Four crucial entry signals that can significantly increase the returns on your property investments

We have seen a significant re-entry of institutional and retail investors into the Singapore real estate market since the start of 2017.

It is hardly surprising that this pent-up demand has returned with a vengeance after four years of muted action as a result of government cooling attempts and where many investors travelled abroad.

It's critical for a novice investor to comprehend the justifications for investing in real estate as opposed to other types of investments.

Photo credited to Stuart Chng

Prices traditionally do not drop below their previous lows due to factors like growing salaries, rising costs, the GST, and inflation.

Prices don't drop below their previous lows for a reason—wage increases, growing costs, GST, and inflation are all factors that accumulate over time.

Like all other markets, the real estate industry goes through cycles.

Why Invest in Singapore Property Market

Realizing that Singapore's property market has one of the best long-term returns on equity performance out of most available investment tools, however, is of greater importance to the individual investor.

And a major part of that has to do with the Singapore dollar's strength, the availability of high leverage, and Singapore's appeal to an international audience not just as a place to invest in but also as a standalone asset class.

I have always emphasised to my friends that they must invest and stay vested locally, despite the allure of foreign properties, because I am a Singaporean and an active market observer.

One of the main benefits is that they would be better shielded from inflation, which is as inevitable as death and taxes and will allow them to see their wealth increase consistently over time due to the compounding effects of inflation on their real estate (similar to interest).

Compound interest is the eighth wonder of the world, according to Albert Einstein. He earns it if he comprehends it. Whoever doesn't pays the price.

I'll concentrate on the essentials in this essay for those just starting out. It's crucial to have gone over the following checklist before starting your search for an investment property.

1. Finances

To understand the initial cash/Central Provident Fund (CPF) outlay necessary, talk to a property wealth planner about your finances before looking at any properties.

You might significantly impede your path to financial freedom by avoiding costly starting mistakes by having a knowledgeable third party conduct an assessment.

A trustworthy property wealth planner will assist you in determining the minimum amount of cash and CPF needed for the down payment, buyer's stamp duties, legal fees, and other costs. They will also give you advice on the best acquisition strategy as you move forward and buy more properties, as well as a road map for your investments.

2. Loanee qualification

To avoid unpleasant surprises after making a deposit, it is especially crucial for investors to confirm their maximum loan eligibility under the current Total Debt Servicing Ratio (TDSR) framework.

In this situation, one of your initial goals should be to speak with a property wealth planner or a mortgage banker.

3. Holding technique

A property wealth planner can give you advice on the many choices available to maximize tax savings (which can be large) and qualify you for more funding possibilities if you are an investor who already owns a HDB flat or private home and are purchasing your second property.

This is crucial for people who want to expand their property portfolio and need access to reduced costs and better leverage.

4. Investment timeframe and goal

The segments you should concentrate on can be reduced with a clear understanding of your investment goal horizon, saving you valuable time and effort.

In this situation, pay attention to neighborhoods with low vacancy rates and a large pool of potential tenants.

- Do you buy short-term real estate investments in order to profit from market trends?

Are you, in this instance, financially able to cling on in the event of a black swan event?

- Do you buy properties with the potential to be en bloc?

Are you knowledgeable about the properties in this situation that have real potential?

Older homes may not all be en blocable.

After going over the aforementioned points, the following considerations have historically worked well for me and my clients as a checklist of investment requirements.

How can you tell if a project you're considering investing in is worthwhile?

The Four Indications That a Property Is Investment Grade

Your next investment should ideally satisfy all or the majority of the signs. Otherwise, the minimum to show a property remains worth hanging onto is having at least 2 out of the 4 factors checked.

1. Potential for capital growth

How a property performs in comparison to the district's price index is one of the signs of a good investment.

For instance, if a specific project has increased more than its neighbourhood over the past year, it may imply higher buyer demand as a result of a combination of elements like proximity to amenities, quality and upkeep, design and facilities, etc.

Because of this, both locals and investors are very interested in the property.

Since you would only have the benefit of hindsight with resale homes, this generally applies more to them.

Points 3 and 4 below will be more pertinent for new initiatives.

2. Rental income

Strong rental income indicates a property that is in high demand.

It's vital to remember that certain developments experience high vacancy rates and low rental rates even when their neighbours experience the opposite.

Making an informed decision regarding a property's investment grade requires careful research.

To find any inconsistencies, examine the rental statistics for both the project you are interested in and the nearby projects.

You might find better investments with its assistance.

For the Core Central Region, anticipate at least a 3% rental yield; for the Rest of the Central Region, expect a 3.5% rental yield; and for the Outside of the Central Region, a 4% rental yield.

