Issue 167

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CONTENTS
p2 Property Valuation: Money Not Math
p10 Singapore Property News This Week
p14 Resale Property Transactions
(July 16 July 22 )
Welcome to the 167
th
edition of the
Singapore Property Weekly.
Hope you like it!
Mr. Propwise
FROM THE
EDITOR
SINGAPORE PROPERTY WEEKLY Issue 167
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By Gerald Tay (guest contributor)
Many investors have NO idea how to get their
yields right. An investor cannot evaluate any
investment, whether it's a stock, bond, rental
property, or option, without first
understanding how to calculate Return on
Investment (ROI).
Recently, a seasoned investor (lets call him
Henry) asked if I could help evaluate his
investment yield for a property he just
purchased. He calculated a Net Rental Yield
(NRY) of 8%. My calculation came to 1.5%.
Property Valuation: Money Not Math
SINGAPORE PROPERTY WEEKLY Issue 167
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Whos right, whos wrong?
One BIG mistake investors make is failing to
understand how to get their yields right.
Henry is among many investors who lost
money for this reason, not because he bought
a dodo investment. For example, NRY is the
most basic form of yield every investor should
know to evaluate.
Surprisingly, in every real estate class I teach,
none of the participants (seasoned investors
included) have ever gotten it right! To prove
my point Solve NRY by yourself below
(answers can be found at the bottom of the
article). Calculate the Effective Net Rental
Yield for the following property:
Purchase Price: $1,300,000
Down payment: $260,000
Annual Mortgage Payments: $27,700
Annual Interest Payments: $15,600
Stamp Duties: $33,600
Monthly Gross Rent: $4,000
Rental Agent Fees (1 year lease): $2,000
Renovations: $10,000
Annual Property Expenses: $8,660
The second big mistake investors make
Does Net Rental Yield (NRY) equal the Final
ROI or Return on Investment?
NRY must be used mutually with other yield
ratios to accurately assess the performance
(or Value) of ones property and ROI (Ill
explain more in future posts).
SINGAPORE PROPERTY WEEKLY Issue 167
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Consider the six toughest buying-decisions
considered by investors and home buyers:
1. If I buy when prices are falling, am I
catching a falling knife?
2. If I buy when prices are rising, am I
overpaying?
3. When is a good time to buy, sell or rent?
4. How do I know if I will achieve my desired
ROI?
5. How do I gauge asking prices from sellers?
6. How do I know a good deal from a bad
one?
Almost everyone would agree that novice
investors do not know how to do fundamental
analysis or read financial statements. They
trade off the headline news and price
momentum. They speculate very frequently,
and lose a lot of money trying to flip property.
At the other extreme are successful investors
who use fundamental analysis for property
valuation. They buy, hold for long periods and
generate fine returns.
Guessing games played in the Investment
Guru land
Here are some ways the Investment Gurus
try to gauge the value of a property:
1. Indicative Bank Valuations
2. Monitor average prices of new launches
within the same or different regions
3. Gauge asking prices on price-per-square-
foot for properties within the same or different
regions
4. Developers Cost Based Approach:
Total Cost = Cost of Land + Construction +
Financing + Taxes
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Therefore, Selling Price = Total Cost +
Sellers Profit
5. Cost of Land Approach
6. Rely on Expert Forecasters
When you walk into the Investment Guru
Land, youll find that the investment guru
who eats his own cooking is the exception,
not the rule.
Sadly, the above Try to beat the casino
valuation methods are sold as investment
wisdom to retail investors and home buyers.
Take, for example, the Developers Cost-
Based Approach. The major flaw in this
approach buyers suffer the sellers chase
for profits. In the case of a property
developer, if his cost rises, he simply
transfers these costs to buyers. This is an
untenable position, especially for the average
buyer.
Another evident example - Indicative Bank
Valuations. Different banks can come up with
very different valuations for the same
property, which is baffling for many.
Unfortunately, most people require a bank
loan, such that the banks valuation is the
final word.
If we are buying or selling a property, the
banks valuation is a major determinant of the
loan quantum. And herein lies another
problem: SENTIMENT drives property prices.
