That condo is moving out of reach

http://www.straitstimes.com/Review/O...ry_233369.html

May 3, 2008

PRIVATE PROPERTY

That condo is moving out of reach

By Tilak Abeysinghe & Gu Jiaying, For The Straits Times


THERE have been several episodes of residential property price escalations in Singapore that may have overshot income levels. But just how do we determine if private property prices have become more or less affordable?

We have developed a housing affordability index thatmight add an additional indicator to help answer policy questions on housing affordability. Standard measures that link property prices to annual incomes are not enough. Here we present a more meaningful index that we developed primarily to assess the affordability of private residential housing in Singapore.

Buying a residential property is a long-term decision. We need, therefore, a measure of a household's long-term income. For this we obtained unpublished data from the Department of Statistics on median household income since 1990 by age of household head at five-year intervals from age 20 to 64. The raw data shows income peaks occurring at age groups 30-34 and 55-59. If we remove the effect of different birth cohorts from the data, we can see that income peaks around age 50.

From the above income data, we used statistical techniques to estimate the income of different birth cohorts over their working age. From this, we computed a time series of lifetime incomes as the discounted present value of future income streams - that is, calculating future incomes in terms of today's dollars.

Chart 1 plots the lifetime income of middle-income earners by birth year. Significantly, the lifetime incomes of those born before the 1960s were stagnant. As can be seen from the chart, whether one was born in 1926 or 1956, the lifetime median income hovered around $500,000 in 2000 prices. (Most of these cohorts were in their old age during our observation period.)

The lifetime median incomes of those born after 1960 were significantly higher, coinciding with the rapid economic growth of Singapore at that time. But the lifetime median incomes of those born after the mid-1970s taper off. This is because these people began their working lives after the mid-1990s, when the economy entered a turbulent period beginning with the 1997-98 Asian financial crisis.

Having developed a chart tracking the lifetime median incomes of different cohorts, we linked this to property prices to derive an index. We divided long-term income for any chosen age group by the price of a selected type of property. This gives us a housing affordability index, which in essence measures property price against the median lifetime income of a household.

Chart 2 plots the income-price ratio for the 30-year-old group each year considering buying private residential property. We focus on this age group because that is roughly the age at which people might begin to buy private residential property. One graph on the chart looks strictly at this income-price ratio.

The other graph 'with HDB upgrader effect' tries to capture the wealth effect generated by rising HDB resale prices. We assume that the 30-year-old had bought a subsidised HDB flat, resold it, and directed all cash proceeds from the sale into the purchase of a private property. In practice, not all HDB resale proceeds accrue to the seller, but for lack of available data, we assume that it does. This means the 'HDB wealth effect' as represented on the graph is an overestimate, but it provides a useful indicator nevertheless.

Chart 2 is instructive. In 1975, a 30-year-old's lifetime income was nearly five times the amount he would have paid for a private property. But with prices rising, by 1983, his lifetime income would have sufficed to purchase only one private property. This trend continued: By 1997, a 30-year-old's lifetime income would have been enough to pay for only about 60 per cent of the price of an average private property.

In other words, as a result of the rapid increase in property prices in the early 1980s, private housing affordability dropped rapidly. After recovering somewhat in the late 1980s, affordability further declined in the 1990s when property prices escalated to unexpected heights. Last year, affordability moved in the downward direction.

Generally, since 1992, the index has hovered around unity - that is, lifetime income has just about equalled the price of one property. The pattern is the same even for HDB upgraders, though their affordability is somewhat better.

An income-price ratio of unity means that a middle-income household that buys an average-priced private property would be locking up its entire lifetime income in that property. The price escalation in the mid-1990s pushed the income-price ratio below unity, indicating a scenario of perpetual debt if a middle-income earner had committed to an average- (or higher-) priced private property.

The same computations using the data available since 1990 for average-priced HDB resale flats show a much better picture. The HDB affordability index dropped from eight in 1990 to three in 1996 and then recovered to five between 2001 and 2006. The price hike last year led to a slight drop in the index to 4.5, which means lifetime earnings were equal to 4.5 times the price of an HDB flat.

