Sunday Times: Freehold better than leasehold?
Freehold better than leasehold?
Price gap may vanish in boom but will appear as property ages; experts say younger set more open to leasehold homes
By Joyce Teo
Far East Organization is selling its latest project, The Shore Residences, on a 103-year lease even though it sits on freehold land as it wants to partake in the site's redevelopment potential. Experts say the move means the developer cannot yet get the full value for the property. If The Shore Residences were sold as a freehold project, Far East would price it higher, they say.
Leasehold homes may have become more popular in recent years, but there is still a price gap between freehold and 99-year leasehold homes. This gap may disappear during good times, but it will appear as the property ages.
Property experts reckon that freehold homes typically command a premium of about 10 per cent, or up to 15 per cent at times, over leasehold homes, assuming a like-for-like comparison.
In a prime location where freehold homes are plentiful, a lone leasehold property will usually fetch less than its freehold neighbors. Because of the price difference, a leasehold condominium unit will fetch a higher yield than a freehold one. For those looking to invest in a rental property, it would make sense to go for a leasehold property.
Tenants do not care whether a property is freehold or leasehold, and during boom times, buyers can be equally indifferent. 'In a bull market, developers would be able to launch any project regardless of the tenure,' said Ngee Ann Polytechnic real estate lecturer Nicholas Mak.
'The price difference between an older freehold project and a newly launched leasehold project can be negligible on a per sq ft basis.' The difference becomes apparent only later on. 'When times are good, there is marginal price differential between leasehold and freehold new launches,' said Colliers International's director of research and advisory, Ms Tay Huey Ying. 'But as the property ages and the lease shortens, the price gap will widen. 'Financing becomes tougher as the lease runs down and that affects prices, she said.
'Your freehold interest is for perpetuity versus an interest that diminishes with time,' she said. Time, however, can be extended. There is life after 99 years as the Government is prepared to top up or renew the lease if there are redevelopment or upgrading plans, according to property experts.
The only problem is that it is not 100 per cent guaranteed, Ms Tay pointed out. 'There is still uncertainty as the Government may not top up the lease if it has other plans for the site,' she said.
In new prime areas where there is residential space such as Marina Bay and Sentosa Cove, buyers simply have no choice but to accept leasehold as the norm. All the new residential developments there have 99-year leases, and some of them still managed to fetch eye-popping prices.
When the first condo project in Marina Bay - The Sail @ Marina Bay - was first released in late 2004 at $900 psf, some said it was crazy to pay so much for a 99-year leasehold condo. But confirmed plans for an integrated resort in the area quickly erased any reservations associated with the tenure. Sub-sale deals of units at this condo later reached prices of more than $2,000 psf.
Singaporeans used to have a serious obsession with freehold homes, experts said. But today, the younger generation is more receptive to leasehold properties as they tend to take a shorter-term view, said Ms Tay.
'They are more willing to pay a higher price for a leasehold property in a good location than a lower price for a freehold property that is located farther away,' she said. Also, there are some people who are simply not bothered by a 99-year leasehold title, said Mr Mak.
Buyers from China, for instance, do not mind 99-year leasehold properties as they are used to shorter leases of 70 years back home, experts said.
Freehold Better than Leasehold
Maximise your Office Space the Efficient and Affordable Way
Growing your business can come with pain and top of that list of most business owners lists is moving to a new premises. Moving to a new premise can be disruptive and costly to the business. Worst of all, a messy and disorganized moving operation can cost service disruption leading to negative word of mouth and leaving the reputation of a company in a bad name.
Perhaps if the move to a larger office can be put off, it would not be such a bad idea. Here are some top tips you may wish to know or at least think about it before you made the big decision to move your office.
Ready to move? Still pondering if that is really necessary? Try the above, alternatively look around for office furniture that offer very helpful storage systems. We will share pictures of some innovative storage systems in our blog at a later date.
Why Real Estate Investors Fail Miserably
Is it true that 95% real estate investors fail? Well, this number was not proven empirically so the number may not stand. However, what we know is true, overwhelming majority of would be "real estate investors" would never do even a single deal. Many just wonder why it is so difficult for them just to do one thing - finding that best property at the best price. Oh right one other thing, price of that property would hold or rather must appreciate. Sounds familiar?
There are many reasons most people find it difficult to becoming a successful real estate investors. Here, I'll present some of biggest and most common obstacles for most would be real estate investors that are driving down the success rate and discourage a lot of people from even starting real estate investing.
Well, that’s my take on real estate investing. Too many people are focusing on the wrong things and are being their own worst enemy.
What do you think… why do so many people fail in real estate? Comments.
10 Tips on Small Space Living
Is your small space starting to get cramped, a little frustrated? Maybe you are moving to a new city and your lovely new home will only be a fraction of the size of the room you used to stay? Feeling a little freaked out? Maybe we can help.
1. Declutter — In a small space clutter take up space and make the home look messy and make you feel your home is smaller than it already is. A nice comfortable environment helps to calm nerves and make you relax. So get up a declutter. Get rid of those things that you have not used for more than 6 months. Get it under control and take back your space, no excuses. Yes, 6 months is the guide. You decide.
2. Organised — Yes, once you have got control of space, next get things organized Spend some money to get good shelving, storage. Spend sometime setting up a system to help you get your stuffs organized. This is one investment you would not regret. It will keep you on track and your home feeling cozy not crazy.
3. Make my furniture work for me — Double duty furniture is a must when you have a small space. Take advantage of every inch you can afford. Choose benches that can store, a lamp post that can double up as hanger.
4. Colour me bad — Already living in a cave? How would a cave-like bedroom feel and look in for example dark blue color? Yes, simple thing but many aren't aware. Just be careful of the color you choose if you have a small space. General rule is that the lighter the color tone, the brighter the bigger one would perceived the space to be. Talk to your friendly DIY store staffs. They would be able to get you some advice.
5. Mirror Mirror on the wall — Yes, have mirror on the wall. No kidding. It will help make the space look big. In additional, make use of the wall for shelving, storage and not just the floor. Make good use of the wall it's yours and most of the time is it not being used anyway.