Heres evident proof of the flaws in relying on
Indicative Valuations:
MS YVONNE LEE LEK SIEW LING:
Recently, I received two valuations from the
same bank for the same property which
differed by $200,000 or 15% of the asking
price. (Reported in the Straits Times Forum
Page on 18 Jan 2011)
SINGAPORE PROPERTY WEEKLY Issue 167
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In response to the letter above,
Indicative valuation should not be interpreted
as the proper valuation of a property..
While Ms. Fischer finds that indicative
valuations are useful, they must not be relied
upon for ones property investment decision.
..it is not a subscribed valuation practice.
Evelyn Chang (Ms.), Executive Director,
Singapore Institute of Surveyors and Valuers,
Feb 12, 2011 (The Straits Times Forum)
In response to a letter from another
disgruntled buyer,
We caution against relying on such
indications, and urge buyers or sellers to
obtain proper valuation reports from licensed
appraisers if they need to ascertain the
market values of their properties.
Evelyn Chang (Ms.), Executive Director,
Singapore Institute of Surveyors and Valuers,
Jan 18, 2011
As you can see, the above valuation methods
involve plenty of guesswork and exuberant
assumptions. They may work in a bull market,
but fail miserably in a bear market.
I Just Want the Truth!
So how do we value property as close to its
true value as possible even after taking into
consideration all subjective elements like
emotions, hopes and sentiments?
How do you value your property objectively
and within reason either as an Investor,
Home Owner or Seller?
TIP: If you can get your ROI right, all other
parameters, including price and location
would have fallen into place.
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Simple start with the basics.
This is the thrust of the educational series of
posts I will be writing on Property Valuation.
Test yourself!
Exclude property cooling measures for
simplicity. Answers are at the bottom of the
page.
All you need is a pen, paper, financial
calculator and a few minutes, and you will be
able to derive your property valuation. Ill
explain my answers in future posts.
These questions are NOT purposefully
designed to be confusing or to give you a big
headache. Im sure youll find that these
questions reflect many similarities on actual
grounds for making critical buying and selling
decisions.
Its okay if you fail to derive any answers we
learn from our failures. For those of you who
did or came close, great job! Youre on your
way to being financially wealthy.
Im kind enough to provide many crucial
numbers for you to work on. In reality, these
numbers are NOT present and you have to
find them by yourself! And this is the part
where many investors fail.
Let the test begin
1. A property is priced at $1.4 million and is
expected to generate a yearly net cash flow
of $41,200. Assuming no leverage, would an
investor with a Desired Rate of Return of 8%
be wise to invest at the current price and sell
in five years?
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2. Refer to the table below: Which investment
has a higher Rate of Return, A or B?
3. Im 35 years old today and estimate that Ill
need $1,000,000 to retire comfortably at 65
years old. If Ive $100,000 to invest today,
what annual Required Rate of Return would I
need to reach my goal of $1,000,000?
4. Your investments Desired Rate of Return
is 8% per annum. If a property has a 5%
Effective Net Rental Yield, should you
purchase it assuming all other parameters,
including price and location, fall into place?
Why?
Answers
Question at beginning of the article: Effective
NRY = 2.7%
1. No, the Net Present Value (NPV) is -
$292,212. Even though NRY is 2.9%, it is a
wealth-decreasing project.
2. Investment Bs Internal Rate of Return
(IRR): 25%. Investment As IRR: 20%
3. Required Rate of Return for retirement: 8%
p.a.
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4. Yes, 5% NRY is a stable yield investment
and with leverage, the Total Return will be
much higher than 8%.
By guest contributor Gerald Tay, who is the
founder and coach at CREI Academy Group
Pte Ltd, an organization dedicated to
empowering retail property investors with
smarter investing philosophy and strategies.
He is a full-time investor with over 13 years of
solid experience in building his wealth
through Property Investment and is financially
wealthy today.
