AsiaOne : How to buy choice property

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How to buy choice property

The glossy brochures selling a dream are lovely to collect, but it is difficult to turn the dream into reality without hard work. -myp

Tue, Oct 26, 2010
my paper

By Rachel Chan

AS CHEQUES fly at sell-out roadshows for overseas property, Mr Png Poh Soon, senior manager of consultancy & research at Knight Frank, gets a little worried.

The glossy brochures selling a dream are lovely to collect, but it is difficult to turn the dream into reality without hard work and thorough research, he said.

"Two in 10 people haven't visited the place in which they are buying property," the 33-year-old observed. "If you're putting money on a piece of swamp or a desert, that's it."

Many Singaporeans make the big mistake of assuming that Singapore's institutional framework applies similarly to foreign investments, he said.

He warned buyers not to be bowled over by promises of high rental yields or beautiful surroundings, and advised them to ask their agents some hard questions instead.

For example, is the "promised" rental yield of 7 per cent gross or net yield? Does the jurisdiction there charge capital-gains tax? How much would the agent charge for his fees? What will be the difference in price if there is no "rental guarantee"?

With bank interest rates being outstripped by rising inflation, many investors feel that it is more lucrative to invest in property offering guaranteed 7 per cent rental yields. Be that as it may, Mr Png urged prudence.

He pointed out that some countries, such as Vietnam, have inflation rates exceeding 10 per cent, making property investments there relatively less attractive.

Other pitfalls await the investor who is too eager to part with his hard-earned money, he said. For example, buyers often do not get a complete picture of a property by just visiting its roadshow.

"Sure, the sales agents know how large the rooms are and what amenities are available in the area, but you need to go beyond the product," said Mr Png.

Some due diligence is in order: Buyers should investigate the developer's track record and check if they are new to the market.

They should also find out who owns the land, and learn how they could be affected if the developer goes bankrupt.

Mr Png recalled that, during the early 1990s, some fly-by-night companies set up roadshows for properties that never materialised.

So, to prevent history from repeating itself, buyers need to do their homework before committing cash.

As for Mr Png, he lives in a five-room Housing Board flat in Ang Mo Kio, and he is still biding his time, waiting for the perfect opportunity to buy his second property.

He noted that the recent cooling measures introduced by the Government seem to be taking effect, with private home sales and HDB resale transactions dipping in the third quarter, according to the latest statistics released by the Urban Redevelopment Authority last Friday.

Buyers are expecting prices to decrease as the market corrects itself, but developers are holding onto their prices, he said.

"Prices should either stabilise or drop by 10 to 15 per cent," he said. "As for when that will happen, it depends on who blinks first.

Developers are waiting for buyers to come in but buyers are being cautious at the moment."

In the meantime, investors could consider commercial assets instead, he said. Stratatitle offices - shophouses, basically - have rental yields of 4 to 5 per cent.

Investing is not the same as speculating, Mr Png emphasised, and the key to choosing a good investment is to do it early and at the right time.

"I believe in property cycles," he said.

"Many buyers want to make investments quickly as they fear the property will be sold out during its launch.

"But if you like it so much, you can enter at an opportune time and buy it off the resale market a few years down the road."

Beware different rules for overseas homes

IF YOU are thinking of investing in overseas property, here are some points you should consider before signing that cheque:

Do not assume that Singapore's institutional framework applies overseas. You might want to consider engaging an independent professional for advice. Also, check what legal recourse is available should you run into trouble with the developer.
Find out if there are any hidden costs. Some jurisdictions impose a capital-gains tax, and some banks charge a penalty for absentee landlords. Beware of foreign-exchange risks.
Investigate the developer. Find out if the company is listed, study its track record, and check whether you are paying it directly or through a third party.
Do not buy any property without first visiting the development site and its location. Try to gauge if there is local demand for the property you are interested in.
Do not be deceived by guarantees of high rental yields. You are probably paying a higher figure up front for a "guaranteed" rental yield, so try to bargain down the agent's asking price, as yields will go back to normal after the guarantee period expires. Also, calculate how much net yield you will get after deducting utilities, maintenance costs and other fees.
Know what you are buying. Are there restrictions on ownership rights? Do you get the title deed or a strata title to your property? If joining a land-banking scheme, be wary of hidden risks like urban zoning. Your lot might well fall into a green belt where development is restricted.