Sunday, 21 October 2012

My Property Journey Rewind - 2009

Let's continue with part 7 of my journey. This time round it is for only 9 months.

It was Q1 2009. I rub my hands with glee because I really didn't expect to be able to experience 2 cycles within a short 10 years!  I have shared with you previously that the prices has fallen to an attractive level of 140 and I base it from analysing the chart below where 140 is the breakout neckline which has now turned into the support zone.

The earlier years of trading and losing in the stock market has actually helped me sharpen my market "feel" and i have learnt to impart that to trading the property market as well.

I began hunting for properties. I told a good friend that it was time to hunt for property and that if she is looking for a property in the Rivervalley area, please call me along. I even told her to hunt for units at Rivergate or The Sail  where I saw units being advertised for between $1,300 to $1,500 psf. 

I called an agent who has placed out a long series of units that is for sale The Sail @ Marina Bay. He said he will arrange viewings and call me back but he never did. Let me share with you what i learnt about the tricks of property agent.

Lesson Learnt: If you see any advertisements showing a long series different units within the same condo or different units in different condo, these are agents who usually have no units for sale. In other words, they don't have real units on their hand. They are not the 'exclusive agent'. They are doing a 'shot gun' approach whereby they hope to receive phone calls from you. If you are a genuine seller, they will try to make you appoint them as exclusive agent. If you are a genuine buyer, they will then try to arrange some units for you to view. If you see only a short description of the property for sale or a picture of the property in the classified ads, the agent is probably the exclusive agent or acting for the seller.

So what happened was that i have called someone who either think that i am not a genuine buyer or that he really couldn't find any units for me. Another agent i called claimed that the owners are out of town or that the units are being rented out and i can only buy it from the floor plan. I was quite put off by these agents and stopped calling after a while.

Lesson Learnt:  Persevere. I should not give up so easily. My intention was to buy a 1,033 square foot apartment at The Sail for $1,300 psf. The condo will cost me around $1.34m. My lack of perseverance cost me dearly as prices has since increased to around $2,500 to $3,000 in June 2011. The "profit loss" is around $1.2m.

Between May and Sep 2009, I visited many showflats. I visited The Arte, the Illuminaire on Devonshire. The units at The Arte were going being sold at between $850 to $900 psf if i remember correctly but i didn't like that location. 

The Illuminaire showflats were full and super crowded and that was in the midst of the crisis! In fact, all the 2 bedroom units were gone when i visited on the 3rd day of the launch of illuminaire and they were transacted around $1,600 psf. Again, the "profit loss" will be significant as the prices has since gone up to around $2,500 psf. 

For one reason or another, i didn't pull the trigger. I don't want to give any excuses here but basically i felt that i have missed the boat. I couldn't make myself chase after rising prices. 

By Nov 2009, i gave up looking at condominiums as i felt that they were overvalued. If you refer to the red rectangle, i was hunting actively for a condo during that period but the recovery is so fast that I couldn't catch it! It will look quite silly if i buy back a unit at the price i sold last time.

Lesson Learnt : Buying a property is not like going to the market. You need time to hunt for one ideal property but sometimes, time and tide waits for no one! When the V shape recovery comes, the prices just keep moving up and there are many who just let the agents market their units and are not genuine sellers. They just wanted to test the market. On the other hand, 6 months is pretty short to find an ideal property....

In Dec 2009, I decided to turn my focus on landed property for my own stay as i felt that the landed homes offer better value and more space and i should "exercise my right" as a Singaporean to own a landed home. I started to hunt for an intermediate terrace and found one in District 15. It has a land size of 1,600 sqt foot unit and was a 2 storey house with an attic and the built up is around 2,700 psf.

The owner asked for $1.68m and i paid the 1% deposit that evening. I was in a hurry as we were flying off the next day for our holidays. Big mistake. 

Lesson Learnt : Never make such an important and hasty decision when you are flying off the next day and never do any prior research.

I have no experiences buying landed homes and i didn't do any homework. In other words, i wasn't prepared. When i came back from the holidays, i started to do my homework and discovered two "harsh" realities. 

1. We are paying the record prices for landed homes in that area! In fact, i will be the record holder if the transaction goes through. I realised that landed homes is valued on the land size and not the built in area.
2. The banks are only valuing the home at $1.5m and i will need to cough out the difference on top of the 20% downpayment.

On top of that, the house will still need some renovations which will set me back by another $100-150k.

After much deliberation, i decided to "cut loss" and move on. My wife has always been supportive of me and i am pretty thankful. Here you go, my hunt for a landed home ended in a disaster in 2009. It was the worst Christmas i had. I became Santa Claus and gave the owner a big Xmas present of $16,800. I paid school fees again.


The house was subsequently sold for a lesser price than $1.68m to another buyer but fast forward till today, i believe the terrace house can be sold for around $2m to $2.3m as landed homes have moved up very strongly in the last 2 years.

Did i ever regret my decision to become a Santa Claus and forfeit my 1%? I will share my journey with you in the next instalment. At the end of my journey, i will share with you the next support level to watch out for if you are looking to buy a property.