SINGAPORE PROPERTY WEEKLY Issue 167
Singapore Property This Week
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Residential
Private home price continues to fall
According to the National University of
Singapore, the Singapore Residential Price
Index (SRPI) has decreased by one per cent
month-on-month in June. Nonetheless, the
price index which reflects changes in the
market for private condos is still 36.1 per cent
higher than in January 2008. Data from URA
showed that out of the 1,412 completed
private homes that were not sold by the end
of June, 63.3 per cent were located in the
Core Central Region. From May to June, sale
of private homes in the Central Region fell 1.5
per cent while those in non-central regions fell
by 0.4 per cent. Ong Kah Seng from RST
Research believes that restrictions on the
Total Debt Servicing Ratio have impacted
buyers ability to make large loans, hence,
limiting their ability to purchase new homes.
Nicholas Mak from SLP International adds
that he thinks an increase in supply of homes
in the Outside Central Region will push rental
prices downwards first before impacting
resale prices. Thus given that the supply of
private homes is expected to increase and
that the rental market is weakening, private
home prices are expected to dip further.
(Source: Business Times)
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Analysts optimistic about property market
despite falling prices
According to Real Estate Developers
Association of Singapore (Redas), the outlook
for the property market will remain positive
despite an expected 10 to 15 per cent fall in
residential prices in the coming two years.
Song Seng Wun from CIMB Research said
that market liquidity is high as buyers are
anticipating a drop in residential property
prices. Thus, Song believes that there is no
rush to lift cooling measures. Chua Yang
Liang, head of research for South-east Asia
and Singapore at JLL expects home sales
volume to continue moderating with the
implementation of the total debt servicing
ratio framework. While the framework was
introduced in 2013, it only started taking
effect three quarters after it was implemented.
On the other hand, Toby Dodd from Cushman
& Wakefield predicts that office rents and
occupancy rates will increase in the next year
as the supply of prime grade office space
remains limited. He expects the net demand
for prime grade office space to exceed 1.5
million square feet by the end of 2016. As
such, despite the expected fall in property
prices, the longer-term outlook for the
property market remains positive.
(Source: Business Times)
Commercial
Rising vacancy in industrial spaces
Colliers International said that there is an
oversupply of industrial space in relation to its
demand. This is likely to worsen the level of
vacancies. According to Chia Siew Chuin
from Colliers International, there is a need for
the government to improve current policies on
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industrial space usage in order to boost
occupancy rates. Under the current rules by
the URA, 60 per cent of the total floor area
has to be dedicated to core industrial
activities while the remaining 40 per cent may
be used for secondary uses. Yet, Chia said
that industrialists are moving away from
traditional manufacturing activities, as more
companies have begun to focus on after-
sales services, product consultation and
conceptualisation. The current rules fail to
capture this shift in the market, as more
industrialists are focusing on activities that
are not considered core industrial activities.
Not only so, JTC will be restricting occupiers
from subletting their building space beyond
30 per cent. According to Chia, this new rule
will also affect the uptake of industrial land.
Besides that, from 2014 to 2018, about 76
million square feet of industrial land space will
be supplied. Given the surge in land supply,
Chia forecasts that there will be a 3 per cent
drop in rents for multi-user factories.
(Source: Business Times)
Two new Tuas site for sale
Under the H2 2014 Industrial Government
Land Sales programme, JTC has launched
two sites at Tuas Bay Close and Tuas South
Street 7. The Tuas Bay Close site will cease
its tender on September 23, while the other
site will close on September 9. The Tuas Bay
Close site is 2.7 hectares and can be strata-
subdivided. The 30-year tenure site is zoned
for B2 development which is for heavier
industrial use. It has a maximum gross floor
area of 4.6 hectares and market experts
predict that it will draw up to five bids. They
expect the winning bid to be around $65-80
per square foot per plot ratio. On the other
hand, the Tuas South Street 7 site measures
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only 0.5 hectares. It is on reserve list for the
government land sales. Bidding starts at
$3.527 million for the site at Tuas South. The
site is also zoned for B2 development but its
tenure duration is 20 years and 10 months.
Its maximum gross plot ratio is only 1.0.
Experts predict that the Tuas South site will
attract contractor-developers and average-
sized industrialists. It is expected to draw up
to 10 bids and is expected to be sold for $68-
100 per square foot per plot ratio.