6. No elephant please — Here's a handy tip: use light furniture. Furniture that are for example make of plastic acrylics, a table with smaller legs, will visually be light. The effect is seeing more space without feeling cramped. Brilliant?
7. Spend time outside your home — Here is the truth: no matter how perfectly designed your tiny home is, you still need to get out and spend time outside. Make a point to use public parks, library, cafe or any place that will help you get away from the feeling of living in a cabin.
8. Clean up — Fancy living in a cave full of cobweb? Yes get up and keep the space clean.
What do you think? Any other tips to share?
Top 10 Trends Influencing Workplace Design
As part of our efforts to keep clients informed, we continuously develop and follow new research in workplace design. We study behavioral science, organizational design, change management, performance metrics, demographics and technological advances – always with an eye toward how they affect the workplace. This helps us understand how business is evolving and prepares us to answer the question that all of our clients ask: “What are the latest workplace trends?” Here are our top 10 recent favorites:
1. Top talent is shrinking.
Many large countries — including the US, China, Japan, Germany and Italy — will face talent shortages as their workforces age and experience declining growth rates. In the United States, the labor force is expected to grow only 0.7 percent between 2010 and 2020. Skills predicted to be in demand include management, legal, sales/marketing, operations and technical computer proficiency.
This talent shortage will challenge organizations to find and keep the best people. They will need to engage employees with workplaces that support their wants and needs.
Creating vibrant offices is one tactic to recruit and retain talent. Providing flexibility and choices for where, when and how work happens is also critical for attracting the best and brightest people.
2. Employee engagement matters.
Engaged employees can boost a company’s bottom line by up to 20 percent. These employees are emotionally invested in and focused on creating value for their organizations. In a survey across 142 countries, however, only 13 percent of employees reported feeling engaged in their jobs.
Disengaged workers — those who are negative or even hostile to their organizations — outnumber engaged employees by nearly two to one. Companies with disengaged employees experience 30 to 50 percent more turnover.
The workplace can engage employees by acting as a communication tool that aids in celebrating individual or team contributions, broadcasting organizational goals or objectives, and providing spaces for effective collaboration. Involving employees in the design or retrofit of a workplace also provides a wonderful opportunity for engagement.
3. More people are working remotely and not at their desks.
At any given time, about one-third of all knowledge workers in private and public sectors are working remotely. Only 30 to 40 percent of employees with assigned spaces are actually using them.
Mobility is crucial to today’s workforce. In addition to their offices, employees are working in airplanes, in hotels, at client sites and at home. They need to be supported with technology and business processes that allow them to work effectively wherever they are.
In the workplace, mobility may require more “unassigned” or touchdown space for individuals who are out of the office for a significant portion of the day. Organizations also need flexible space for employees who might be visiting from another floor, building or campus.
4. Flexible work boosts engagement and satisfaction.
Flexible work – allowing employees to work when, how and where they choose – generally receives a positive response. Thirty percent of employees with easy access to flexible work arrangements report feeling very engaged in their jobs. Compare this to the 19 percent engagement among those with moderate flexibility and the 10 percent engagement among those with little access to flexibility. Sixty percent of employees with high access to flexibility are very satisfied with their jobs, compared with 44 percent of those with moderate access and only 22 percent of those with low access.
5. Activity-based work settings are on the rise.
Because the nature of today’s work is so complex and unpredictable, a single, all-purpose workstation doesn’t cut it for most knowledge workers. Workplace designers need to provide a variety of “activity settings,” or purpose-built areas for specific activities accessible to all.
Activity settings might include impromptu meeting areas, formal meeting spaces, project rooms, individual work spaces or break areas that make up for the shortcomings of exclusively cellular or open-plan environments. One size does not fit all.
6. Buildings can help or hinder productivity.
Buildings can improve overall productivity and performance by as much as 12.5 percent or reduce them by as much as 17 percent. That’s a 30 percent swing between employee performance in the best and worst buildings.
Interestingly, the same factors that enable productivity can inhibit it. Some background noise, for example, can boost productivity for routine or administrative tasks. Yet that same noise can be highly distracting when employees are conducting research or writing tasks. Lighting is generally viewed as positive, except when it causes glare. That said, the most common building-related culprits for hindering productivity include issues with thermal comfort or air quality, lack of natural light, noise, spaces that feel crowded and poor ergonomics.
7. Lighting matters.
Better workplace lighting (both natural daylight and artificial light) has been linked to a 15 percent reduction in absenteeism in office environments. Other studies have reported productivity increases ranging from 2.8 to 20 percent attributed to optimum lighting levels.
The presence of ample daylight and windows, as well as opportunities for active and passive contact with nature, sensory change and variability, all have a positive impact on people’s well-being.
8. Acoustics are vital.
Office acoustics contribute to performance and well-being in the workplace. To support complex knowledge work, many people seek out quiet places. The ability to have planned or spontaneous interactions without disturbing others is important for teamwork and relationship development.
In environments with white noise, or sound masking, employees report improvements of up to 38 percent for the performance of simple tasks and 27 percent for complex tasks. Sound masking is not the only way to reduce unwanted noise. Office layout, flooring materials, walls, ceilings and behavioral protocols all can make a difference.
9. People are the most important metric.
A 2 to 5 percent increase in staff performance can cover the total cost of providing for their workplace accommodation. Financial losses due to absenteeism and “presenteeism” (a loss of workplace productivity from employee health problems or personal issues) account for 4 percent of operating costs.
Though the design and construction of buildings comes with a significant cost, this pales in comparison to the cost of compensating employees who are not engaged, healthy and performing at high levels.
10. Change management works.
Benchmarking studies by research company Prosci have found that workplace projects with an effective change management component are six times more likely to meet their objectives and succeed.
If you were given a new piece of software with no instructions on how to use it, would you be able to get the best out of your investment? Probably not. The same goes for a new workplace. When employees are experiencing new furniture, adjusting to a renovated office or moving into a different building, they need help learning how their new “tool” is supposed to work. The better they understand their space, the technologies that support it and the policies and protocols for how to use and behave in it, the more likely they are to get the most out of their work experience.
If there is one macro-trend that encompasses all of the trends listed here, it would be the growing emphasis on people. Workplace design and strategy can play a huge role in helping to maximize the comfort and performance of occupants. Engaging with employees on how the workplace can best support them is a great way to start.