An optimal rate for property price inflation should be one that does not erode housing affordability. The long- term growth rate of our lifetime income measure is about 4-5 per cent, which has also been the long-term growth rate of per-capita disposable income. But the long-term increase in property prices has been much higher.

There are serious implications when housing affordability is eroded to the point where higher prices do not translate into higher wealth for property owners. For example, if affordability sinks below unity, this generation's lifetime income would not be enough to pay for the property, so the wealth from higher prices cannot accrue to the property owner today. Housing wealth may end up being transferred to the children of the current owners.

If this occurs, a question would arise: How to balance the cost of private property to the current generation against the benefits that might accrue to their children of having higher-valued properties?

On this point, our colleague Professor Basant Kapur thinks that a system of intergenerational transfers may work, whereby children can compensate their parents for such properties once they start earning. The complex of issues this raises would require another detailed research paper to examine.

Tilak Abeysinghe is the deputy director of the Centre for Applied and Policy Economics, Department of Economics, National University of Singapore.

Gu Jiaying is a research fellow at the centre.

The writers are perfectly correct especially with reference to HDB prices.

My first HDB bought in 1970 was a 3 room at $7,800.00. Now you can't even buy a toilet with $10,000, let alone an apartment.

When the new HBD flats are selling at prices above half a million dollars, how can the family income of $8,000 afford it?

Everything else follows HDB in the relativity theory.

Perhaps we are too obsessed with property ownership.

Over indulgence can kill, but who started the fire in the first place?

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Originally Posted by James Tan

The writers are perfectly correct especially with reference to HDB prices.

My first HDB bought in 1970 was a 3 room at $7,800.00. Now you can't even buy a toilet with $10,000, let alone an apartment.

When the new HBD flats are selling at prices above half a million dollars, how can the family income of $8,000 afford it?

Everything else follows HDB in the relativity theory.

Perhaps we are too obsessed with property ownership.

Over indulgence can kill, but who started the fire in the first place?

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This article focuses on "median income" and "affordability of private properties", which I feel is a mismatch.

Since 90% of Singaporeans stay in HDB flats, the "median income" person (i.e. 50th percentile) should be an HDB dweller and not a prospective purchaser of private properties. Hence the price of private properties should not be of concern to the "median income" earner, but to the top 10th percentile.

As far as income in the top 10th percentile goes, this group's income should go up much faster than the "median" due to the income widening effect.

Sometimes, I think people are stuck with the idea that certain professions belong to certain percentiles, and hence should stay in certain types of properties. But this has changed over the years. There is a re-ordering of society.

In the 1950's and 60's, school teachers, engineers and GPs were in the top league of earners.

Many teachers who were friends of my parents stayed in landed properties. Engineers stayed in private apartments (there were hardly any condos during those times) and a family friend who was a GP even owned a Good Class Bungalow in the Holland Rd area.

Can you imagine how a GP today, with an average income of $10,000 per month, can afford a $15 million bungalow? That will take him 125 years (assuming he doesn't eat or buy anything else with his income).

But then bungalows were cheap during those days, costing less than $1 million. And GPs used to earn $3k to $5k per month during those times, hence they could easily afford the GCBs.

What's happening today is that a different group of people is moving into the top-end properties. There is a re-shuffling of society.

CEOs and entrepreneurs are displacing GPs out of their GCBs; Property agents are buying out the school teachers' old semi-D's and terraces; hawkers are using hard cash to outbid the engineers for new condos; freelance plumbers are displacing technical managers ...

So even though a school teacher in the older generation could expect to stay in a private property, the average teacher of today cannot expect to do so. Hence it would be inappropriate to benchmark a teacher's income to the price of private properties, and then declare that private properties are becoming less affordable.

We should perhaps look at how private properties are becoming more and more affordable to plumbers.

I am using plumbers as an example because last week I just paid a plumber $150 for a 10-minute job. Even including his travelling time of half-and-hour, that's very good money! :p

On the other hand, during the 1950's when Singapore was just recovering from the effects of the War, hardly anyone would pay this type of money for a plumber. :2cents:

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Originally Posted by jlrx

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This article focuses on "median income" and "affordability of private properties", which I feel is a mismatch.

