REC weekly #123: Is your property investment really giving you returns?

“My property rent is so Low!”

“My property price has not appreciated much!”

These 2 comments have been very common during client meetings over the last few years. Yesterday, I met a client, Ms Tan whom was referred by a friend. Mrs Tan complained that she owns a property at The Luxurie which was not performing well. Upon hearing this, I took out my property analysis spreadsheet and punched in some numbers. I will share more about my findings in this blog post. Before we dive into the numbers, I will share my opinion on how property investors should analyse their property returns.

Gross Rental yield

For investors, rental returns is a key factor to decide whether a property is worth investing or not.

1. Rental provides income for the investor (similar to a dividend) and

2. Provides a margin of safety in bear markets when property prices stay stagnant or trend downwards.

For the above reasons, rental yield is a simple indicator to decide if a property is worth investing. The current gross rental yield in Singapore averages 2-3%. During the financial crisis in previous bear markets, investors could buy properties that have gross yield of 5-7%. As price appreciated more than rents, yields start to compress.

By using this simple investment measure, rental yields of 4% of less are riskier investments. This is because most property investors use leverage (take loans) and interest rates are on the rise, likely to hit 3.5% over the next 2 years, while rental yields remain at 2-3%, when Rental Yield is less than Financing Cost, the investment is basically negative yield.

To calculate Gross Rental Yield, we do the following:

(Rent * 12) / Total Property Cost

Based on the formula, for rental yield to increase, either Rent must rise or Property Cost have to go down. I have written about my opinions about the outlook of rental market and property prices in a previous article, you can read more here.

Capital gains

Every investor hopes that their assets will increase in value over time. The same goes for property investors. You would probably hear phrases like “Property is a sure way to make money”. Unfortunately, I personally think the phrase are flawed and untrue.

Buying real estate for capital gains is similar to buying stocks. When buying stocks, we look for deep value, the potential for higher earnings and returns. The same is true for real estate, we look for value buys that are below market valuation, potential transformation of surrounding, future upgrades to amenities and strong demand. Unfortunately, many property investors I know do not do extensive research before they buy a property. Many tend to buy based on gut feel, nothing wrong with that, but I think the investment environment has changed in Singapore, and buying a property for investment is no longer the same as before.

Over the past 5 years, due to cooling measures, there has been many properties which have not appreciated in value. In fact, there has been some properties that has not seen capital appreciation in the last 10 years as well. These properties had unperformed inflation. If we analyse property returns on a annual basis, many properties tend to underperform inflation, which is similar to keeping your money in the bank.

A good capital gain or return on investment would then be at least 4-5% p.a which Beats inflation and cost of borrowing. Unfortunately, my view is that over the next 5 years, we are unlikely to see much capital gains if any in the Singapore property market.

Case study 1 : The Luxurie 2 bedroom , bought in 2012

Ms Tan bought a 2 bedroom, 7xx sqft unit at The Luxurie, walking distance from Seng Kang MRT. As an investment she wanted to rent out the unit. Initially she had expected to get a higher rent, however rental market has been weak and she has been renting the unit for $2300 per month. She has also refinanced her mortgage to a fixed rate, in anticipation of rising interest rates over the next 2 years.

Purchase Price: $850,000

Stamp duty: 3%-5400 = $20,100

Total cost: $870,100

Loan: 80%, 25 years

Interest rate: 2.3% refinanced

Total equity outlay: 20%+(3%-5400) = $190,100

Based on the above info, I calculate the actual rental returns below

The key to a successful property investment is proper documenting of expense and income. One common mistake most property investors make is to ignore the small costs like taxes and maintenance fees which eats into your return.

A good property will be where the tenant pays for the property. Unfortunately this is not the case for Mrs Tan and many many other property investors in Singapore.

As you know, your mortgage payments has 2 components

1. Principal payment – this actually pays down your mortgage

2. Interest payment – this makes the bank rich

Based on 2.3% interest rates, we calculate the exact principal paid down by the tenant (rental income).

The tenant only pays $530 of the principal, the remaining rent is used to pay your expenses.

Not to forget that Ms Tan is still required to top up $1,000 per month as the rental income does not cover the monthly mortgage payments.

She is now stuck with this Negative Cashflow property.

Below is a chart that shows where the rental income goes to.

As you can see, most of the rental income payments go to your interest payments and cost to keep up the property. When interest rates hit 3.5% or more, the $530 (orange segment) which is currently paying down principal will go to $0. The whole Rent will be used to interest and expense. While your monthly top up will be used to pay principal. Is this a worthwhile investment?

Capital gain is also not seen as the property did not appreciate much. The worst case scenario if a financial crisis hits us will be a 30-40% dip in valuation. The property bought at $850k could be worth less than $600k. This is highly possible as if rental remains at $2300, the new rental yield will be 4.6% which is more attractive.

While, the current valuation of property is around $900k, and with a 2% commission to sell, would likely give Ms Tan a very small profit. She decided to get rid of this underperforming asset as the potential downside far outweighs the upside potential. Even if she had holding power, holding a potential 30-40% loss or up to $300k is not good for her mental state.


It is important to go into the tiny details when investing in real estate. There are many property agents who try to hide such facts as these details are the most important. Over the next 2-3 years, it is safe to say that majority of properties are not performing well and it is better to move into liquid assets. If you like to know my outlook of the property market for 2019, stay tuned for my upcoming article.

REC weekly #0120: Is it the right time to buy investment properties in Singapore?