Tenants are the lifeblood of the landlording business. But as landlords, we don’t want just anyone as our tenants. We want good quality people who will pay, stay and respect our properties. We want tenants who will not cause problems, either to us or to our other tenants. We landlords already have enough problems to deal with, and the last thing we need is to add to those by selecting a tenant that will make numerous unreasonable requests, burn up the phone lines or just be a general pain.
Tenant screening is one key to finding good tenants. Another key is being aware of characteristics that can signal a potential problem. Over the years, experience has shown that there are several characteristics landlords should beware of and that are worthy of further investigation. I’m not saying that the following characteristics always present a problem, just that years of experience have taught me to look deeper and be a bit more cautious.
7 Types of Tenants Who Cause MAJOR Landlord Headaches
The storyteller has always got to explain things before he answers your questions. Even the simplest questions that should require only a yes or no answer come with a long and convoluted story. For example, if you were to ask, “Have you ever been evicted?” instead of a yes or no answer, you are like to get a response such as, “You see there was this time when my roommate…”
Be careful with the storyteller. Listen to the stories if you want to, but understand that the storyteller often thinks they can gloss things over and smooth talk their way into your property. Beware and don’t fall for it.
The Momma’s Boy
You know the type — the child who just can’t seem to cut those apron strings. Despite being 30 years old, they have never really made a decision on their own in their entire life and have not had to. Mom (or Dad) has made all of the decisions for them. This type shows up to apartment viewings, lease signings and other appointments with mom and/or dad in tow. They never talk to you; rather, mom does all the talking, negotiating, etc.
Does this mean mom and dad coming along is always bad? No. But you can usually tell the child who is trying to spread their wings from one who has been coddled all their life. Beware of this type of applicant. Have they ever held their own job or been on their own before? They often have no clue how to live on their own or how to manage their lives. They and their mom could be a load of problems down the road.
The Spoiled Deadbeat
This type also has mom and/or dad in tow, but they are really excited to tell you how wonderful their kid is and how great a tenant he or she will be when the kid is indifferent and unengaged. The parents offer to pay the deposit, co-sign, anything to get you to rent to their wonderful kid.
Beware. There is potentially something wrong that they are trying to dump on you. Most likely they just want them out of the house. But you have to ask yourself why. What is wrong with this kid? Perhaps it is nothing. Or perhaps the kid is a lazy deadbeat.
We have all had a perfectionist in our lives at some point. They drove you crazy, didn’t they? Nothing is ever good enough. Do you want to let one live in one of your properties? Will anything ever be right for them, or will they constantly harass you with phone calls about this little thing or that little thing? Beware of the perfectionist.
The complainer often shows up and very quickly lets the tongue start flapping: “My last landlord never fixed anything.” Or perhaps, “The property was never maintained, and the other tenants were trashy.” “Will that be fixed?” “This room is really small.” “Who lives next door? I don’t like a lot of noise!”
The complaints go on and on. And they likely will go on and on if you let them in your property. A bit of complaining is normal. But beware of anyone who complains too much.
The All Cash Dealer
The all cash dealer looks and sounds really good. They wave a lot of cash in front of you stating that they can pay the deposit along with first and last month’s rent today. They might even say they want to pay a year’s rent upfront. Sounds great, right? But you have to ask yourself why they are doing this.
Sure, there could be a multitude of legitimate reasons, but it is not normal. Paying a year upfront is not how things are normally done. Could they be trying to hide something? Maybe, maybe not. Again you need to beware. Plus, think about this — how do you evict someone who has paid a year of rent upfront if things go south? It is possible, but a bit more difficult.
The Space Cadet
Ever have someone get lost five times while trying to make it to a showing? Could they never seem to get the correct address or the correct time to show up? You might be dealing with a space cadet, and again, you need to beware of letting this person into your life. Can they remember to pay the rent on time, or will you constantly be calling them? Will they be able to care for your property? Again, the answer is maybe or maybe not. You just need to dig a little deeper to be sure they are nothing more than a bit directionally challenged.
Remember, I am not saying that folks displaying these characteristics should automatically be disqualified. What I am saying is that you need to be on the lookout for these characteristics, and if you see them, beware. Check out the stories, review the cash dealer’s background, talk to the complainer’s previous landlord and current boss. Remember that rudeness and promptness can count. Remember also not to discriminate against the protected classes and to have your selection criteria written down and on file.
What characteristics do you look out for? What makes you say “no way?”
BY KEVIN PERK ON FEBRUARY 9, 2015
This is a guest post from Holly Johnson. Holly is a 32-year-old wife, mother of two, and frugal lifestyle enthusiast. She blogs about saving money, frugal habits, and whatever is on her mind at ClubThrifty.com.
In 2006, my husband and I bought our first rental property. We put 10 percent down ($8,500) on a small brick ranch in the same Midwestern community that we call home. I had gotten my real estate license several years prior, so I had some basic knowledge to build from. We still weren’t 100 percent sure about what we were getting into, but we thought that it would be a great opportunity to build long-term wealth. We also hoped that the home would provide a passive income stream for us once it was paid off. A few months later, we converted our starter home into our second rental, and we bought and moved into our third home, where we currently reside.
So, there we were – 27 years old, with two rental properties and high hopes that everything would turn out as planned. Another landlord we know gave us a copy of his lease to use, and we got lots of advice from other friends who own rental property. We placed ads in the local newspaper and signs in the yards of both homes. Luckily, they both rented out quickly for the amount that we asked without much effort. We were young, dumb, and in love…and we thought that we were real estate moguls!
However, the truth was quite different than what we had pictured. Soon, we found out that owning rental property requires a lot of hard work, patience, and planning. Being a landlord wasn’t turning out to be the glamorous hobby that we envisioned at all. Still, we were excited about the future and moved forward in our new role as landlords.
Owning rental property is a great concept for building wealth. On our end, it required a cash down payment and will require years of cash support via repairs, upkeep, and major component replacements. At the same time, someone else is paying off a property for us. Once the homes are paid off, we will have two additional income streams to add to our earnings from our 9-to-5 jobs. Even after paying for repairs, the cash flow will be significant and will (hopefully) help us reach an early retirement. We often enjoy months at a time without thinking of the properties at all. Additionally, our properties generate a small amount of side income, though at this point we use the additional funds to accelerate their payoff.