Since 90% of Singaporeans stay in HDB flats, the "median income" person (i.e. 50th percentile) should be an HDB dweller and not a prospective purchaser of private properties. Hence the price of private properties should not be of concern to the "median income" earner, but to the top 10th percentile.

As far as income in the top 10th percentile goes, this group's income should go up much faster than the "median" due to the income widening effect.

Sometimes, I think people are stuck with the idea that certain professions belong to certain percentiles, and hence should stay in certain types of properties. But this has changed over the years. There is a re-ordering of society.

In the 1950's and 60's, school teachers, engineers and GPs were in the top league of earners.

Many teachers who were friends of my parents stayed in landed properties. Engineers stayed in private apartments (there were hardly any condos during those times) and a family friend who was a GP even owned a Good Class Bungalow in the Holland Rd area.

Can you imagine how a GP today, with an average income of $10,000 per month, can afford a $15 million bungalow? That will take him 125 years (assuming he doesn't eat or buy anything else with his income).

But then bungalows were cheap during those days, costing less than $1 million. And GPs used to earn $3k to $5k per month during those times, hence they could easily afford the GCBs.

What's happening today is that a different group of people is moving into the top-end properties. There is a re-shuffling of society.

CEOs and entrepreneurs are displacing GPs out of their GCBs; Property agents are buying out the school teachers' old semi-D's and terraces; hawkers are using hard cash to outbid the engineers for new condos; freelance plumbers are displacing technical managers ...

So even though a school teacher in the older generation could expect to stay in a private property, the average teacher of today cannot expect to do so. Hence it would be inappropriate to benchmark a teacher's income to the price of private properties, and then declare that private properties are becoming less affordable.

We should perhaps look at how private properties are becoming more and more affordable to plumbers.

I am using plumbers as an example because last week I just paid a plumber $150 for a 10-minute job. Even including his travelling time of half-and-hour, that's very good money! :p

On the other hand, during the 1950's when Singapore was just recovering from the effects of the War, hardly anyone would pay this type of money for a plumber. :2cents:

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While I can agree with you on the distortions cited in the earlier article, I am shocked that you are willing to pay a plumber for a $10-minute job which I presume is to clear a chokage (since nothing much can be done in 10 minutes). If that guy is sent by NTUC, file a complaint for over-charging. You should pay no more than $30 to $40 for transport and labour.

If plumbers overcharge, aircon contractors are about the worst lot. I have caught one guy deliberately releasing gas from the compressor and then tell me it needs topping up at $45 (plus the servicing charge of $50 for each fancoil, and also suggest chemical cleaning at $180 per fancoil.

Back to numbers: figures don't lie, but liars know how to figure (by using the wrong set of numbers deliberately).

Many HDB owners own condominiiums for investment; including their income equally distort the stats.

The only relevant comparison, as I pointed out earlier, is new HDB prices vs the rule of $8,000 household income. How can such a family afford an apartment worth half a million dollars or more, HDB or private? (but private properties have no income ceiling and we can't verify.

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Originally Posted by James Tan

While I can agree with you on the distortions cited in the earlier article, I am shocked that you are willing to pay a plumber for a $10-minute job which I presume is to clear a chokage (since nothing much can be done in 10 minutes). If that guy is sent by NTUC, file a complaint for over-charging. You should pay no more than $30 to $40 for transport and labour.

If plumbers overcharge, aircon contractors are about the worst lot. I have caught one guy deliberately releasing gas from the compressor and then tell me it needs topping up at $45 (plus the servicing charge of $50 for each fancoil, and also suggest chemical cleaning at $180 per fancoil.

Back to numbers: figures don't lie, but liars know how to figure (by using the wrong set of numbers deliberately).

Many HDB owners own condominiiums for investment; including their income equally distort the stats.

