Opportunity and timing are key

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Published April 20, 2009

THIS WEEK'S TOPIC

Opportunity and timing are key

Is it time to invest in the property market? If it is, what segments of the market should investors be looking at? If not, when would be a good time to go in?


Thio Shen Yi
Head, Litigation & Joint MD
TSMP Law Corporation

THE current economic crisis has taught us that the best and most informed predictions can still go horribly wrong. As markets went up, we lost sight of the intrinsic value represented by the actual properties. They got sliced and diced into more and more complex products. It's time to invest in real value, and to think long term. I'd ask a simple question: Is this a property worth investing in, can you hold it long term if you need to, or is this merely a speculative flip?

If you are buying a place to live in, then the next 12 months may be a good time to buy the property that you really want, which you can afford, and which has inherent value to you and your family. Then the direction of the market becomes irrelevant. It sounds extremely conservative, but given the sub-prime implosion, is this a bad thing?


Strategy and planning

Gary Harvey
CEO
ipac wealth management Asia

INVESTING in property is always a popular topic. The past year has shown that the property investment scene has the ability to change dramatically. The 'easy money' that was once promised by property has, for many, become a difficult investment. Timing the market is not a task I would advocate.

Investing in your home should be a lifestyle choice and this should be combined with a portfolio of other assets that are well diversified. Property is illiquid and generally held for the long term.

All investments carry risks. Investing in property means looking for the best possible deal. However, too many investors find a property that they like and buy it without doing the proper homework.

Before investing in any asset, assess whether this decision fits well with your overall investment strategy. If you do not have an investment strategy, then it is time to develop one and evaluate if property investment suits this plan. Consider all the factors and have an exit strategy should the need arise.

All types of investments have cycles of profitability and losses. These cycles can last for years. Ask yourself if you are prepared to take the risks and ride the waves of volatility when they happen.


Darren Thomson
President & CEO
Manulife (Singapore) Pte Ltd

THE value of private residential, commercial and industrial properties has come down between 5 per cent and 35 per cent in the first quarter. Does this signal opportunity or uncertainty? I believe that it goes both ways.

Buying a property is a long-term commitment from a financial planning perspective, and this has been complicated by the state of the banking sector. Leverage therefore, may be difficult in view of the fact that most banks are cautious with loan approvals, placing more risk with the investor.

Are you buying the property as a home or for investment returns? Investing in a home can be an emotional affair while investing for yields is purely business. Don't confuse the two.

If investing for returns, my call would be that commercial property may have further to fall as commercial rentals tend to have longer tenure and the falls and rises lag the residential sector. Residential property, on the other hand, can be more sensitive and therefore volatile. As such, timing the market is more critical, with greater potential gain for more risk, so no surprises.


Dora Hoan
Group CEO
Best World International

ON the road to recovery, it will be well for us to consider that the global community remains confident of Singapore's strong economic fundamentals. Despite the meltdown, we are still viewed as among the first nations to pull through the crisis. I believe that over the medium and long term the prospect for real estate investment in Singapore holds a lot of promise. Crisis or not, we are on track and should remain focused on our country's bid to establish itself not just as a regional hub but a global city.

That is no empty rhetoric. Significant investment has already been infused into infrastructure and tourism-related projects.

For investors in general, Singapore remains a top choice for its good national leadership and friendly tax regime for business. When it comes to property investment, there is more to be gained from a friendly ownership environment where there are no capital gains tax, no tax on foreign-earned income, no estate duties and a low mortgage rate.

In general, provided that an investor is actively engaged in reviewing and assessing investment opportunities, this financial crunch may surprisingly be the best time to pick up and profit from good investment. It is always wise to consider a value proposition. Diversification is the keyword. It will be well for investors to remember to spread their investment dollars. At the end of the day, smart entrepreneurs will not wait for the turnaround before they make their move. After all, one does not win in business by putting on the brakes altogether. The business savvy will always consider market timing and opportunities for greater investment success.


Adrian Tan
CEO
The Ad Planet Group

PROPERTY prices have dived by 40-50 per cent from their peak. Singapore's property bull made a run from mid-2004. I will be shy of buying if the prices are anything above 10 per cent of their launch price. I will also make my decision based on the time horizon of my investment. If it is short term of up to 18 months, I will wait. If it is mid to long term of four to six years, it will be prudent to enter the market now for the advantage of choice and location.