Holly’s first home, which became her first rental.
There are times when it is smooth sailing, but that is not always the case. Owning rental property can be a ton of work. It takes patience and the ability to deal with many different personality types. Each time one of our properties becomes vacant, we have to place ads to find a new tenant. Sometimes searching for a new tenant can bring a lot of shenanigans. For instance, we have had people lie on their application about their employment or credit rating. Others have been completely dishonest about having a job at all. After checking one person’s application, we found that they had multiple evictions on their record. Obviously, we didn’t rent to that person!
Even after you find a qualified tenant, sometimes problems will still occur. Some of our tenants have been habitually late paying their rent. We have a late-fee stipulation in our lease, but we have never charged anyone. We simply don’t need the added drama, although we are probably just perpetuating the problem. Still, as long as they pay within a few days I don’t get too worried about it. We just choose to pick our battles.
The good news is that the majority of people we have rented to have been absolutely pleasant. At the same time, just like with anything else in life, there are a few bad apples mixed in to give renters a bad name. Speaking of bad apples…
Occasionally, being a landlord means living out your own landlord horror story. In 2010, one of our tenant families was nearing the end of their lease. We hadn’t been called recently and – therefore – hadn’t been at the house for many months. However, I happened to drive by one day and noticed that something about the house looked really strange. I drove by again and still couldn’t put my finger on it, but we would soon find out.
A few weeks later, the tenant called and wanted to arrange a meeting. We arrived at the house and walked toward the front door. As we approached, I realized why it looked so weird: The picture window on the front of the house had been replaced with a different window! I knew that this wasn’t a good sign. Apparently, they had broken it somehow. Instead of calling us, they found a salvaged window of the same size and installed it themselves. The old and wooden frame didn’t match the newer vinyl replacement windows, so it stuck out like a sore thumb. Unfortunately, that was the least of our problems.
Upon entering the house, we realized that the drywall in almost every room had giant holes punched in it. The carpet, which had been new when they moved in, was stained beyond recognition. All of the interior doors in the house were missing … gone. The refrigerator was missing. Someone had busted in the front door, and the entire door frame had been hastily and obviously glued back together. The house was an absolute disaster area, and the tenant had asked us for a meeting in order to resolve the issue.
After some discussion, the tenant agreed that he would pay for some of the repairs to the home in order to avoid getting sued. We spent the next month and almost $7,000 repairing all of the damage. After another friendly meeting, we reached an agreement with the tenant and he repaid approximately $3,200 toward the damage that his family had caused. He didn’t pay for all of the repairs, but we were still satisfied and ready to put it behind us.
Luckily, we reached an amicable agreement with our tenant and everything turned out fine. However, we lost more than just money. While most people were celebrating the holidays, we spent the entire month of December repairing that home. Did I mention that I was pregnant at the time? Still, I had to spend my days stressed out at work and my evenings crying and painting at the rental house. I had no choice. For close to a month, the situation consumed our whole lives. We were so glad when the home was finally fixed up and ready to be rented out again.
I think back to the days when we acquired our rental properties and wonder what we were thinking. Did we really think it would be easy? Were we that naive? Did we have a long-term plan at all?
Luckily, I don’t worry about it too much. I don’t regret buying our properties, and I think it was one of the best decisions we have ever made. While being a landlord can be stressful and expensive, I believe that the future rewards will be worth it. Our two rental properties will be paid off in approximately 14 years…right in time for our two small children to begin college. We could use the rental income to pay for our children’s education. We could use it to pay for their living expenses while they study. If they go to college nearby, we could even provide them with a free place to live while they pursue their schooling. Once our kids finish school, the nearly $2,000 per month in rent will be ours to save or invest. The possibilities are endless.
Owning rental property can be stressful and difficult. It can test your patience and even your faith in humanity. Yet, I think it is definitely worth my time and effort. While it certainly isn’t as passive as we imagined, I believe that our properties were a great investment and have no regrets at all. Is it worth it? I say yes.
3 tips for first-time landlords
1. Use your intuition. We have been advised by others to never rent to anyone with bad credit. We feel differently and tend to rent to people with bad credit as long as they are up front about it. I’m glad that we listened to ourselves because our best renters have all had terrible credit.
2. Keep your house nice. Saving money is a good thing, but don’t do it at the cost of your renters! If something breaks, have it repaired quickly and correctly. Between tenants, make sure that your home is clean and in repair. A nice clean home will attract renters who will work hard to keep it that way.
3. Have a large cash cushion. Owning rental properties means that you have more liabilities. You have more than one air-conditioner, furnace, refrigerator, and roof to worry about. You need to have enough cash to cover the cost of replacing all of these items. If you don’t have a large enough cash cushion, you should probably wait to buy rental property until you do.
Have you ever considered buying rental property? If you already own rental property, do you think that you made a good investment?
I get the question a lot: I am thinking of moving or upgrading… do I rent or sell my home?
That question is really loaded. A simple yes or no answer doesn’t really do the question justice. Honestly, anything shorter than an article really can’t answer the question and does you the questioner a disservice.
Therefore, this article is for all of you who have thought, asked, or wondered about this conundrum.
Before We Get Started.
Let me preface this whole discussion by saying: It really depends on YOU! No matter what is said in this article — or any other forum, newspaper article, etc. — at the end of the day, it is what YOU are comfortable with and willing to do. Think of it like stocks: while you can make a killing in the penny stocks, you have to be comfortable with your financial decisions — because at the same time, you can lose your shirt!
Any investment that entails the use of a “vehicle” to obtain your dreams is going to have its up and its down days. If you don’t fully believe and aren’t invested in it to succeed, you will be not be a successful landlord. Going into this half-hearted means you won’t be willing to go the extra mile to stay out of landlord trouble, deal with tenant stress or any of the other wonderful “consequences” that come with being a landlord. On the other hand, if you choose not to go in this direction, you won’t be able reap the amazing rewards that come with being a successful landlord.
Lets Get Started: Do I Rent Out or Sell My House?
Here are some questions you need to ask yourself:
Are you willing to be a landlord?