The only relevant comparison, as I pointed out earlier, is new HDB prices vs the rule of $8,000 household income. How can such a family afford an apartment worth half a million dollars or more, HDB or private? (but private properties have no income ceiling and we can't verify.

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Not I "willingly" want to pay $150, but it's an emergency and then already past midnight. :( So maybe can consider as "overtime" pay ... :2cents:

Actually $8,000 per month household income should be quite comfortable to afford a half a million dollar HDB apartment.

$8,000 per month, that's $96,000 per year. So $500,000 is only 5.2 years of income.

I always assumed that a person can afford to buy total properties worth 10 years of income. That's how I operate :ashamed1: and I thought I'm quite conservative ... :scared-5:

Another possibility is that the Government may allow 100-year mortgages like what Japan used to have. Whereby the descendents take over the mortgage so that the debt is paid over three generations. Is that possible? :eek:

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Originally Posted by jlrx

Not I "willingly" want to pay $150, but it's an emergency and then already past midnight. :( So maybe can consider as "overtime" pay ... :2cents:

Actually $8,000 per month household income should be quite comfortable to afford a half a million dollar HDB apartment.

$8,000 per month, that's $96,000 per year. So $500,000 is only 5.2 years of income.

I always assumed that a person can afford to buy total properties worth 10 years of income. That's how I operate :ashamed1: and I thought I'm quite conservative ... :scared-5:

Another possibility is that the Government may allow 100-year mortgages like what Japan used to have. Whereby the descendents take over the mortgage so that the debt is paid over three generations. Is that possible? :eek:

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Thanks for the clarification. If you wake up that poor fellow after midnight, then he deserves the overtime. But plumbing jobs are normally not emergencies unless you have a burst pipe in which case you can still turn off the mains (at the meter) and call the plumber the next day.

On your computations that a half a million dollars property would need 5.2 years to pay up, it should be examined from the SURPLUS cash position, not from the income position since at least 20% goes to CPF, etc.

As a rule of thumb, the max amount the family of $8,000 gross salary should commit to housing loans would be 50% of take-home pay, i.e. after deducting for CPF, which would be 50% x $6,400 or $3,200 pm., assuming no other loans outstanding (such as car loan, furniture or electrical appliance loans, club membership instalments, etc.).

Taking an average of 3.5% interest rate throughout the life of the mortgage period, you would need a loan period of more than 10 years, assuming 95% financing of the half million (i.e. $450k loan).

As a guide, avoid a loan term of more than 15 years, otherwise the interest payments can be scary.

For instance, assuming a constant 3.5% interest rate, monthly rest, the interest payable for a 15 yr term would amount to 29% of the principal, 39% for a 20-year term and a whopping 62.2% for a 30-year term.

Still want to try 100% year mortgages? That would be slavery, worse than life imprisonment, the latter of which does not pass down to your children and grandchildren.

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Originally Posted by jlrx

Not I "willingly" want to pay $150, but it's an emergency and then already past midnight. :( So maybe can consider as "overtime" pay ... :2cents:

Actually $8,000 per month household income should be quite comfortable to afford a half a million dollar HDB apartment.

$8,000 per month, that's $96,000 per year. So $500,000 is only 5.2 years of income.

I always assumed that a person can afford to buy total properties worth 10 years of income. That's how I operate :ashamed1: and I thought I'm quite conservative ... :scared-5:

Another possibility is that the Government may allow 100-year mortgages like what Japan used to have. Whereby the descendents take over the mortgage so that the debt is paid over three generations. Is that possible? :eek:

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Well said. I was thinking of the same when I read that ST article. I also agree with your reasoning about affordability of $500K HDB with $8000 per month. One thing to note, for those earning $8000 now, they could be looking to earn much more than that after they bought the property. It is not very meaning to calculate a person's life time earning by assuming 4.5% salary increase per year. Unlike the teachers, engineers and civil servants in the past (they have much more stable and predictable lifetime earning), with today's rapidly changing world economy, very hard to do that kind of calculation for the top 10-20% earners.

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Originally Posted by James Tan

Still want to try 100% year mortgages? That would be slavery, worse than life imprisonment, the latter of which does not pass down to your children and grandchildren.