You can definitely discover such properties! Although difficult because of the extensive reconnaissance required, it is doable.

Join my mailing list if you don't have time to look, like many others do, so that you can be informed whenever such discounts are discovered!

3. Growth narrative

One of the frequent causes of real estate booms in some regions is infrastructure improvements.

This occurs elsewhere in the world, and more recently onshore, we can see how infrastructure developments have affected property prices by looking at the valuations of Sengkang, Punggol, and Jurong.

There is a fair possibility you will reap the benefits in the years to come if the region in which you are investing has a significant growth story driving it.

But keep in mind that careful research is still required, and investing in anything just because it's in a growing region is risky.

As they begin to evolve under the URA MasterPlan 2019, places like Paya Lebar, Bidadari, Marina Bay, Pasir Panjang, and Woodlands are projected to experience higher capital growth values over the following ten years of growth.

Photo credited to URA

The secret to successful real estate investing is a trip to the URA Center at Maxwell Road and a thorough analysis of the masterplan. The secret to successful real estate investing is a trip to the URA Center at Maxwell Road and a thorough analysis of the masterplan.

The URA MasterPlan is your closest friend and a map of Singapore's future growth areas. It is strongly advised that you read the entire document and keep up with what the government has planned for the coming 10 years if you want to be an astute investor.

All investors are capable of having vision if they do their research.

4. Right Entry Price

A. Below Market Value (BMV)

In order to start their investing travels with what we refer to as "built-in profits," resale property buyers should, whenever feasible, keep an eye out for properties that are priced below market value.

Given that these properties are frequently picked up rapidly, it is true that it is not always possible or simple to find them.

However, it is a wise guiding concept to take into account before choosing a property.

The choice you choose should, at the very least, be at fair market value and, at the very best, below market value.

B. Price for Right Entry

Since new launches are never priced lower per square foot than resale homes, it is typically not possible to purchase at below market rates.

Due to the inclusion of profit margins for the developer, which are calculated based on the current costs of production, brand-new properties often fetch a premium price.

What kind of expenses?

First, in our country where land is limited, land costs are always rising.

Second, with wage inflation and rising consumption taxes, material and labor expenses in the fields of architecture, interior design, and building, among others, rise over time.

That does not, however, imply that it is impossible to locate a new launch property with a reasonable entrance price.

To achieve that, we must always assess new projects side by side (apples to apples) in order to determine which new idea has the lowest risk and the most upside potential.

Because you are acquiring at a price that is comparable to other owners, buying a new launch property has the advantage of lowering your downside risk. Furthermore, pricing pressure might be increased because developers typically raise prices in stages.

Photo credited to Stuart Chng

Furthermore, most investors hang onto their assets until they generate a profit due to the human propensity for loss aversion.

This reduces the likelihood that other property owners may sell their properties for less than you paid for them.

Resale properties, however, cannot be considered to be the same since the buyer will typically need to pay more than the original buyer did.

Pricing pressures become much stronger downward than in the circumstances of fresh launches when the majority of the original buyers have purchased at lower prices and are able to sell at a lower price whenever they choose.

Summary

As a general rule, your property has a higher investment potential the more of the aforementioned criteria it satisfies.

I would compare it to this example.

There is a 25% chance that it will be a solid investment if only one of the four criteria is met.

You have a 75% chance of making a wise investment if it meets three of the four criteria. so forth.

How do you decide whether to keep your current HDB or private property or sell it?

To choose the optimal course of action, use the decision-making matrix below.

Photos credited to Stuart Chng

Sell or keep my HDB apartment? a process for making decisions

Decision-making matrix for HDB apartment owners

Should I put my house up for sale? a process for making decisions

Making decisions on many property owners versus private property

Property investing is a team sport, so I strongly suggest you put together a group that includes a mortgage specialist, attorneys, and wealth planners to provide you advice on potential pitfalls and the greatest investment properties currently on the market.

You can avoid costly errors and blind spots in your judgement that could take years to uncover with the help of the collective expertise and insights.

My team and I have assisted numerous clients in beginning their journeys toward owning a number of properties with respectable passive income and returns throughout the years.

About The Authors

With over two decades of experience in the industry, the couple Mortgage-Bankers-turned-Realtors, Jan Tan and Leonard Cheah have been providing valuable and unbiased solutions to Home Owners & Seekers.

With a fusion expertise on real estate and mortgages, Property Bankers have helped their clients to make informed decisions that aligns with their unique needs and financial capabilities.

Their approach is transparent as they provide all the necessary information and support to help our clients navigate the complex and ever-changing real estate market. Trust them to be your guide in your real estate journey. Contact them today for a one-time free 30-min consultation.