Being a landlord isn’t fun, and it definitely has its moments. For us, they have only been in the form of emotional, not financial, stress. That is draining and never seems to be at a good time. We have had tenants break lease during a move, right after my husband deployed, and we’ve had a house leak during our vacation — to name just a few of the “fun” situations of landlording. While the rewards have been amazing, they are slowly realized, so patience is a must.
Are you going to make a profit or bring money to the table?
If you bring a profit to the table, make sure you have assessed the true profit after real estate agent fees and capital gains. If you are bringing money to the table, make sure it is an amount that is worth it to you!
What is the TRUE cost of bring money to the table?
Frequently, I see calculation of the costs of having a home based on vacancy, management, and maintenance costs. If the only reason you are selling is for monetary purposes, make sure you are looking at the costs. While long term you might have vacancy and management costs, I have been able to eliminate these costs. My houses’ margins are $120-$450 a month, and I have NEVER had to raid my pocket to pay for anything. So before you shell out $40,000, figure out how long it will take you to break even! It might not be as bleak as you think. Remember, if you can afford it, there is nothing wrong with trying the rental thing and then selling it if it doesn’t work out.
For example, if you are losing $100/month, that’s $1200/year. If it costs you $40,000 to get rid of it, it would take 33 years to break even. That’s a lot of “extra” cost that would have to appear to make it worth the $40k! Plus don’t forget about deprecation and other tax “credits.” Just food for thought!
Are you looking for cash flow or payout?
Life requires flexibility; business success requires a plan. Create a plan that reaches your long term goal. Our long term goal is early retirement for 15 years. While our plan when we started 3 years ago looks NOTHING like what we are doing today, we still are on path for our goal!
Do you have a better place to invest the proceeds?
Congratulations, you can make $20,000 if you sell the house! Now for the hard question: what are you going to do with it? I could sell all of my houses for a profit, but I couldn’t reinvest them into other assets that give me the same return long term. My goal is long term cash flow for early retirement. So before you sell, make sure you have an reinvestment plan that maintains your LONG TERM goals.
Is the area depreciating or appreciating?
I recently sold a house for family and 1031-ed it into 3 houses in California. The area was depreciating. The house was older and had an oversupply of brand new condos for rent. While the sales market was still in a good place, it wasn’t going to be there forever. So this was the perfect time to jump ship.
Look at your market. Where do you see it going? If you see the writing on the wall, this is the time to leave.
I am buy and hold landlord who has turned personal properties that are highly leveraged with low margins into great rentals. So of course I am biased when I advise someone to keep their house as a rental.
Just remember that once you have a mortgage, it’s yours; there is no re-qualifying later. If you sell now, you have to re-qualify for the new house. While you might qualify for a new house, you might not qualify for 2 new houses. Rates are not at the lowest they have been in history, so if you have some of those amazing 3.125% rates, you might not want to sell. Just remember: look at EVERYTHING before you decide to sell!
Weigh in: What questions would you add to my list? What do you consider when trying to decide whether to sell or rent?
BY ELIZABETH COLEGROVE ON DECEMBER 29, 2014
Possible Top Property Investment Market in South East Asia
Top Property Investment Market
When we speak of top property investment markets in Asia we would inevitably think of the following countries,
2. Hong Kong
In Hong Kong, authorities at the start of the year introduced a new round of transaction taxes and raised down payment requirements for both the residential and commercial sectors.
In Singapore, the government’s four-year campaign to curb home prices continued with a further round of transaction tax increases, together with a new policy tool that caps total consumer debt available from banks at 60 percent of borrowers’ incomes.
The measures have had a chilling effect on residential transactions in both cities, particularly at the high-end property segment.
Faced with an overheated property market that could foment social unrest, the Chinese government has implemented a combination of measures in what some are calling a belated response. The impact, however, is reflected in sharply declining property sales in cities like Beijing and Shanghai.
In view of a relatively healthy economy and the possibility of sustained capital flow into Asia, it is likely that the cooling measures will be intact to stabilize markets to avoid social unrest caused by soaring residential prices in these countries.
So where are the investment opportunities for property investors?
Top Property Investment Market - sgpropertyinvestors.com
Let us first look at the location of these cities in the Asia Pacific region. Of those 11 attractive cities listed, 3 of them are located West of Asia.
They are the following 3 cities in India.
Located in the North of Asia are cities like,
1. Osaka, Japan
2. Seoul, South Korea
While located in the South of Asia are cities like,
1. Melbourne, Australia
2. Sydney, Australia
3. Auckland, New Zealand
While those attractive cities found in Central Asia are,
1. Kuala Lumpur, Malaysia
2. Jakarta, Indonesia
3. Ho Chi Minh City, Vietnam
What does this imply?
Everything being equal, KL, Jakarta & Ho Chi Minh City enjoy geographical advantage over the other cities in the North, South and West regions of Asia.
As KL, Jakarta & Ho Chi Minh cities are located in the central region of Asia, travelling and accessibility to other parts of Asia is within a shorter (3-8 hours) flight away offering time saving. This makes it attractive for companies to operate their businesses out from these cities for cost saving and ease of accessibility to other markets in the region.
Air Passengers and Cargo Handled
The figures below showed the KL airport handled one of the most passengers and cargo in Central Asia.
According to the Emerging Trends in Real Estate Asia Pacific 2014 (ETREAP) by PwC and Urban Land Institute above, the following countries are top markets for property investors in the coming 2015.
Of these cities Mumbai appears to be the most attractive market. Up 12 places from 23rd to 11th in 2015. What is your take? Which city do you think would be an attractive market?
Where are the Top Property Investment Markets
While Mumbai, Melbourne, Seoul, Osaka look like very attractive property investment destinations in 2015, but how will your property perform in 5 years time? How will the market perform in 10 years time vis-à-vis the market in the region? What is the market earning potential?
We now analyze all these cities listed and see which city offer a more attractive investment opportunity for investors in the mid to longer term.
Looking carefully, you will realize the economy situation in these cities is different. Some of these cities have a more advanced economy, whereas some are emerging markets. We separated the cities below reflecting their respective economy situation. Most of us will agree because of higher costs, growth rate in the advanced economies are less likely to grow on a higher rate. Unless the properties are really undervalued in the advanced economies, chances are we are to see better possibility of profitability when investing in countries with lower property prices.