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But then that will be fairer to the first generation. If the descendents want to enjoy the fruits of their grandparents' labour, they should also contribute something. If the descendents do not want to continue paying the 100-year mortgage, they can sell the property and then downgrade to HDB.

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Originally Posted by wlcl

It is not very meaning to calculate a person's life time earning by assuming 4.5% salary increase per year. Unlike the teachers, engineers and civil servants in the past (they have much more stable and predictable lifetime earning), with today's rapidly changing world economy, very hard to do that kind of calculation for the top 10-20% earners.

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It's actually quite difficult to predict salary movements. In fact I'm trying to do that in order to forecast what sort of property will be going up more, by looking at what types of people have incomes that are going to go up more, and then what types of property they stay in.

Over the past 20 years, salaries at the top have really pulled away from the rest. Top lawyers have seen their income gone up from $800k p.a. to $5 million p.a.; CEO's who used to earn around $1M p.a. now take home $5M to 8M p.a.; and that LASIK doctor who operated on 10,000 eyes last year should be around that range also. There was a time when top surgeons used to earn only $500k p.a. Now the figure is 10 times more.

Ministerial and senior civil servants' pay, which are benchmarked to top private sector salaries, also shot up exponentially.

I thought these people will be going after landed houses, especially bungalows, so the strange thing though, is that the prices of landed properties, especially bungalows, haven't really gone up proportionately.

Is that due to an inefficiency in the market, or the fact that foreigners are not freely allowed to buy landed houses, that kept their prices artificially suppressed?

Unlike condos which's supply can be indiscriminately increased, landed houses' supply is limited. Furthermore, I would expect that those staying in or intending to purchase landed houses should be amongst the top-tier income group whose salaries are growing the fastest, e.g. investment bankers, entrepreneurs, doctors, lawyers etc.

So why is the price of landed properties still so low (relatively)? Does this present a buying opportunity? :confused:

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Originally Posted by jlrx

But then that will be fairer to the first generation. If the descendents want to enjoy the fruits of their grandparents' labour, they should also contribute something. If the descendents do not want to continue paying the 100-year mortgage, they can sell the property and then downgrade to HDB.

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That concept of handing down the family house was in vogue during our grandparents' or even our parents' days under the three-generation-under-one-roof dynasty. Today, a good number don't even have a child, while an even bigger number are one-child families. Besides, which bank will give you a mortgage loan beyond 30 years?

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Originally Posted by jlrx

It's actually quite difficult to predict salary movements. In fact I'm trying to do that in order to forecast what sort of property will be going up more, by looking at what types of people have incomes that are going to go up more, and then what types of property they stay in.

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Here again, things have changed. Even civil service jobs, once used to be the "iron" rice bowl can now be broken and even very fragile.

You might have heard from the grapevine that a group of professors at the NTU have been shown the door owing to a re-organisation and have until 2010 to look for a job. Most of them have more than 10 years' service.

If it is no longer possible to ensure a permanent job, how to predict salary movements?

Quote:

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Originally Posted by jlrx

Ministerial and senior civil servants' pay, which are benchmarked to top private sector salaries, also shot up exponentially.

I thought these people will be going after landed houses, especially bungalows, so the strange thing though, is that the prices of landed properties, especially bungalows, haven't really gone up proportionately.

Is that due to an inefficiency in the market, or the fact that foreigners are not freely allowed to buy landed houses, that kept their prices artificially suppressed?

Unlike condos which's supply can be indiscriminately increased, landed houses' supply is limited. Furthermore, I would expect that those staying in or intending to purchase landed houses should be amongst the top-tier income group whose salaries are growing the fastest, e.g. investment bankers, entrepreneurs, doctors, lawyers etc.

So why is the price of landed properties still so low (relatively)? Does this present a buying opportunity? :confused:

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The income of ministers and senior civil servants in the superscale grades can now allow them to buy a million-dollar condo every year or a landed property every two to three years. But they can reside in only one location. So are the big-time lawyers, surgeons, etc.

