in fact the worst possible thing you can do if the seller is present during the viewing. I recall a viewing I did earlier this year (For the aforementioned Cashew-3A), where a group of sisters came to view during an open house I was conducting. One particularly obnoxious member of the group took it upon herself to scoff at everything she came across in the apartment – it got to the point where she even made a rude remark about the owner’s choice of fridge. As soon as the party was out the door, my poor client turned to me and said, “I do not want to sell my home to them.”

Remember the Aesop’s fable about the North Wind and the Sun? You as a buyer are far more likely to get the seller to shed his metaphorical coat with persuasive charm rather than brute force. When a seller likes a buyer and knows that they genuinely appreciate their home, they will try their best to make things work for them. I think this is general human behaviour – we all hope our old belongings go to good owners, particularly a treasured home full of personal memories.

A resale deal I did in early July (Wilby-3A) is a perfect example of this phenomenon in action. The seller’s expected price was way above what my client was willing and able to pay. And here’s another reason why it often helps to have a middle man – it avails you of the “good cop, bad cop” psychological tactic. While my buyer was her usual charming self and candidly let the seller know she absolutely loved the house, I was the hard-nosed, calculative advisor who crunched the numbers and gave the seller examples of other available options that made better financial sense for my buyer.

Happily, we were able to reach an agreement that both parties were happy to settle for, but to do this, we worked not just on price, but also the funding arrangements. (The seller even shared with me that the price we finally agreed upon was lower than an earlier offer she had received- from a buyer whom she didn’t like, because they bargained aggressively and showed little appreciation for her lovely home.) I negotiated for an extended completion period to allow my client sufficient time for overseas funds to come in, and we sweetened the deal for the seller by releasing a slightly larger deposit. I also successfully used this strategy to benefit my own seller client in another sale earlier this month (OneTree-3A).

Typically the first 1% option fee goes direct to a seller, while the balance 4% deposit is held by the seller’s lawyers. If you do wish to try offering deposit to be released direct to seller, you need to know what you’re doing- this can potentially go very wrong for the buyer, for instance if the seller becomes a bankrupt during the period between exercise of Option and legal completion, or the balance sales proceeds are insufficient to cover the outstanding loan. Only use this tactic if you are professionally advised and have proper assurances on the seller’s financial standing.

There’s much misunderstanding about what constitutes good negotiation/ a good negotiator. Often, people imagine a no-nonsense tough guy like Samuel L. Jackson’s character in The Negotiator, but the truth is, when we’re dealing with sentimental and financially sound home owners, you need to have a good balance of hard and soft to persuade them into selling below their initial price expectations.

keep-calm-and-negotiate-like-a-boss-11

And the skill every good negotiator should know – when to stop!
A good negotiator isn’t one who simply bulldozes his way ahead, you need to know the value of what you are bargaining for, and when you should quickly grab the offer on the table. This was the case for three of the 2015 deals I closed so far.

The first was for a 3-bedroom in the Duchess area (Duchess-3B), which was asking for below $1,300 psf. All other similar units in the development were asking for far higher prices, and being familiar with the area (my buyer had been eyeing that particular project for months even before we met!) we knew that there were many buyers seeking homes at that condo. After bringing in our contractors to determine that there was no major plumbing and rewiring work necessary, we quickly sealed the deal.

About a month after this deal, I brought a buyer client to view a nicely renovated 3-bedroom apartment nearby (Adam-3A), which was receiving exceptional response from prospective buyers, with several second-time viewers the same weekend that my clients and I viewed. The last offer was $50,000 from the asking price, and we knew that a ready Option had been pre-signed by the sellers for $30,000 above the last offer. My buyers were decisive and quickly matched the inked price that very night, securing a prime freehold property for under $1.6M.

And my most recent such case was for a 2-bedroom unit (Jellicoe-2A). Thanks to insider news, we already knew the details of a recent low floor transaction at the project, and the response for this high-floor unit in the very first week of marketing had been overwhelming, with several groups viewing almost every day. An offer had come in just 3 days into marketing, with the seller counter-offering slightly above this offer. We were also aware that high floor 2-bedders at this project hardly ever came up – once in 2014, and none in the whole of 2013. Needless to say, we quickly scooped up the deal.

