Friday, March 16, 2012

Are Singapore property still affordable at this price?

A good read news from Channel News Asia :P

Singapore property prices is still low and affordable with good rental yields.

A 2 room BTO HDB flat only cost $100K and after grants only cost $40K. Even someone earning $1K a month can afford to buy one. After he buys, the resale value can easily rise to $200K after MOP. He is in the money by 5 times the initial cost of $40K. This is Singapore, a compassionate country, a dream home for many immigrants from all over the world, esp from the region.

If you look at the resale flats, they are also cheap. Why? Just look at the rentals you can fetch. A 5 room HDB flat can easily fetch rental of about $3K a month or $36K a year. This is a yield of 6.7% and if you take HDB loan of 2.6% per annum fixed for 30 years, you will be enjoying positive net returns. In 15 years, you can collect $540K, which is about the current price of a 5 room HDB flat. So it means, the balance of the lease (84 years) is free for you to live in theoretically. But in reality, your flat will go for enbloc once it reaches 30 years old and you get a new flat.

So based on a $36K a year annual rental, in 99 years you could theoretically collect $3.5mil. And since the current flat is only $540K, it is considered cheap, very cheap.

For condos, go for those in the suburban areas such as Jurong, Woodlands and Punggol. A condo in Jurong costs about $900K and you can rent it out for about $3.5K a month or $42K a year, which means a gross rental yield of 4.7%. With $42K a year rental collection, you can collect $900K in 21 years. You can theoretically collect $4.1 mil over 99 years and since price is only $900K, it is very cheap. And in 21 years, if your condo is next to the MRT station, it may get enbloc and you get big profits. Jurong Lake properties prices will likely to rise significantly over the next decade when the area is fully transformed into the 2nd CBD. With the new development, rentals will also rise. From $3.5K, rentals can rise to $5K a month or $60K a year or $5.9 mil over 99 years. A $1m 3 bedroom condo at the Jurong Lake District is dirt cheap. Just grab!!!

Another property segment you should grab is the $1m plus 3 storey landed properties. These will likely hit 2 mil plus over the next few years as supply is shrinking fast while demand is rising fast. These properties built-in area is about 3000 sq ft and selling at only $500 psf.

So you should just buy. Buy and hold for 30 years.

Dont listen to many people here who are misleading you. They are dying to buy and creating fear because they want to buy cheaper than the current cheap levels. If you are in no hurry to sell, dont sell. If you are selling, make sure you get a replacement property immediately because prices will continue to rise over the next decade and beyond.

Dont forget that Singapore properties is a good hedge against inflation. Inflation is about 5% and fixed deposit earns you less than 1%. The value of your money depreciates every second, every minute, every hour, every day.... The global debasement of paper currencies due to the monetisation of debt by the global central banks of the world, means that real assets prices will need to rise to maintain their real value. Do remember that assets such as stocks and structured products are high risks and their value can go down to zero, whereas Singapore property values may correct but will always rise in the long term as it is a solid brick and mortar asset. Singapore properties will appreciate in the long term. Those who bought a 5 room HDB flat in 1980 at $80K now see the value of their flat appreciate to $500K today, esp after their estate has gone through the main upgrading program. Some properties which were bought at the high of 1996 did drop in value but now have mostly recovered and now the prices are higher than the 1996 high due to limited land, higher family dual incomes, inflation, Singapore's strong economic growth and bright future prospects, better amenities, more MRT stations and lines, good government and strong local and foreign investor confidence that the government will manage a gradual long term price increase but not to purposely crash the property market (cooling measures are to cool the property market but NOT crash the property market). So prices will recover if you hold long enough. Most important is your ability to hold.

When you're buying remember to buy within your means. Do not overleverage. Use 40% cash downpayment and only loan 60% and make sure you can finance your monthly mortgage comfortably. If you have a HDB flat now, sell it away and use the big profits as the 40% cash downpayment. Buying using 40% cash downpayment ensures that you are firmly in a strong position to hold the property for a long time. Buy the cheap suburban condos in Jurong, Woodlands and Punggol. Dont buy expensive luxury condos if you cannot afford. With a 40% cash downpayment, mortgage rate of 1.5%, and a small loan, you dont have to worry even though mortgage rate rise from 1.5% to 1.8% next year.

You can consider selling away your fully paid $900K 5 room HDB flat in Queenstown and buy a $900K Jurong Lake District condo, fully paid. Condos in the Jurong Lake District have a much greater price appreciation potential over the next decade when the area is transformed into the new CBD.

23 comments:

  1. Hi,

    Nice article. When you mention Jurong lake district as new CBD, what areas can have a great appreciation potential for private condomiums? Jurong East, Bukit Batok, Cho Chua Kang? How do you identify good projects in Jurong Lake district? Is it advisable to buy something which is near to future MRT stations?

    Cheers,
    Rohan

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