As to what properties, I will avoid the 99-year condominiums as I think there is still a supply overhang in that segment. I will also only consider properties priced no more than $2,300 psf, even in the best location, as anything above that has a high element of speculative pricing. My choices would be narrowed to landed property, given that in Singapore, we have no more than a total of 40,000 to 50,000 units including terraces, as well as new freehold condominiums in the choicest locations.


Buy now...but no rush

Wee Piew
CEO
HG Metal Manufacturing Ltd

WHILE timing is important for any investment, what is more important is your own investment horizon. Unlike equities, properties are fixed assets and investors need to have a longer time horizon. As an asset class, property is also subject to less volatility than equities.

I believe property is a good investment in Singapore if your time horizon is long. It is an undeniable fact that land is scarce in Singapore. It is also an undeniable fact that the city's population can only increase with the stated long-term goal of 6.5 million people. Coupled with the fact that interest rates are at all-time lows and are likely to stay low in the forseeable future, I believe now is as good a time as any to invest in property.


Cindy Lim
Executive Director
Hiap Hoe Ltd

IT is probably a good time to invest in a prime residential property today. Nobody knows whether property prices have bottomed out, but given that home prices in prime districts have fallen as much as 40 per cent, the downside should be limited against the potential for good returns on a longer time horizon of three to five years.

Furthermore, the supply of prime developments is limited in land-scarce Singapore, particularly as government land sales and en bloc transactions are practically at a standstill today. Property prices can rebound as quickly as the equity market and it is thus easy to miss a golden opportunity.


Irman Khusaini
Finance Manager
First Resources Ltd

GIVEN the drop in residential property prices in Singapore, especially those in the high-end range located in the central area, it would be wise for those with sufficient free cash flow (whether individuals or companies) to consider investment in property. This is especially so given that the potential returns from property are higher than from equities or fixed income.

The right time to invest in property is between now and mid-2009, probably until August. The decline in prices for the aforementioned properties would slow down in Q2 2009 compared to Q1 2009, followed by the beginning of an increase in Q3 2009. The reasons for the above can be seen from the improvement in confidence as the actions of the Obama administration as well as the Singapore government begin to take effect.

Already, there are small but sure signs that the equity markets as well as the financial institutions may have reached the bottom; this can be seen from the recent five-week rally in the S&P 500 as well as the profits announced by Goldman Sachs recently. Even the housing market in the US has improved as can be seen from the recent slowdown in foreclosures.

For corporations or individuals which have managed to accumulate huge reserves in the past, this presents a great opportunity as they should adopt a 'counter-cyclical' approach and invest in such properties, and reap the fruits of their labour in the mid-term horizon.

As for specific properties to invest in, the upper end of the housing market looks good, given its steep decline from peak prices, as compared to the lower to medium range.

Nevertheless, for people who intend to upgrade from HDB flats to their first private property, this may also be the right time as HDB resale prices, which have thus far remained resilient during this recession, have already started to show a decline. Despite that, the gap between HDB resale flats and lower end private property is still narrower than the peak years of 2006 and 2007.

In addition, a few developers have interesting and attractive schemes such as deferral of the first instalments of the bank loan upon TOP (temporary occupation permit) rather than on signing of contract. This is on top of lower bank loan rates to entice new buyers.

However, prices for retail and office space, especially near central Singapore, look set to stay within their current price levels or drop further as they suffer from a supply glut, mainly caused by relocation of companies to cheaper areas such as Tuas, Kranji and Jurong as well as new office space such as the Marina Bay Financial Centre. This may all change depending on the positive impact from the opening of the new integrated resort in Marina, on investors as well as companies who wish to set up new offices in Singapore.


Benedict Soh
Executive Chairman
Kingsmen Creatives Ltd

SINGAPORE'S glut in new properties is the result of three factors. They are: the view of a positive economic outlook, which include the integrated resorts, the country's long-term plan of having a larger population, and liquidity, a result of booming stock markets in the last 10 years.

Currently, it is hardly surprising that the high-end property market has dropped by 30-40 per cent from its peak. Condo prices, during the downturns of the 1980s and 1990s exhibited the same trend of dropping by 40-50 per cent.