So the rest is purely investment. And for investment purposes, the condominium is the best because it is the only residential property that has no restriction.

In the district 10, including the River Valley areas, the investment ratio of these condos is usually in the 80% to 90%, while across the island, excluding ECs, the investment to owner occupied ratio of condos is approx 50:50.

In addition, many expats are no longer enjoying expat perks, especially free housing. The trend is for the company to give these expats a fixed housing allowance (if they are the top brass, otherwise nothing) and the expat pays his own rental. This drives down the demand for semi-Ds and bungalows and boost the demand for condos which offer facilities such as the pool and tennis courts which are a must for expat families.

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Originally Posted by James Tan

That concept of handing down the family house was in vogue during our grandparents' or even our parents' days under the three-generation-under-one-roof dynasty. Today, a good number don't even have a child, while an even bigger number are one-child families. Besides, which bank will give you a mortgage loan beyond 30 years?

Here again, things have changed. Even civil service jobs, once used to be the "iron" rice bowl can now be broken and even very fragile.

You might have heard from the grapevine that a group of professors at the NTU have been shown the door owing to a re-organisation and have until 2010 to look for a job. Most of them have more than 10 years' service.

If it is no longer possible to ensure a permanent job, how to predict salary movements?

The income of ministers and senior civil servants in the superscale grades can now allow them to buy a million-dollar condo every year or a landed property every two to three years. But they can reside in only one location. So are the big-time lawyers, surgeons, etc.

So the rest is purely investment. And for investment purposes, the condominium is the best because it is the only residential property that has no restriction.

In the district 10, including the River Valley areas, the investment ratio of these condos is usually in the 80% to 90%, while across the island, excluding ECs, the investment to owner occupied ratio of condos is approx 50:50.

In addition, many expats are no longer enjoying expat perks, especially free housing. The trend is for the company to give these expats a fixed housing allowance (if they are the top brass, otherwise nothing) and the expat pays his own rental. This drives down the demand for semi-Ds and bungalows and boost the demand for condos which offer facilities such as the pool and tennis courts which are a must for expat families.

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What I am thinking of, in terms of long term investment potential, is that one day land may become so short that the Government may be forced to raise the plot ratio of all landed properties and turn them into condos.

If, and should, that day ever come, then the price of landed houses will shoot through the roof. Whereas such potential is muted for condos.

If fact, such things have been going on for some time, in selected areas. Owners of landed bungalows around the Cairnhill and Newton areas have seen their land being rezoned as "condo development" and the plot ratio raised in order to facilitate more intensified housing.

A rough calculation ... say a bungalow sitting on 18,000 sf of land priced at $1,000 psf is worth only $18 million as a Good Class Bungalow. However, once rezoned as condo land with a plot ratio of 2.8 and a price of, say $2,300 psf ppr, it will instantly be worth 2.8 x 18,000 x $2,300 = $115 million. That's six times more.

Every piece of landed property in Singapore has the potential of being worth six times what it's currently worth. All it needs is a stroke of the pen from URA.

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July 10, 2007

Investment firm wants to sell Orchard bungalow site for $115m

By Joyce Teo, Property Correspondent

http://www.straitstimes.com/STI/STIM..._MNYJTSALE.jpg
HEFTY PRICE TAG: The nearly 18,000 sq ft property, which now houses the Pat's Schoolhouse childcare centre, sits along Claymore Road. It is close to Hong Leong's Tate Residences condominium, which is currently being built. -- PHOTO: CREDO REAL ESTATE

A BUNGALOW site owned by a family-owned investment firm near Orchard Road has gone on sale for an astonishing $115 million.

Published July 10, 2007

Claymore Road site expected to sell for $2,815 psf ppr


A NEW record price for residential land is being sought, of $2,815 psf of potential gross floor area. This is the price wanted for 11 Claymore Road, a 17,974 sq ft freehold site with an old bungalow on it but which can be redeveloped into a luxury boutique apartment project with about 20 units averaging 2,400 sq ft.

http://www.businesstimes.com.sg/mnt/...09_07_2007.jpg
11 Claymore Road: The site has an old bungalow on it but can be redeveloped into a luxury boutique apartment project with about 20 units

The site has a 2.8 plot ratio (ratio of maximum potential gross floor area to land area).