The Global Competitiveness Index
The Global Competitiveness Index 2013–2014 rankings by the World Economic Forum ranks Malaysia 24 position after Singapore (2), Hong Kong, Japan, Taiwan & Australia out of 148 countries. The report notes,
“Malaysia advances one position to 24th. Second among ASEAN countries, behind Singapore, Malaysia ranks no lower than 51st in any of the 12 pillars of the GCI and features in the top 10 of two of them. Its most notable advantages are its efficient and competitive market for goods and services (10th), its well-developed and sound financial market (6th), and its business- friendly institutional framework (29th). In a region plagued by corruption and red tape, Malaysia stands out as one of the very few countries that have been relatively successful at tackling these two issues, as part of its economic and government transformation programs. The country, for instance, ranks an impressive 8th for the burden of government regulation, although the score differential with the leader, Singapore, remains large. Malaysia ranks a satisfactory 33rd in the ethics and corruption component of the Index, but room for improvement remains. Furthermore, Malaysia ranks 15th for the quality of its transport infrastructure, a remarkable feat in this part of the world, where insufficient infrastructure and poor connectivity are major obstacles to development for many countries. Finally, Malaysia’s private sector is highly sophisticated (20th) and already fairly innovative (25th). All this bodes well for a country that aims to become a high-income, knowledge-based economy by the end of the decade. Amid this largely positive assessment, the government budget deficit, which represented 4.3 percent of GDP in 2012 (103rd); the low level of female participation in the workforce (121st); and the still comparatively low technological readiness (51st) stand out as some of Malaysia’s major competitive weaknesses.“
Malaysia is still an emerging economy. The potential for growth is higher than those of the more advanced economy where costs are already relatively high and served as an impediment for higher growth rate. Infrastructures are still under development in the country, and it is undergoing modernization. E.g. is the construction of the High Speed Rail connecting Singapore to KL City and others. Such major infrastructure development will definitely have a positive impact on the Malaysian economy in time to come. Coupled with a natural advantage of its geographic location and a huge pool of highly qualified workers, Malaysia’s trade/commerce growth rate is very likely to see better result as compared to the other countries in the region in the next few years.
Next, property prices in Malaysia are still relatively cheap as compared to the more developed neighbor, Singapore. For example, a ultra high-end residential property would cost about S$3500 psf or more in Singapore. While a commercial retail outlet or shop in the prime area can cost up to S$15,000 psf or more in Singapore. However, prime residential unit in KL City it is about S$1500 psf, 1/3 of the price of one would pay in Singapore. This is where Malaysia can be a good alternative investment market. Malaysia has escaped property investors’ radar for a sometime now. Although investment, political, social and economic risks do exist, they are relatively lower than some of the newly emerging markets. In additional, when one compare the price of property around the region, in our opinion, Malaysia can indeed fill the void left by some traditional property investment hot spots.
However, we are not suggesting you to invest in any property you may find in Malaysia, for 2 main reasons.
1. It is a big country. In the absence of proper land use planning and a concerted effort to bring in demand for the properties, the glut of properties supply may easily out strip demand by many folds.
2. It has relatively much smaller expats community. Hence rental income may be compromised.
What do you think?
Malaysia is a huge country which city is growing? Which city should you invest in? Please follow us to find out which city in Malaysia is an attractive investment spot.
Renting beats buying a home? It depends BTinvest 10/Nov/2014
NEW research says it may be cheaper to rent than to buy a home in Singapore, if residential property prices here continue their current moribund trend. But does this necessarily mean homebuyers here are better off switching to this option? And is property now necessarily the best place to park one's cash?
The rent-or-buy poser is oft-debated, even worldwide. In the United States, a study this year by Trulia found that home ownership is generally still 38 per cent cheaper than renting. Meanwhile, the Reserve Bank of Australia said it could become cheaper to rent instead, with home prices unlikely to keep growing at the rate they have over the past 60 years.
In Singapore, home prices have fallen faster than rentals, since loan curbs (that is, the total debt servicing ratio, or TDSR) kicked in.
Square Foot Research has found that if prices stay flat, or appreciate anything less than 2 per cent over the next 4-5 years, renting could prove more cost-effective than buying a property.
Analyst Esther Hoon, from the independent property research firm, used the example of a buyer purchasing a condominium unit for S$1.28 million in Upper Bukit Timah (District 21). She assumed the buyer then sells the unit four years later - with four years being the minimum holding period to avoid paying seller stamp duties - at the same price.
Taking S$1.28 million and subtracting the mortgage paid, remaining loan, and initial downpayment and other miscellaneous fees, he would have made a loss of S$149,000.
On the other hand, Ms Hoon's research shows, if he had rented the same unit for a monthly S$2,800 for four years instead, he would have paid a total of S$134,000 in rental - less than the loss he would have made from selling his home.
Buying this unit would still be more expensive than renting it, if home prices appreciate one per cent in 4-5 years' time, her research shows.
But, the tipping point comes when prices increase 2 per cent or more; then, buying becomes cheaper.
For her research, the analyst used median rentals in Q3 2014 and median transacted prices in the secondary market from January-September 2014 for non-landed private homes (excluding bulk sales), on properties ranging from 1,000 to 1,200 sq ft.
She assumed that the property loan was borrowed at a fixed interest rate of 2.18 per cent over 30 years, and the rental was fixed over a 48-month holding period. She did not take into account inflation and discount rate.
So, does this mean homebuyers here should switch over to renting instead?
Singapore, along with some other Asian countries, may be unique in that renting rarely comes across as an option for locals who can afford to buy - even if they bemoan the high cost.
Their motivations go beyond mere profit-and-loss calculations, extending also to personal and psychological concerns - financial security or pride, for instance. After all, they do build up equity as they pay down a mortgage, said R'ST Research director Ong Kah Seng.
Property prices also generally do appreciate in the long term, while rental money essentially goes nowhere, neither bringing one closer to owning a home nor yielding one any returns. It is merely "helping your landlord to pay his monthly mortgage", Mr Ong says.