Lower-end condos have sold well recently, more because of the narrowing of the pricing gap between public and private housing. It's now a buyer's market so if the location is suitable it can be a good time to buy.

However, I would not rush into it as there is still serious economic weakness, as well as many more new launches. These factors may further dampen the property market.


T Chandroo
Chairman/CEO
Modern Montessori International (MMI) Group

THE local property market had experienced hyper-buoyancy over the last two years, but the latest financial crisis put a damper on things. The downtrend in property transactions brought about by stagnation in manufacturing and financial services is a reality check for investors.

Personally, I would put my money in commercial projects, whose prices have dipped (maybe even more in the next three months) and can fetch better yields amid a glut of stock.

Public homeowners looking to trade in their HDB units for condominiums or small terraces will also find this an opportune time to do so, because, while newly launched private properties are still holding up well, bargains are considerably better for residential projects that are five years and older.


Start looking

Leong Horn Kee
Chairman/CEO
CapitalCorp Partners Pte Ltd

SINCE the world economic turmoil started in the US in October last year, the Singapore property market has dropped by 30 to 50 per cent from the top. The mid-tier segment has decreased by some 20 per cent, while the low end suffered the least.

The property market is expected to continue its downtrend for another six to 12 months. The speed of recovery is dependent on the upturn in the stock market in the first instance. The stock market usually leads the property market by about six months.

One can never be so precise as to catch the very bottom of the market. Since the stock market has shown some signs of recovery recently, the property sector will begin displaying nascent signs of bottoming out.

For those interested in investing in property, this is a good time to start hunting, especially in the residential sector. If one can't afford to buy a property, then consider cherry picking some property stocks.


Loi Pok Yen
Group CEO
CWT Distribution Ltd

I JUST had lunch with an old classmate who happened to be back in town for some meetings. He's based in China and still has his investment bank job. I am very happy for him.

As usual, the conversation drifted towards investments. It's interesting talking to this friend of mine because of his twisted views about how the world works. In a nutshell, he sold his apartment in River Valley sometime last year near the peak and, just as quickly, picked up another apartment in the same area last week. The difference in price was about S$600 per sq ft in his favour.

His reason for buying? Residential property is a good long-term investment that has enhanced returns due to the ability to leverage and prices have dropped sufficiently to limit downside risks. That's the logical reason that he put forward. After some probing, he admitted that he just wanted to make sure he was ahead of the 'sheep'. He says there are too many people waiting on the sidelines to get back into the market.

Personally, I belong to the minority of Singaporeans who view property as an expense item. The vast majority view property as a must-have investment and therefore, emotions rule when decisions are made whether to buy or sell. Thus, if you love residential property, are comfortable with the downside, have a stable income and are not over-leveraged, maybe you should start looking around. For the rest of the sectors, you are probably much better off picking Reits or property stocks.

One last thing: Being the 'leader of the pack' could also mean that you are the first one into the slaughterhouse.


Not time yet

Lim Soon Hock
Managing Director
PLAN-B ICAG Pte Ltd

I DO not think it is time to invest in the property market, especially the high-end sector in prime districts. That said, I will continue to review the situation periodically over the next six months to a year.

I believe that the prices of high-end property which reached dizzying heights before the sub-prime crisis, were driven more by speculation than real demand. What goes up irrationally must come down; and this applies to speculative pricing, especially in today's trying times. This is evident from the recent successful launches of lower-end condos at more reasonable prices.

My benchmark for property prices has always been landed property. To me, it does not make sense to pay two to three times more for a condominium than a landed property on a per-square-foot basis.

If I were to invest now, it would be in the landed property sector, for long-term capital gains in land-scarce Singapore.


Teng Yeow Heng Michael
Managing Director
Corporate Turnaround Centre Pte Ltd

REAL estate prices in Singapore will continue to slide further. However, we will not see the same price plunge as during the Asian financial crisis in 1997 because the factors then were more adverse. The current over-supply is not as bad and developers have deeper pockets.

However, I believe that this is still not a good time to enter the market as prices are expected to decline further, especially for luxury apartments and offices. These are the segments which are highly reliant on foreign investors who are expected to scale down their operations in Singapore due to the financial problems back home.