Sunday, 14 October 2012

My Property Journey Rewind - 2008 to 2009 Q1

One reader asked if i can speed up my story, so here you go, 15 months at one go. hahaha.

Let's continue to part 6 of my story today where we travel to 2008.

Part 1 is here.
Part 2 is here.
Part 3 is here.
Part 4 is here.
Part 5 is here.

It was early 2008, i had just sold my first condo for a handsome profit and was sitting on a pile of cash. The feeling was good because i had shared with you that i lost at least $100k during my first foray into the property market back in part 1. 

With the benefit of hindsight, actually, i didn't make a lot of money. It was probably slightly around $450,000 before stamp duties and broker's commission. As i shared with you previously in part 5, the reason why i felt the pinch about the broker's commission is because it represent almost 5.8% of my profits!.

Brokers commission = 2% x 1,218,000 x 1.07 (gst) = $26,065.
Profit before stamp duties and commission and loan termination = $450,000
% brokers' commission = 26/450 = 5.8% !!! 

As i shared with you in Part 5 of my story, learn to negotiate the commission with your real estate agent. As you can tell, i never use her thereafter.

Now you will be interested to know what I did with my new-found wealth. I promise to be truthful and you will be quite disappointed. hahaha.

After spending for a nice holiday in December, buying some nice watches for ourselves, i then blow it on my dream car! I upgraded myself from an entry level Japanese car to a German continental car. Still can't run away from the chase of material pursuit. :P  

Lesson Learnt - Man always want to show off. It is in our nature. It was my dream car and i just have to buy it. Maybe we men have a weakness for cars?  But the truth is..... I have never regretted buying it. :P

So here you go. $160,000 gone towards a nice car. While i wish to tell you that i had utilize the money wisely, i am sorry to say that this hasn't been the case. The "model" answer should have been i have used the $160,000 wisely and invest in stocks and properties during the downturn but this was not to be. :-P However, as i told you, i have never regretted buying the car, so the "atas" feeling over this 5 years was probably worth it. hahaha.

I also invested $50,000 of my cash into a pre-IPO Chinese company. I will tell you what happen to that investment in another story. But here you go, now you know my risk profile? There is no "lesson to share" here because i went in with my eyes open so i am prepared to lose this $50,000. On hindsight, this is a risky investment but i guess being flushed with cash can cloud one's judgement? (I am not saying this investment is a bad one). So here you go.... almost half my profits gone.

Lesson Learnt - It is easy to spend money. No one need to teach you how to spend money. You can just easily blow it on nice holidays, cars, bags, watches and frivolous stuff. 

Above is the 5 year chart of BMW and LVMH. If i have invested $160,000 into the 2 stocks back in Q1 2008 and sell it today, I will probably get a return of 71% = $273,600. However, Euro has depreciated from 2.11 to 1.58 against the SGD. So the returns will probably be lowered by 25%. The returns in SGD after accounting for forex movement will be $204,875. So in spite of the depreciating Euro rate, it is still a worthwhile investment to park money in the stock market of the worst region of Europe.   

Lesson Learnt - It is always good to invest in good quality companies during the crisis. 

A few major things happened in 2008. The Lehman Bros went bankrupt in Sep 2008 and AIG was bailed out by the government. The sentiments were extremely bearish and people start to wonder which will be the next company that will go bust. In addition, Singapore government also started several initiatives to boost the local economy. 

As you can see the property prices in Singapore started to correct as well. I intentionally cut off the chart at Q1 2009. This is because we are always at the right side of the chart. We never know what will happen next. The property market has effectively "crashed" in Singapore due to the bearish sentiments. 

There are a few things to share at this juncture and i will end my post shortly.
  1. A market crash is always swift and when it comes tumbling down. You have no time to react. Given that the chart above is a "lagging" indicator, i can probably say that i got out at the peak. 
  2. At Q1 2009, there were 2 schools of thoughts in the market. Will this be a U shape recovery of a V shape recovery? The answer is no one knows! You have to decide for yourself.
  3. Sentiments play an important role! Prices only started to drop when sentiments become bearish and genuine sellers start to appear! This is the reason why i say that for our market to drop, we need to see some bloodshed in the market. Otherwise, it is probably impossible.
However, always be prepared for a crash. I shared with you an old posting of mine made in 5 Oct 2008. I advised readers not to miss the boat again when the prices drop to the 140 levels and this is exactly what had happened. Prices dropped to the 140 levels in Q1 2009.

Lesson learnt - always be prepared and when the time comes, don't hesitate....?

I will share with you my property hunting journey in 2009 in my next posting and how it ended in a disaster.

Have a good week ahead.

Tuesday, 9 October 2012

Round 6 - Will it work this time?

Interestingly, after my post on 25 Sep 12, the government came up with the 6th round of cooling measure.

The two measures are as follows:
  1. Mortgage tenures limited to 35 years.
  2. Lower loan to values on loans over 30 years.
In my opinion, i think MAS (or the government) will continue to watch the market closely and do whatever it takes to cool the market in order to avoid a property bubble.

A graphical view of the cooling measures from the Morgan Stanley report.