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And also my "artist's impression" in 1939 vs a photo in 2008 ... :ashamed1:

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Originally Posted by jlrx

What I am thinking of, in terms of long term investment potential, is that one day land may become so short that the Government may be forced to raise the plot ratio of all landed properties and turn them into condos.

If, and should, that day ever come, then the price of landed houses will shoot through the roof. Whereas such potential is muted for condos.

If fact, such things have been going on for some time, in selected areas. Owners of landed bungalows around the Cairnhill and Newton areas have seen their land being rezoned as "condo development" and the plot ratio raised in order to facilitate more intensified housing.

A rough calculation ... say a bungalow sitting on 18,000 sf of land priced at $1,000 psf is worth only $18 million as a Good Class Bungalow. However, once rezoned as condo land with a plot ratio of 2.8 and a price of, say $2,300 psf ppr, it will instantly be worth 2.8 x 18,000 x $2,300 = $115 million. That's six times more.

Every piece of landed property in Singapore has the potential of being worth six times what it's currently worth. All it needs is a stroke of the pen from URA.

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Agree with you. To realise such a potential, you should look for an old bungalow surrounded by mid to high-rise buildings in its neighbourhood to ensure that URA will raise its plot ratio.

Alternatively, you can also try to spot a property like Farrer Court where the gain is more than 20 times.

Let me share with you a tale of two friends, both harvested their en bloc at the old Amberville (HUDC)

Both A and B bought another condo in the Katong area at $1.2m., and six months later the en bloc fever spread to this condo and the price almost doubled to $2.2m., because the en bloc reserve price gave each unit $4.2m.

A joined the Sale Committee and hoped to reap another $3.0m. gain with the second en bloc, but B, being a trader, took his $1.0m profit and bought two units elsewhere.

Last weekend, three of us met at our club and B told us that he had sold the two other units with a profit of $1.0m. each. In all, since the Amberville was en bloc(ed), he had made a cash profit of $3.0m. with capital from his Amberville, but A is still waiting for the en bloc market to return to life and holding on to his replacement unit!

This is not fiction, but true life story with the same lesson: a bird in hand is worth two in the bushes because nobody can predict the future. Make hay while the sun shines as time and tide waits for no man.

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Originally Posted by James Tan

Agree with you. To realise such a potential, you should look for an old bungalow surrounded by mid to high-rise buildings in its neighbourhood to ensure that URA will raise its plot ratio.

Alternatively, you can also try to spot a property like Farrer Court where the gain is more than 20 times.

Let me share with you a tale of two friends, both harvested their en bloc at the old Amberville (HUDC)

Both A and B bought another condo in the Katong area at $1.2m., and six months later the en bloc fever spread to this condo and the price almost doubled to $2.2m., because the en bloc reserve price gave each unit $4.2m.

A joined the Sale Committee and hoped to reap another $3.0m. gain with the second en bloc, but B, being a trader, took his $1.0m profit and bought two units elsewhere.

Last weekend, three of us met at our club and B told us that he had sold the two other units with a profit of $1.0m. each. In all, since the Amberville was en bloc(ed), he had made a cash profit of $3.0m. with capital from his Amberville, but A is still waiting for the en bloc market to return to life and holding on to his replacement unit!

This is not fiction, but true life story with the same lesson: a bird in hand is worth two in the bushes because nobody can predict the future. Make hay while the sun shines as time and tide waits for no man.

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An "En Bloc Potential" property is a high risk, high return play. It's like a warrant - a leveraged instrument.

An old apartment with an existing built-up plot ratio of only 1.0 is sitting on land that can be redeveloped up to 2.8 times or more. Hence whatever price movement will be multiplied by 2.8 times, or more.

When the market was dead, "En Bloc Potential" properties were even more dead than dead. However, the moment the market comes alive, it's usually too late to act, as it'll be virtually impossible to find anyone who wants to sell.