Singapore's housing policies are also more geared towards home ownership than leasing. Central Provident Fund (CPF) savings, for instance, are a powerful tool that helps locals to buy properties. CPF Ordinary Account savings can be used to pay for the downpayment as well as monthly loan instalments.
"Many people are unsure how best to make use of their CPF monies during the interim years, but if they invest in a flat or private property, they will be on a sure path to capital appreciation in the long term," Mr Ong said.
As for deep-pocketed foreigners looking for a safe haven to park their cash, the absence of a capital gains tax in Singapore continues to provide them an incentive to buy.
But beyond the rent-or-buy options, is there a third alternative investment for one's cash? Or, put another way, what is the opportunity cost of the equity or capital tied up in a home purchase here?
DTZ's Southeast Asia regional head of research Lee Lay Keng points out that home prices have outpaced equities. She calculated that private home prices have grown 6.1 per cent between post-crisis Q3 2009 and Q3 2014 on a compound annual growth rate basis - faster than the Straits Times Index's growth of 4.2 per cent between September 2009 and September 2014.
That said, the performance of the various asset classes can change a lot, year to year. From Q3 2013 to Q3 2014, private home prices fell 3.3 per cent. In contrast, even though the equity market has been sluggish in that same period, blue chips appreciated 1.23 per cent year-on-year as at end-October.
Property Investment in Asia Pacific
Believe it or not our world has become smaller. What? What do we mean that our world has become smaller? There is an unstoppable trend that is happening around the world. That trend is globalization. The emergence of internet, aviation, high speed rail technology has bring our world closer together. For example it will now take about 4-5 hours to travel from Singapore to Malaysia capital city in Kuala Lumpur. With the proposed new high speed rail, the estimated the traveling time will only take about 45-60mins. What does it imply? It means that it is not impossible for someone to stay in Kuala Lumpur but work in Singapore in the future. With internet technology it is also not impossible for that person to work in the train while traveling from Kuala Lumpur to Singapore. All these are quite possible.
In additional, the emergence trend of economic blocs e.g APEC, NAFTA, EU has also hasten the speed of globalization with trade barriers and tariffs coming down gradually. This has enable many companies to take advantage of the trade and tariff incentives to invest and to set up offices within the region. Hence the impending enhancement in trade and economic activities in the region will encourage travel, movement of financial resources, human capital and maybe technology transfer. What is the implications?
We will probably see higher rate of growth in these developing countries where flow of investment would be higher as businesses can enjoy cost benefits in operating in these countries. Of course currently there are risks involved that will the major stumbling block to the continuous growth. The major risk involve being a political one. While the recent economy data is quite encouraging however risks still exist in some these emerging markets.
Real Estate Investment in Emerging Markets
While the trend and data supports the economic growth in many of these emerging markets, however caution must be practiced when investing property in these countries. It is not to say we should not be involved in investing in these countries, however, the risk involved is relatively higher in these countries even though the prices of the properties are many times lower than in more developed economy. Therefore, know what you are going into, or alternatively choose to invest in a country or countries where risk is slightly lower.
Yes, high risk may translate to higher returns, but there is no guarantee this theory work all the time and may prove be painful for some who might have taken excessive risk. So look into the risk involved and weigh your options carefully.
In our next article we will discuss the country in South East Asia that in our opinion is an attractive to invest in and the reason for its attractiveness.
Why Property Prices in Singapore Stay Resilience
Well, most potential buyers waiting on the byline is waiting eagerly for the property news headline to read “Property Prices in Singapore has hit rock bottom……”
To property owners it may sound cruel but seriously anybody who is trying to time the market and hope to pick up a few bargains is hoping for this to happen. In the aftermath of 7 rounds of cooling measures, sales volume has not been very encouraging in recent months. Indeed the effect of the cooling measures is starting to take effect.
What about the pricing? Has it gone depressed? Well, the residential property price index has gone down by about 5% from the peak in around 2013 to Nov 2014.
This is sounding like a news more pleasing to majority of the property owners, instead of home buyers. Why? Comparing the sales volume transacted in the same period of time you will realize that it has plunged by more than 50%. By Q3 last year more than 12,000 units of all private homes were transacted. Q3 this year saw only about less than 6,000 units transacted.
What? The sales volume is down by 50% and yet the price fell by a mere 5%? This is ridiculous! Well, this is good news in the light that prices in the property market show resilience and it also reflect a relatively “calm” and “mature” market that would not react to the slightest negative movement of the market. So what does this imply? Why the property price is so resilience?
First, why the price is so resilience?
We would be glad to know the market stayed resilience because of good policies, market and economical fundamentals. Below are some factors that are supporting the property market.
1. An open economy that bring stable demand for rental market
2. Early pre-emptive policies to eliminate property speculators
3. A recovering global economy
4. A strong financial system to regulate over-leveraging
5. A very comprehensive and effective plan to manage and optimize the utility of land in Singapore
6. A low interest rate environment
All these contribute to the stability of the Singapore property market. Hence, property owners did not panic and reacted in a negative way even when sales volume plummeted more than 50%. Let look at each one of them.
Singapore has a relatively stable rental market. There are 3 main types of work pass for foreigners to enter and work in Singapore. There are,
1. Employment pass
2. “S’ pass
3. Work permit
The Employment Pass is a work pass for foreign professionals working in managerial, executive or specialised jobs. Currently, there are about 176,000 employment pass holders staying in Singapore each year. The number of “E” pass holders remained very stable at around 177,000 for the past 3-4 years and there is no drastic reduction in the numbers of these professionals. Hence rental prospect remain relatively stable, unless there is a drastic change in policy to reduce the number of these professionals in Singapore. Most investment home can be rented out in a reasonable period of time.
In the earlier slew of property prices cooling measures we see the policy makers targeting property market speculators. These are mainly investors with short-term interest in the property market and would take advantage of a bearish market for a quick profit. In additional the regulators also tightened the financing of property loans from banks, these pre-emptive measures had eradicated certain risk associated with these buyers who would be otherwise be vulnerable and might have reacted in a negative way to any market movement.
