4 Important Entry Signals That Will Greatly Improve Your Property Investment Returns (2020)

Updated: Jun 5

Professional property wealth planning advice can improve investment returns and lower costs.


Increase your probability of success by applying these considerations to your next investment.

(This article is an excerpt of my 3 days intensive real estate investment programme - Advisory Sales Masterclass, made for investors and agents to learn how to win big in real estate investments.)

Foreword:


Since the beginning of 2017, we have witnessed a robust return of both institutional and retail investors into the Singapore property market.


It is no surprise that after four years of muted action following government cooling efforts and where many investors ventured abroad, that this pent-up appetite has returned with a vengeance.


For a new investor, it is crucial to understand the reasons why you place your hard-earned dollars into property instead of other investments.

With wages, rising costs, GST and inflation piling up over time, there's reason prices do not fall below their last lows.
The property market, as with any other markets, is cyclical in nature.

But of greater interest to the individual investor is to realise that Singapore’s property market has one of the best long term returns on equity performance out of most investment instruments available.


And that has to do largely with the strength of the Singapore dollar, the availability of high leverage, and the attraction of Singapore to the international audience, not just as a region to invest in, but as an asset class on its own.


As a Singaporean and an avid market observer, I have always stressed to my friends that they must invest and remain vested locally, despite the beckoning of overseas properties.


Chief among the reasons are that they would be better protected against inflation, which is just as certain as death and taxes, and will be able to see their wealth grow steadily over time through the compound effects of inflation (akin to interest) on their real estate.


As Albert Einstein once said: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

In this article, I will focus on the fundamentals for those who are beginning their journey.


Before you embark on searching for your investment property, it is important to have gone through this checklist below.


1. Finances


Prior to looking at any property, you should speak to a property wealth planner about your finances to understand the initial cash/Central Provident Fund (CPF) outlay required.


Having an experienced third party do an assessment would help you prevent costly beginner mistakes that could seriously hamper your journey to financial freedom.


A responsible property wealth planner will help you assess the minimum cash and CPF required for the down payment, buyer stamp duties, legal fees and miscellaneous costs, as well as advise you on an investment road map for the best acquisition strategy as you progress along and acquire more properties.


2. Loan eligibility


The current Total Debt Servicing Ratio (TDSR) framework makes it especially important for investors to check on their maximum loan eligibility so that there are no nasty surprises after placing a deposit.


In this case, speaking to a property wealth planner or a mortgage banker should be one of your priorities early on.


3. Manner of holding


For investors who already own an HDB flat or private home and are acquiring their second property, a property wealth planner can advise you on the various options available to optimise tax savings (which can be significant) and qualify you for more funding options.


This is especially important for those who intend to grow their portfolio of properties and would require access to higher leverage and lower costs.


4. Investment goal and horizon


Having a clear idea of your investment goal horizon helps you narrow down the segments you should focus on; saving you precious time and energy.


Examples

– Are you investing in properties to provide a consistent source of passive income?

In this case, focus on areas with low vacancy rates and a high tenant catchment pool.


– Are you investing in properties short term to ride the market trend?

In this case, are you financially prepared to hold on in case a black swan event occurs?


– Are you investing in properties with en bloc potential?

In this case, are you well advised on which properties have genuine potential?

Not all old properties have en bloc-ability.


After going through the above points, the following are factors that have served me and my clients well in the past as an investment criteria checklist.


How do you tell if an upcoming project is worth investing in?


The 4 Entry Signals for an Investment Grade Property


Ideally, your next investment fulfills all or most of the signs. Otherwise, having a minimum of 2 out of 4 factors checked is the minimum to indicate a property still worth holding on to.


1. Capital growth potential 


One of the indicators of a good property is how it performs relative to the price index of its district.


For example, if a particular project has appreciated more than its district in the past one year, it could indicate higher buying demand that is a result of a confluence of factors such as distance to amenities, quality and maintenance, design and facilities, etc.


This makes the property highly sought after by residents in the area and investors alike.


This usually applies more to resale properties as you would only have the benefit of hindsight with them.


For new projects, points 3 and 4 below will be more relevant.


2. Rental yields


Good rental returns are indicative of a highly sought-after property.


It is important to note that despite being in the same vicinity, there are projects that suffer from high vacancy rates and low rentals even when the neighbour enjoys the opposite.


Thorough research is critical to making a good judgement call on the investment grade of a property.


Study the rental data not just in the project you are interested in but also in the neighbouring projects to uncover any discrepancies.


It could help you find better investments as well.


As a rule of thumb that i often use when advising my clients, for the Core Central Region, expect at least a 3% rental yield, Rest of Central Region - 3.5% rental yield, Outside Central Region - 4% rental yield.

Yes, it is possible to find such properties! Not easy as a lot of scouting work must be done , but possible.


If you don't have time to search, as many people do, join my mailing list so that whenever such deals are found, you get updated!


3. Growth story


Infrastructure investments is one of the common reasons why real estate flourishes in certain areas.