(Source: Business Times)
Fall in Q2 commercial property real estate
investor sentiments
A survey done by the Royal Institution of
Chartered Surveyors (RICS) showed that real
estate investor and occupier sentiments in the
commercial property market are down from
the previous quarter. The index measures
occupier demand, level of inducements and
rent expectations. According to the index, the
number of respondents that expect a positive
outlook fell to 11 per cent in Q2. Due to
shrinking demand for industrial and retail land
space, occupier demand has also fallen.
However, office space rental prices are
expected to increase as the office land supply
decreases. While the Investment Sentiment
Index showed a drop of 14 per cent from Q1,
it is still in the positive range as 4 per cent of
the respondents are optimistic in the property
market. From the survey results, RICS
expects the property transaction volumes to
moderate in the next quarter.
(Source: Business Times)
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Non-Landed Residential Resale Property Transactions for the Week of Jul 16 Jul 22
NOTE: This data only covers non-landed residential resale property
transactions with caveats lodged with the Singapore Land Authority.
Typically, caveats are lodged at least 2-3 weeks after a purchaser
signs an OTP, hence the lagged nature of the data.
Postal
District
Project Name
Area
(sqft)
Transacted
Price ($)
Price
($ psf)
Tenure
1 MARINA BAY RESIDENCES 743 1,723,000 2,320 99
2 THE BEACON 807 1,150,000 1,425 99
3 RIVER PLACE 1,335 1,868,000 1,400 99
3 TANGLIN VIEW 1,141 1,500,000 1,315 99
3 QUEENS 1,184 1,518,000 1,282 99
3 EMERALD PARK 1,012 1,168,000 1,154 99
4 TURQUOISE 2,777 3,880,000 1,397 99
5 THE ROCHESTER 872 1,350,000 1,548 99
5 THE STELLAR 1,055 1,420,000 1,346 FH
5 THE INFINITI 926 1,060,000 1,145 FH
5 WESTCOVE CONDOMINIUM 1,292 1,050,000 813 99
9 URBAN RESORT CONDOMINIUM 2,551 7,200,000 2,822 FH
9 RHAPSODY ON MOUNT ELIZABETH 1,066 2,500,000 2,346 FH
9 THE COSMOPOLITAN 1,141 2,380,000 2,086 FH
9 VIDA 861 1,750,000 2,032 FH
9 VISIONCREST 958 1,800,000 1,879 FH
9 PARC CENTENNIAL 1,163 1,660,000 1,428 FH
10 BALMORAL HEIGHTS 1,163 1,930,000 1,660 FH
10 KASTURINA LODGE 753 1,150,000 1,526 FH
10 PINEWOOD GARDENS 1,981 2,900,000 1,464 FH
11 THOMSON 800 1,421 1,750,000 1,232 FH
11 THOMSON 800 1,625 1,900,000 1,169 FH
11 HILLCREST ARCADIA 1,798 1,400,000 779 99
14 THE TRUMPS 1,356 1,400,000 1,032 99
15 HAIG COURT 1,550 1,965,000 1,268 FH
Postal
District
Project Name
Area
(sqft)
Transacted
Price ($)
Price
($ psf)
Tenure
15 MANDARIN GARDEN CONDOMINIUM 732 750,000 1,025 99
15 SUITES @ EASTCOAST 1,281 1,280,000 999 FH
15 OCEAN PARK 2,303 2,120,000 920 FH
16 COSTA DEL SOL 1,755 2,450,000 1,396 99
16 THE TANAMERA 1,324 1,188,000 897 99
16 TANAMERA CREST 2,013 1,735,000 862 99
17 AZALEA PARK CONDOMINIUM 947 833,000 879 999
18 RIS GRANDEUR 1,324 1,190,000 899 FH
19 KOVAN RESIDENCES 1,442 1,600,000 1,109 99
19 THE SPRINGBLOOM 1,453 1,520,000 1,046 99
19 THE QUARTZ 1,518 1,348,888 889 99
19 CHERRY GARDENS 2,228 1,400,000 628 99
20 SIN MING PLAZA 1,442 1,650,000 1,144 FH
20 BRADDELL VIEW 1,798 1,400,000 779 99
23 PARK NATURA 1,744 2,072,888 1,189 FH
23 HILLVIEW HEIGHTS 1,679 1,830,000 1,090 FH
23 THE MADEIRA 1,249 1,130,000 905 99