The graph below shows Farrer Court's price movement. The lucky guy who got it in May 2007 for $1.56 million made $778,000 in one month when the whole place was en blocked in June 2007 for $2.338 million per unit.

http://i305.photobucket.com/albums/n...CourtPrice.jpg

It's very hard to say who will have the last laugh in property investing, as the following article illustrates.

Was Mr. Tan Chin Tuan super unlucky to buy the house just before the War broke out? or super lucky?

http://i305.photobucket.com/albums/n...Demerged02.jpg

The Straits Times, 18 Jan 2008

Built in the 1920s as the home of entrepreneur and philanthropist Tan Kah Kee, the house was bought by Mr Tan Chin Tuan just before World War II broke out in 1939.

When Mr Tan and his family were forced overseas during the Japanese Occupation, the house was taken over by Japanese generals. They gave away all the furniture in the three years they were there from 1942. By the time they left the house, vanquished in the war, all that was left was a wooden chair, now on display.

Quote:

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Originally Posted by jlrx

An "En Bloc Potential" property is a high risk, high return play. It's like a warrant - a leveraged instrument.

An old apartment with an existing built-up plot ratio of only 1.0 is sitting on land that can be redeveloped up to 2.8 times or more. Hence whatever price movement will be multiplied by 2.8 times, or more.

When the market was dead, "En Bloc Potential" properties were even more dead than dead. However, the moment the market comes alive, it's usually too late to act, as it'll be virtually impossible to find anyone who wants to sell.

The graph below shows Farrer Court's price movement. The lucky guy who got it in May 2007 for $1.56 million made $778,000 in one month when the whole place was en blocked in June 2007 for $2.338 million per unit.

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Was that guy your friend? How about his former owner? Did the former owner bought it for, say, $500k a few months earlier and made more than 300%? Interesting to know who got the last laugh.

Quote:

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Originally Posted by jlrx

It's very hard to say who will have the last laugh in property investing, as the following article illustrates.

Was Mr. Tan Chin Tuan super unlucky to buy the house just before the War broke out? or super lucky?

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OK to buy landed property and let it age, then take profit, but not a strata property hoping for en bloc potential because the heartache is frequently not worth the trouble.

I would rather buy antiques, old wines, etc., and let them age and take profits rather than old strata title properties.

Quote:

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Originally Posted by James Tan

Was that guy your friend? How about his former owner? Did the former owner bought it for, say, $500k a few months earlier and made more than 300%? Interesting to know who got the last laugh.

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No lah that guy not my friend. I just check the URA caveat records which I archived. :p

You are right. That last unit was bought on 1 Mar 2006 for only $550,000 and then sold on 8 May 2007 for $1,560,000, for a profit of $1,010,000 in 1 year 2 months! :eek:

Quote:

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Originally Posted by James Tan

OK to buy landed property and let it age, then take profit, but not a strata property hoping for en bloc potential because the heartache is frequently not worth the trouble.

I would rather buy antiques, old wines, etc., and let them age and take profits rather than old strata title properties.

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I've gone through one en bloc which was relatively peaceful as it's a small development and we've almost got 100%. The en bloc profits allowed me to buy a small landed house.

I have another en bloc "potential" which is of course put on hold, given the current market situation.

What I am now pondering is what to do if this other property en blocs? It won't be any time soon, so I have a lot of time to think ...

Is it better to buy another small landed house? Or to combine the two properties into a bigger old house? But that is assuming that landed property will outperform condos due to land shortage.

But what if, instead, condos outperform landed properties due to influx of foreign buyers? Then wouldn't it be better to buy another condo and rent it out since the rental returns are better?

Eeny, meeny, miny, moe ... :scared-5:

Take note ..... Sing Dollar has started to weaken. Which means buying into Singapore assets will cost cheaper in real term. Coupled with a high inflation pressure holding cash is subject to lose big. Very soon we will see influx of foreign funds to acquire SGD denominated assets. And guess what?! Ppty will be the top and easy target.

I foresee a second wave of ppty boom in a near future.