This happens everywhere in the world and more recently onshore, we can look at values of Sengkang, Punggol and Jurong as examples of how infrastructure investments have impacted property prices.


If the area you are investing in has a massive growth story fueling it, there is a good chance you will enjoy the fruits in the years to come.


Do take note though that thorough research is still necessary, and it is reckless to invest in just anything just because they are located in growth areas.


In the next decade of growth, areas such as Paya Lebar, Bidadari, Marina Bay, Pasir Panjang and Woodlands are likely to see higher capital growth values as they start to transform under the URA MasterPlan 2019.


A Visit to URA Centre at Maxwell Road and In-depth Study of the Masterplan is key to successful property investment

The URA MasterPlan is your best friend and guide to where the next era of growth will be in Singapore. If you want to be a savvy investor, it is highly recommended that you devour the contents and follow what the government is planning to do in the next decade.


Having foresight is possible for all investors through doing your homework.


4. Right Entry Price


A. Below Market Value (BMV)


When possible, resale property investors should look out for properties below market value so as to begin their investment journeys with what we call “built-in profits”.


Granted, it is not always possible or easy to find such properties as they are usually snapped up quickly.


It is, however, a good guiding principle to consider before you make any decision on a property.


At worst, the one you decide on should be at fair market value and at best, below market value.


B. Right Entry Price


For new launches, it is usually not possible to buy at below market prices as new launches are never priced at lower per square foot prices than resale properties.

Brand new would always command a premium in any product category and developers have to price in their profit margins after paying costs at today’s prices.


What sort of costs?


1st - Land costs which perpetually increases in our land scarce nation.


2nd - Material and labour costs from architecture, interior design, construction among others which increase over time with wage inflation and increasing consumption taxes.


However, that does not mean it is not possible to find a new launch property with a right entry price.


To do that, we always have to compare apples with apples (new vs new) and find out which new project has the lowest risk and the highest upside potential.


The great part about new launches is that your downside risks are greatly protected as you will be buying at similar levels to most of the other owners and pricing pressures are upwards as developers increase their pricing in phases.

A typical new launch project pricing strategy and trend

Further more, the human tendency for loss aversion causes the majority of investors to hold on to their properties until they make a profit.


This limits your chances that other owners will sell at lower prices than what you have bought at.


The same cannot be said of resale properties as most times, the resale buyer will have to buy at a higher price from the original buyer.


When most of the original buyers have bought at lower prices and can sell at a lower price anytime, pricing pressures become easily stronger downwards than in the cases of new launches.



Summary


As a rule of thumb, the more factors above that your property fulfills, the better its investment potential.


I would akin it to this analogy.


If it fulfills just one out of four factors, there is a 25 percent chance of it being a good investment. 


If it fulfills three out of four factors, you have a 75 percent chance of it being a good investment. And so on.


How do you determine if you should hold on to or sell your current HDB or private property?


Follow this decision making matrix to determine your best option.


HDB flat owners decision making matrix


Private Property or multiple property owners decision making matrix

Property investment is a team sport and i highly recommend that you assemble a team consisting of a mortgage specialist, lawyers and property wealth planners to advise you on blind spots and the best investment properties available in the market today.


The collective wisdom and insights will help you prevent costly mistakes and blind spots in your judgement which could take years to unravel.

Over the years, i have helped many clients get started on their journey towards owning multiple properties with good passive income and returns.


If you would like a free 1-time consultation on Property Wealth Planning where i will share with you the topics below, drop me a note!


Did this article help you with greater clarity of thought?


Like, comment below and share this with your friends who are property hunting!

Need advice on the best buys in today's market? Or help selecting the best unit in a new project?


Get a 1-time free 30 min Property Wealth Planning consultation. Schedule one right now.

A PWP consultation includes:

- An in-depth financial affordability assessment

- Highly relevant investment insights

- A clear and customised investment road map for your real estate investment journey.

- Curated list of the best buys in today's market with good upside potential and minimal risks.

- Selecting a unit with the highest profit potential in a new launch.

Stuart Chng, Senior Associate Executive Director of OrangeTee & Tie, is a renowned leader and personality in the real estate industry.


He adores music and can play a few instruments decently without upsetting his neighbours. When not doing so, he enjoys pillow fighting with his son and coming up with silly puns which barely amuses his wife.


Professionally, he is a licensed real estate agent, investor, team leader, speaker and columnist for several property newsletters and blogs and is often quoted in media interviews on 938FM, Channel 8, PropertyReport, PropertyGuru and other publications.


Throughout his career, he has helped many clients grow their wealth through selecting great property investments and managing their portfolios actively.


Stuart has also coached many top million dollar producing agents from different real estate agencies in Singapore.

Related readings:


- Factoring in Covid-19, Is There An Oversupply Risk & How's The Market Situation? (Part 1)


- Singapore Property Market’s Tight Rope Walk - A graphic illustration


- Methods to Beat ABSD and Own Multiple Properties in 2020


- The 1 Check That Can Mean The Difference Between Buying A High Quality Property And A Dud

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