Inflation is expected to rear its ugly head again as most of the central banks around the world have launched fiscal stimuli and are printing money. I expect this to happen towards the end of the year when real estate prices are expected to hit bottom and inflation starts to kick in. This is the time to start looking as property is normally a good hedge against inflation.


Shalabh Mittal
Managing Director & CEO
Mercator Lines (Singapore) Ltd

I FEEL it would be prudent for investors to wait for more fundamental economic data to signal that a bottom is in sight. Singapore property does have a lot of fundamental strengths in the long term and it's an asset class worth keeping track of.

It would be advisable for investors to keep a close eye on good properties and enter the market when it has passed the bottom and is on a slight upward trend even if it means not buying at the bottom. Middle to upper tier residential property could be a good bet.


Perhaps later

Peter Barge
Chairman
Jones Lang LaSalle

SEASONED investors understand the cyclical nature of the Singapore property market - which from top to bottom in most cycles typically spans two to three years. On this basis, the bottom may be some 12 months away, but we are already seeing signs of investors taking advantage of low interest rates and price declines of up to 40 per cent.

Investors know the best assets are never available at the bottom of the market, particularly in Singapore where forward-looking sentiment plays a huge role in driving prices. Hence, many are starting to look now with a view to investing over the next six months.

Direct real estate returns are looking attractive against other fixed income options and with the relative strength of currency, late 2009 appears an ideal time to start taking advantage of the likely upturn in pricing of the residential and commercial sectors.


David Leong
Managing Director
PeopleWorldwide Consulting Private Ltd

THE volatility of the property market has shown signs of abating and if there is any restoration of confidence, we'll increasingly see the 'bet-on-prime' phenomenon. Tier one high-end property in Orchard Road will generally have greater price elasticity in a rebound.

Other factors like the lower Singapore inter-bank offered rate (Sibor) will mean cheaper mortgage rates which will in turn spur investors' appetite for property in Singapore - which over the long term will surely climb back from the low floor. The simple reason is that with the scarcity of land coupled with a burgeoning population, land prices can only trend up.

I believe that the property market will remain buoyant with bargain hunting and a bottoming out of prices likely to be in the second or third quarter. Generally, property in Singapore is unlikely to lose its lustre for too long a time.


Sam Yap SG
Group Executive Chairman
Cherie Hearts Group Int'l Pte Ltd

WITH the prevailing economic uncertainty globally, it is still unclear when we can expect to see an economic recovery. In addition, the property cycle typically lags the rest of the economy by about two quarters.

As such, my take is that the property market has not seen its bottom yet. This will probably take place either towards the end of this year or next year, depending on how things unfold over the next two quarters. I believe that we will be able to see a clearer picture by the end of the third quarter this year.


Harish Nim
Chief Executive
Emerio Corporation Pte Ltd

I BELIEVE that the property market is nowhere near the bottom. I expect the market to go down much further as the global recession worsens. It is sad, but that's the way I see it.

My advice to people would be to hold on to their precious cash for at least another three quarters before committing themselves to property. As usual, prime properties are the ones that ought to be targeted.


Liu Chunlin
CEO
K&C Protective Technologies Pte Ltd

I KNOW the market is beginning to stir again. As reported, the prices of high-end condominiums have fallen significantly from 2008 highs - enough to entice some buyers.

But I subscribe to the thinking that we have not reached the bottom yet and the worst is to come. I believe the current rally in the stock market expresses some restless optimism, but I doubt the fundamentals are strong enough to sustain this and the property market uptake.

Hence, I would not invest in properties till say, six to nine months later. While high-end condominiums and good class bungalows or properties on Sentosa Cove sound attractive, I would not sink capital into these. Instead, I would place my bets on Reits, especially those which are gearing up for the upturn with a war chest.


Keiichi Hirano
Managing Director & Global Head - Real Estate
SG Private Banking

INVESTORS should generally consider investing in real estate in late 2009 as the economic decline tapers off and the benefits of government stimulus measures kick in from 2010.

Alternatively, they can consider investing by cash, without a big hope for fantastic financing by debt providers, in opportunistic single properties whose valuations have declined significantly. Our newly established Centre of Expertise in Global Real Estate helps our high net worth clients to diversify and increase their exposure in this sector, through direct purchases or via ad hoc vehicles.