Wrapping Up…
In closing, I’d like to remind readers not to take any particular example I’ve listed above in isolation, for one thing, it was not possible for me to share that much background information on each case due to client confidentiality concerns. Note that it is important to take a holistic approach when dealing with resale properties – assess the unit, the development, the area, know your position (and ideally the seller’s position as far as possible) to determine what is a realistic and best outcome you can craft for yourself as buyer, or your client if you’re an agent like me. Happy negotiating!

How to Identify a Value Buy – Cashew Heights Case Study

Posted on by Natasha Goh

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” →

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

Posted on by Natasha Goh

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

Posted on by Natasha Goh

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” →

Interim Review of Crystal Ball Prediction

Posted on by Centauri78

By Centauri78

If you have been following the blog, you may recall a prediction that I made a while back in August 2012 with regard to the residential property market, as measured by the URA housing price index. The prediction was for prices to rise for a couple of years from the beginning of 2012, and for prices to stagnate thereafter. Now that the first period of the prediction is over, let’s take a look as to where the market is now. Continue reading “Interim Review of Crystal Ball Prediction” →

Investing for income

Posted on by Centauri78

By Centauri78

This article isn’t about property, but I thought since I’d written about property shares and REITs previously, this may be relevant to some of our readers.

While I am a proponent of investing for income, one thing that irritates me to no end when I read it in articles written by income investors is the concept of yield over original cost.

I read an article a while back by an ex-financial advisor. In it, he was saying how while he was still a rookie, he advised his client to switch from a low-yielding share to another counter having a higher yield. The client refused, saying that while the yield is low, it is actually giving her more than her original buy price each year, or more than 100% yield over original cost! The author, unjustly shamed, took this “lesson” and presented it as a truth of income investing.

Continue reading “Investing for income” →

End of Season 2: Review and Thoughts…

Posted on by Centauri78

By Centauri78

Dear Readers,

Season 2 of The Straits Times Property News Heat Map has come to an end. We are taking a break from updating the heat map for a few weeks. We will inform you in due course when Season 3 will start up. Here are the results of Season 2:

Week of Negative Neutral Positive Total
13-May 1 6 3 10
20-May 2 6 3 11
27-May 2 13 5 20
3-Jun 2 8 2 12
10-Jun 0 10 2 12
17-Jun 1 15 2 18
24-Jun 3 11 2 16
1-Jul 2 10 3 15
8-Jul 0 11 1 12
15-Jul 3 10 3 16
22-Jul 2 7 1 10
29-Jul 3 4 2 9
5-Aug 2 6 2 10
12-Aug 1 7 2 10
19-Aug 3 7 2 12
26-Aug 1 5 0 6
2-Sep 1 6 0 7
Total 29 142 35 206
% 14.08% 68.93% 16.99% 100.00%

Based on the data above, we can see that the news flow is rather slow, with an average of 12.11 articles per week. Negative and positive news are pretty much balanced. The NUS SRPI currently is only updated till July, but we can definitely see a slow-down. I feel confident in predicting that when the figures comes out for August and September, it should continue the sideways movement.

Latest NUS SRPI up to July 2013. Thanks, NUS!

Qualitatively, we are seeing the cumulative effects of the latest cooling measures in Jan and the TDSR taking hold in the market. It has now become so onerous to buy properties as an investment that the market is taking a break as sellers want to be compensated for their replacement costs and buyers wait for prices to come down, resulting in stagnant prices and low volume.

Personally, I think that with all the cooling measures put in place, those who bought property during this time are in such a secure investment, given the huge amount of equity, that they are able to hold on to it even if times are bad. Chances of fire sales are becoming less and less likely. If anything, the government measures have put a base on prices, and people should recognise this as the new normal.

Over the last week, various people have told me that property prices would drop 5 – 10% over the next few years. They may well be right. After all, with volumes so low, price movements are bound to be exaggerated. However, it doesn’t mean that you will be able to buy the property that you want, even if the index says that prices have dropped. You would need something drastic to happen, like a crisis in China, or something. However, we also need to remember that the cooling measures (or at least some of them) are reversible, so you would need to keep that in the equation.

Disclaimer:
Centauri78 is not a licensed financial advisor. The information contained here is purely personal opinion, and whilst I make every attempt to ensure the accuracy and reliability of the information, this information should not be relied upon as a substitute for formal advice or as basis for investment.