The new measures are pretty interesting because it seeks to stop people from buying their 2nd or 3rd investment properties. It is trying to 'curb' the demand. Below is the graphical view of the "decision making tree" of the latest measure from Kim Eng.

I will not rule or further government measures should the prices continue to spiral out of control. However, the latest measure would probably weed out older investors (people aged 45 or more) and investors who are unable to afford the monthly mortgage due to a shorter tenure. It makes it difficult for "yield arbitrage" to take place through a shorter tenure and a higher down payment of 40%. 

Let's talk about how a yield arbitrage works. Let's say i bought a property for $2m and the value has increased to $3m in the last 2 years. I then tell the bank to lend me $1m at 1% and I use the $1m to buy a fully paid property to rent it out for a 4% yield. In this instance, i have a yield arbitrate of 3%.  I was contemplating such a 'trade' earlier this year but decide against it eventually.  Figures provided for hypothetical case. 

Will Round 6 finally work and forced a correction in the property market? Kim Eng seems to think so and believed the latest measures will tip the segment closer to a 10% correction by end 2013... hmm... not too far from the 13% predicted by Morgan Stanley?.

Do share with me if you have originally intended to buy a second property but this latest measure has finally put you off? Or if you are a first time buyer, is this the final measure which you are waiting for? Happy property investing.

Monday, 8 October 2012

My Property Journey Rewind - 2007

The latest government measures to cool the property market hit us on 5 Oct 2012. I will analyse the impact another day but it really seemed that the government is trying its best to stop the property bubble from happening.

Let's continue with part 5 of my story today where we travel back to 2007.

Part 1 is here.
Part 2 is here.
Part 3 is here.
Part 4 is here.

It was Feb 2007. HSBC just announced that it will have larger than anticipated losses from default of subprime mortgages. This was the first warning point and the start of the subprime crisis. I was watching the subprime situation closely.

Lesson Learnt - Be informed and always keep yourself updated to the things that are happening elsewhere in the world. Singapore is a small country with an open economy and will always be impacted by other crisis around the world.

The second warning came in June 2007 when Bear Sterns went into trouble and have to be bailed out. This has a ripple effect on major wall street firms that lent money to Bear Sterns. The failure of Bear Sterns was one of the deciding factors for me to get out of the market while I can. While the property market is holding up in Singapore, somehow my intuition told me that sooner or later, the reality will hit home in Singapore and more failures will hit the market. 

In August 2007, i began to market my property actively and i became a serious seller. In Oct 2007 i received a cheque of $1,000 psf. Someone has offered to buy my unit for $1,218,000. I decided to let go of my unit but i also learn some interesting lessons in the process.

Lesson learnt - Negotiate the commission with your real estate agent.

I have always thought that the agent's commission is fixed at 2%. I was quite naive then. I didn't know that the commission is negotiable, especially for units which you have given 'exclusivity' to the agent. The 2% works out to be around $24,360. Don't get me wrong, i always believe in paying my agents for their services but in this case, the property has not even TOP yet! There was nothing much for the agent to do except listen to phone calls and email the floor plans to potential buyers. In fact, i believed my agent didn't market my unit actively other than to post the ad on their 'intranet'. 

I will share about the importance of having a good agent working for you in future posting but remember my posting today. The commission is negotiable and you pay them more only when they deserved it. - In this instance, a 1% commission would have suffice.

Another Lesson learnt - Don't have to sign exclusivity with any single agent. 

Another lesson i learnt is that you don't have to sign on dotted line the 'exclusive agreement'. I made that mistake and i think my agent wasn't 'too hungry' as a result of that. She took her own sweet time to market my unit and since she is going to receive 2% of the sale proceeds as commission, she wasn't too hungry either. She is most willing to share the commission by co-broking and was not properly incentivised to sell my unit at the best price available. In other words, our interest weren't aligned. I have since learned to sign my agreement with my agent verbally. He or she has to take my word for it that he is the exclusive agent and i am a man or my word.

So here you go, i sold my condo in Q4 2007 and that was before Lehman Brothers went belly up in 2008. As you can see, i managed to sell my condo at the high price back then. The reason why i sold back then was that i didn't know how long the crisis will last and how it will impact the market but my intuition told me to get out of the market while i  can.
The chart is below for your reference.

Lesson Learnt - With the benefit of hindsight, what you think is clever may actually be quite foolish!?

The interesting thing about this was that i thought i was a 'genius' in selling at the top but with the benefit of hindsight, the unit  which i sold at $1,000 psf has since risen to more than $1,500 psf in 2012. So do you think i was clever or foolish in 2007!? :P

The answer to the above question is this. If i have sold and then do nothing after that, i would really have become the most foolish man BUT If i had sold the unit and then do something during the crisis, then perhaps, i am not so foolish after all? My mindset back then for selling was to switch out of district 8 and move into either District 1, 9, 10 or 11. 

Here you go. My story till end 2007. I had a good holiday following the sale. I will share my journey with you what happened from 2008 onwards in my next posting and the foolish things i did with my 'new found wealth'.  :)  

Happy property investing. 
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