The world economy is recovering but it is still in a quite fragile stage. Therefore, it is very unlikely interest rate in Singapore will rise drastically. The state of the world economy also reflected the low interest rate environment currently experienced in Singapore. In additional, lower interest rate translate to lower holding cost for a property, as such most property owners would rather hold to rent the property then to sell at a deflated price.
The fundamental of the property market here is good in my opinion. Therefore, we see no panic selling and price stayed resilient. What this implies is that as long as the rental market is stable, and there is no major economy crisis that force many out of jobs or businesses out of business, the price of the property market will continue to show its resilient. So unless there is a change in foreign policy to forbid many foreigners to work in Singapore and affected the rental market, otherwise we will not likely to see a drastic movement in price. But is it likely this policy to be changed?
Share with us your experience and thoughts.
9 Reasons Why Property Investors Fail
There are many reasons why investment fail. The common ones are as below:
Property Investment Treated as Stock Investment
Stock, shares or equity investment is different from property investment. Investors buy stocks to either earn dividends or to make profit out from the appreciation in value of the stocks. Profits from stocks are very much dependent on the performance of the company, or the general economy situation and the capability of the management team. Of course, when we invest in property we do want the property to appreciate in value. But this is not the only way to make money from an investment property. When the price of the property do not appreciate this do not equal to a bad investment. Many people gave up as soon as they see the value stagnant. In fact, the more savvy investors also look at rental returns, possible cash flows, wealth accumulation and even ROI through property investment.
This is a clear advantage of investing in property. This is the only known investment that banks are allowing to finance. While this is good news for investors, however some investors may be tempted to over leverage with the easy credit during a bull market. Many were forced to sell their properties, and usually at a huge discount when the market took a turn.
Lack of Clear Objectives
This is common among many investors. Many would only be concerned about capital appreciation. What about cash flow? What about wealth accumulation and other objectives that is applicable and suit individual's situation and risk appetite?
Lack of Knowledge
Well, it is not uncommon to see herd buying instinct. While this is not totally wrong, it is better to understand at least the demand and supply of the type of property before investing in them.
Inability to identify priorities
Again a common mistakes here. Many are faced with too many priorities and got confused, and hesitated and never really got started.
Lack of Persistence
Well like all investment, investment in property do also carry certain degree of risk. Like all market the property market is also subject to its up and down cycles. Many panic when the market turn bearish, and are eager to sell their property and made a hasty retreat as a result without understanding the situation and careful consideration. Many are even willing to exit even when there is financial loss despite the availability of other options.
Lack of Clear Plan
Making money from property also needs careful planning to avoid unnecessary cost and downtime. What is the market situation and the market rate? How am I going to maximize the income productivity from the property?
Lack of Support
Do you have the time and contact necessary to manage your property? Did you also choose the right partner to work with?
Failure to Manage your Time
Many would think that it is easy to manage or to rent out the property on their own. However, the time spent and sometimes additional stress encountered would not be worth the money paid for a professional to manage it for you.
Property Investment Lesson
For new investors.
We bought our first property, a 5 room HDB premium flat in 1996. Like everyone else we were very happy to own our first home that we can be proud of. We spend about S$30,000 renovating the new flat and moved in soon. Back than everyone was talking about making money from property. We hope to sell the flat in 5 years and make some money from it. How did it turn out?
Well, we could have done much better. How and why?
The housing market was near its 1997 peak. We were young and had just entered the workforce not so long ago. We had some saving in cash but little thing else. When we were shopping for a home, my fiancé who is now my wife said this "why don't we get a smaller flat, then upgrade?" My response...... "we can surely manage, honey". Anyway, both of us are graduates and we were earning pretty decent back then.
Why was it a mistake?
Well, we spend much of our cash into our flat because we had little CPF. We borrowed about S$250,000 for that flat. Our flat was the premium type and costed higher back than. For about S$170,000 we could have gone for a 4 room HDB. If we have gone for the smaller flat we could have only borrowed about S$120,000 about half of what we have borrowed! What would be the effect?
Tremendous! Remember about building wealth nest? Let's not talk about the complicated topic on capital appreciation for the 5 room vs. the 4 room flat. If we had started conservatively we would build our wealth nest faster!
Example: If repayment of loan is 30 years at an interest rate of 4%.
What would be the different you may ask? What would be the impact? We would have paid S$621 lesser every month if we had gone for the 4 bedroom unit, and could have saved about S$7500 every year. That would be about S$75,000 in 10 years time, assuming everything being equal. With this saving we could have paid for the downpayment for another property assuming we did plan or save additional money for property investment!
So there are a few lessons here.
Cooling Measure Singapore
Well, the property market has taken a hit after 7 round of cooling measures.What are my views on the cooling measures?
I had given a talk on the property market in Indonesia for the investors there. The topic was about how did our property market rebound just about a year after what was touted as the most severe economic crisis in 2008. How is this related to the cooling measures?
Well, our property market rebound because first of all we had good economic fundamentals and strong financial systems in Singapore. But very importantly since the 1997 property slump, I believe the authorities in Singapore have learned that the market cannot be left to it own devices. That means the market has to be managed.
Unlike the slump in 1997, the prices of the property took about 10 years to recover. Yes! 10 long years. But the prices of the property took only about 1 year to start recovering, despite the severity of the global crisis in 2008. Why is that so? One of the many reasons (the one that we are interested here) is that the government had various measures in place to simulate demand and at the same time reduce supply. Coupled with an open economy policy that help the demand side of property the prices recovered fast.
What are these measures in place that simulated the demand? These are the previous measures put in place to curb excess demand during the boom time. Like now, we had 7 different type of measures that are managing demand. Without these measures there are basically no room for any regulatory stimulus to bring back the demand. How than can the property market pick up again in a short period of time? Reducing supply is not an option and are less effective as it would not encourage expenditure or simply taking up of the property in time of crisis. Hence, during a bull run it is necessary to curb excessive, speculative demand, so when the bear market returns, we have "weapons" to bring back demand from those buyers who would have otherwise bought during the bull market.
I am seeing this from a long time view. So the cooling measures is not at all scary or bad. If the authorities are vigilant and can be alert enough to adjust the measures according to the market situation, if you are a value investor and believe in steady long term growth, this is then a good news for you. We might have slower rate of growth, but we can be less volatile and has lesser investment risk comparable to others.