What properties to buy in a recession
When Singapore missed its GDP target in Q2, Maybank said we are heading for a technical recession next quarter. A technical recession happens when there are two successive quarters of fall in GDP.
I remember it was July 2001. Three years after I came to Singapore, the country was in recession.
The economy contracted by 2 percent – a big contrast to the strong growth of 10.3 percent the previous year. Manufacturing shrank by 12 percent, compared to 15 percent growth in 2000. It was Singapore’s worst performance since independence.
Unemployment rate was at 15-year high. Our Manpower Minister warned that it may hit 6 percent until the economy recovers. It turned out the worst came in September 2003 at 4.8 percent. The actual situation might be worse. Because when employment pass holders and foreign workers lose their jobs, they go back home and don’t affect our employment rate.
Property shopping during the 2000s recession
Property shopping during the 2000s recession
The day I heard the news on recession, I scheduled a flat viewing during lunchtime – my first in Singapore.
The following year I changed to a new job with an 18 percent pay raise. The frequent business travels minimized any chance to spend money. With higher power in both borrowing and saving, I finally bought my first investment property in October 2002.
After hundreds of flat viewings, I bought four more in the next 4 ½ years. With a single income and limited capital, I focused mainly on one-bedroom units in large condominium projects.
When no one knows when the economy will recover, holding power is most important. I had to make sure that my investment properties could generate a minimum net return of five percent. As a good buffer, prices had to be 15 percent lower than the latest transactions of similar units.
The property market didn’t really pick up until 2006 and 2007. I noticed that recovery of prices differed by locations and property types. That was a good learning lesson for me.
Prices of my properties in good locations picked up much faster. With the influx of foreigners, investors were drawn by the attractive rental return from a robust rental market.
Then came the global financial crisis. Singapore was the first East Asian country to slip into recession in October 2008. But it was a good opportunity to observe which properties suffer the most and which ones are more resilient during market correction.
I held onto my investment properties until the property market picked up again. When the government started introducing cooling measures, I knew it’s time to cash out.
Buying the best in a buyer’s market
Buying the best in a buyer’s market
There were a handful of projects that I regretted not buying during the 2000s recession. One of them was the Ardmore Park (if I had the money).
In 2003, the 2,885 sq ft 4-bedroom units were sold for an average price of $1,483 psf. When the market gradually recovered in 2006, average psf had gone up to $1,886. By 2008, average prices shot up to $2,741.
Imagine if I bought a unit between 2003 and 2005 at $4.3 million and sold it in 2013 at $9.6 million, the profit is a whopping $5.3 million. The capital appreciation of 123 percent is very impressive.
In reality, an investor bought a super high floor unit in Ardmore Park at $3.05 million ($1,057 psf) in October 2005. He sold it at $6 million ($2,080 psf) in March 2007. What a clean $3 million profit in merely 17 months!
There were a few other investors who bought and sold at similar times and were laughing all the way to the bank. They don’t even have to go through a draining en bloc process for their millions.
Lesson learned: When the time is right and prices are dirt cheap, go in and buy the best.
Buying a few affordable precious stones may help to spread the risk. But it magnifies the amount of work and hassles. At the end, the profit cannot be compared to bagging the most pricey gem.
Recession or no recession, the best are still the best. As value investors, we save for the best. We save the most during the good times in order to buy the best during the bad times.
For the next economic downturn, I will focus on the best locations and the best projects.
I also believe that buying properties that have no oversupply and homes that are difficult to overbuild. These include properties in CCR and landed homes.
After the introduction of the new cooling measures in July 2018, property prices in CCR have dropped 4 percent from Q3 2018, while prices in RCR and OCR have increased 1.1 percent and 0.9 percent respectively. It is mainly because CCR has few new launch projects which often drive up property prices in the area.
Besides properties in CCR, price growth of landed properties has slowed down since Q4 2018. Unlike large condominium projects targeting the mass market, developers seem to lose interest in landed projects.
According to URA’s June 2019 private residential property data, the total number of unsold landed units is 295. But the total number of unsold non-landed units is 20,531. Currently, there are almost 70 times more non-landed unsold units compared with landed unsold units in Singapore.
Where exactly to look for the best?
Where exactly to look for the best?
Recently, I re-read Ku Swee Yong’s 2011 book Real Estate Riches: Understanding Singapore’s Property Market In A Volatile Economy.
In the article “What defines a luxury property?”, the author said the characteristics that define a luxury home include location, price, size, layout, furnishings, neighbouring homes, surrounding amenities and security. Out of them, the first three characteristics are most important.
The top three most luxurious streets are Chatsworth Road, Nassim Road and Bishopgate. Are there more such streets after eight years?
In his 2013 book Building Your Real Estate Riches: Hard Truths About Singapore’s Commercial & Residential Markets, the article “Defining luxury living” added two more criteria: workmanship and materials.
He listed the top freehold residential projects completed at that time, including 8 Napier, Hamilton Scotts, Nassim Park Residences, Parkview Eclat, Ritz Carlton Residences, Scotts Square and Bishopgate Residences.
Six years on, I am sure there are more to add to that list. But as he mentioned in the article, several were dropped out from the list because of inferior locations and workmanship.
My hidden agenda in the coming workshop
My hidden agenda in the coming workshop
Remember in the PropertySoul podcast “Interview with Ku Swee Yong – What Can We Buy In This Market?”, I asked Swee Yong what should we be buying from the residential market now?
He told us to focus on freehold properties in district 9, 10 and 11. We should buy something that can be older, but it must be rare. He also mentioned buying from failed en bloc projects in the Bukit Timah and Holland area.
But I forgot to ask him to explain in more details, and to name the precise areas, streets and projects. Above all, which projects can buy and which projects can’t touch. I need to hear it directly from the horse’s mouth.
That is the reason why I asked Ku Swee Yong to organize the Choosing Prime Properties In Singapore Workshop in August.
Because I know his company International Property Advisor Pte Ltd specializes in marketing and managing luxury and landed homes for high net worth individuals. And he won’t hide anything from his clients when it comes to good and bad projects in the prime districts.
With so much money at stake, I need unbiased views from him to ensure that I won’t buy anything wrong for my next property.
As they said, you need to know what you don’t know – what are common misconceptions of prime properties; where are we in the luxury property cycle; what are the good buys in districts 9, 10 & 11, districts 1 & 2 and Sentosa; how to buy different classes of landed properties …
Two months ago, we held the Property Investment Finance and Profit-Risk Analysis Workshop led by Ku Swee Yong. We had to change to a bigger ballroom at the Singapore Recreation Club to cater to a full house of 60 participants.
The feedback of the workshop was very encouraging. Over 90 percent of attendees rated it “Good” or “Excellent”. With such positive feedback, we decided to re-run this workshop again on October 13.
You can check out my amateur videoclip of the workshop below.
There are three jobs in this world that are very difficult to do. But somehow I manage to do them well. I call these three jobs the three “W”s.
1. It is difficult to put ideas into the head of others. That is the job of a Writer.
2. It is more difficult to put ideas into the head of others and make them pay for it. That is the job of a Workshop.
3. It is most difficult to put ideas into the head of another person and make him pay for it for the rest of his life. That is the job of a Wife.
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