Quick, what’s the most valuable thing in Singapore? People! Property! Blu-Tack! Heh, just kidding. Most Singaporeans would never prize people as highly as property. Or Blu-tack, for that matter. So it’s kind of awesome when you’ve got a house of your own. But how are you going to squeeze every last dollar from it? In this article, I examine the tactics used by Singaporeans to maximize their property gains:
1. Check the Underlying Assumptions
This is the magic first step, which new investors tend to overlook.
Actually, wait. A lot of veteran investors overlook it too. When investors start getting jaded, they start making assumptions like an amateur. Common ones are:
- The surrounding amenities won’t change
- The view will remain the same
- The unit will be easy to rent
According to property investor Charlie Sng:
“In Singapore, the surrounding property can change in as little as under a decade. This might have positive as well as negative consequences.
For example, in Bishan, there was a situation where residents protested the opening of a nursing home. Most had bought the property on the assumption that the surroundings would not change; they did not prepare for the fact that a nursing home might affect the property value.
I also know some people who bought property at Bayshore. A while later, your condo (Costa Del Sol) went up and blocked their view.”
(Nonsense, they have a great view. They can see me. – Ed.)
It works both ways though; changes can raise property value as well. Charlie advises investors to check the URA Master Plan:
“You can see URA’s general plans for the area, such as plans to turn Lim Chu Kang into an agri-entertainment zone. So even if certain amenities are absent now, don’t assume the area will always be bare. Some investors buy in less developed estates, because it’s cheap now and they believe the value will rise.”
2. Shorten the Loan Tenure
The chief cost of property is interest: The longer your loan, the more interest you pay.
In an ideal world, you could pay off your home loan in under the typical 30 year period. And also, cab drivers would be responsible road users, and chickens would walk around ready-roasted. So how about a more realistic situation?
“If you want to end up with shorter loans, simply don’t take the biggest loan you can get. Get something where the repayment is under 40% of your income.
Otherwise, when the interest rate goes up, you can be forced to refinance in a way that stretches your loan period.
For example, if you have been paying a 30 year loan for three years, and the interest suddenly goes up, you might have to refinance. If you refinance into another 30 year loan, you’ve stretched the loan by three years. In the end, that is more interest paid.”
Of course, if you’re doing well, you can refinance into a shorter loan as well. Your monthly repayments will go up, but there’s less interest to eat into your profits.
To check the available loan packages (interest rates are different for each one), hit loan comparison sites like SmartLoans.sg. Pick one that fits your cash-flow as well as your desired profits.
3. Buy Before Completion
Some investors see uncompleted property as an opportunity. I sure as hell don’t; all I see is scaffolding, dirt, and something I could only rent to a mole. But enough investors disagree that I’ll mention this alternate view.
Uncompleted property usually comes with a discount. Buy it before it’s done, and the sellers may absorb certain costs (e.g.tamp duties). You also get first crack at which units you want; you might find a unit with a great view, and at a steep discount.
But be warned: The buying queue is a challenge on its own. People have reportedly sold their place in such queues for over $3,000, though I can’t verify it.
Anyway, if you buy early, the combination of discounts and choice apartments should nab you a good deal. You should be able to sell for a nice profit later.
4. Buy Something You Can Rent
When you are able to rent a property, you effectively loan for free. The tenants end up covering the loan repayments, so it’s almost as if you’re not paying the loan at all. There are potential hazards (e.g. vacancies, tenants paying late, tenants skipping town), but also ways to avoid those.
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Most of the time, rent provides a surplus after paying the monthly loan. This can be saved to cover the occasional vacancy, or to upkeep the house.
But don’t assume just any property will attract tenants. You should know if a house can be rented (at the desired rate) before you buy it. The seller should know the property’s rental history. Otherwise, you can check rental rates in the surrounding areas; this will give you a good estimate.
5. Choose the Right Renovations
Renovations, just like qualifications beyond degree, are mostly for show. There’s no guarantee they’ll raise your home value; and very often, the “profit” ends up balancing their original cost.
But there are exceptions. Certain renovations are cheaper than they appear, while helping to pad your cash over valuation. According to sales designer Terence, the desired renovations are:
- Walk-In Wardrobes
- Concealed drawers / cupboards
- Open concept designs (especially for squeezed HDB flats)
- Improved finishings (Parquet flooring, granite kitchen tops, etc.)
Charlie agrees that renovations can raise property value. However, he’s sceptical that anyone can pinpoint which renovations contribute the most value:
“In my experience, you cannot say that a specific design feature makes a house worth more. This is very subjective. All I can say is, if the buyer has the same taste as the seller, the buyer will be willing to pay more. How much more, no way to give you a definite answer.”
How are you planning to maximize your investment? Comment and let us know!
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