In continuation for the previous article “what en-bloc owners must know about the property market”, this is the final part of the en-bloc mini-series – “Prudent Strategies for Asset Growth”.

In this final part, I will share 3 common strategies that en-bloc owners will likely be considering and provide my views in a series of 3 articles.

When enbloc owners receive their sales proceeds (or anyone striking a windfall from the stock market or lottery), it will be tempting to spend money quickly. This psychology is common, but is not a good idea. Some en-bloc owners will consider buying 2 properties – one as a replacement home, another for investment.

Case study 3A – Buying multiple Singapore Properties

A few of my clients told me that they want to buy 2-3 properties in Singapore when they get their en-bloc proceeds, what investment properties in Singapore should they buy?

The short answer is – this is not the time to buy investment properties in Singapore (unless it is a very good deal).

The usual me – being data and finance oriented, was tempted to take out my laptop and go through with them financial calculations and the numbers. However, instead of going to such details, I explained about where we are in the property cycle. I hope that this explanation will be informational for everyone. If you still are wondering about the financial numbers after reading this article, feel free to discuss with me further.

Where we are in the property cycle?

After being a real estate and stocks investor for about a decade now, reading countless books by Ray Dalio, Howard Marks, Warren Buffet, etc, and speaking to already seasoned investors, something that they all agree on is that they cannot predict the market, but they sure do need to know where we are in the market cycle. I too cannot predict the market, but understanding where we are in the market will give us an idea what to do.

Here are some facts about the market now:

1. Some property agents and even property buyers are saying – it’s time to buy because as Warren buffet says, be greedy when others are fearful. Perhaps this is being misused. There is less people buying now due to the cooling measures and people also worried that asset prices are overvalued. There is no blood on the streets, those words are best said in 2007/2008. Not now.

2. Investors are afraid that future generation cannot afford housing and fear of missing out (FOMO), they think prices will continue to go up indefinitely. I think that asset prices are inflated and the government won’t cause the prices drop, the global economic crisis will. When people think prices will continue to go up indefinitely, I start to worry.

3. Many property buyers today forgot about the financial crisis that happened. Perhaps they did not experience it first hand, or believe a crisis won’t happen again. I quote our MAS Chief, Ravi Menon’s words, he says that the risk of financial crisis is present, it is like energy, it is just converted from one form to another. In short, the next crisis is likely to happen, it just looks different from the previous one.

The above 3 points lead me to think that the psychology of investors are driven by optimism, trust in the future and less worried about risks. We are probably almost at the end of the property cycle.

Based on the above information and the property market outlook written in the previous article, buying an investment property in Singapore may not be a good idea. If you have not read my previous article, here is the summary.

We are currently in an investment climate of rising interest rates, stagnant rents and oversupply due to huge en-bloc redevelopment units coming onto the market.

With risk free investments (Fix Deposit rates closing on 2%) and gross rental yields at close to 2% and slow capital appreciation coupled with global trade tensions, it is prudent to hold more liquid assets. Some may remember, not too long ago, when the property markets were not overheated, some studio or 2 bedroom units had 5% gross rental yields. Today, the average yield is at 2.5-3%. Prudent investors will look at rental yields and decide how much they should pay for the units. After all, no investor wants to hold on to an asset with low returns. For rental yields to rise, 1 of 2 things must happen. Rents must rise or asset prices must go down.

Rental market outlook

Rents are unlikely to see any sustained rise due to vacancy rate of 7% here. There just isn’t as many expats here today compared to the good times in 2010-2013. In a recent catch up with a client at Club Street, a restaurant manager came to have a chat with us and he mentioned that the crowd at Club Street has shrunk. Many of the frequent Caucasian expats who like to hang out there seem to have gone back. My first reaction was, perhaps these expats could be hanging out somewhere else. However, on second thought, perhaps this is indeed a sign that we have lesser expats here due to the tight immigration policies by the government. Even if the government attracts more talents to work here, the economy will have to remain healthy and we are facing competition with other tech hubs in Asia. Given the above assumptions and information, I believe that rents will remain depressed for the next few years.

Property price outlook

Property prices currently as what Minister Wong (Minister for MND) mentioned in a recent redas meeting, “we are already seeing significant headwinds in the external environment, with trade, with global economy slowing down, with interest rates likely to go up. On TOP of that, within our domestic market, more supply is coming on stream”. His words sums up the question on where are are in the economic and property cycle. It will not be wise to think that property prices will only go up.

If rents are unlikely to go up, then for investments to be attractive, asset prices have to go down. The question now is – how low will asset prices drop in a financial crisis?

REC Views

Buying multiple properties in Singapore for investment with en-bloc proceeds is not recommended. Due to oversupply of residential properties in Singapore, rising interest rates and global economy slowdown.

Case study #2: The story of Forest vs Water

If you think that properties bought in the same time period will have similar returns, this case study will change your perception.

In 2014, I was referred to a property owner who unfortunately due to a business failure, had to sell off his property at Foresque Residences which was initially for own stay.

Image 1: Foresque Residences location / Source: Streetdirectory

Image 2: Foresque Residences details / Source: Squarefoot

When I first met Mr Tam (not his real name for privacy purpose), we went through the likely price he could sell, and we eventually worked out his breakeven price taking into account

Purchase price: S$1,207,000 (1,130 sqft)

1. The stamp duty he paid for purchase: 3% – $5400

2. The seller stamp duty (SSD) of 4% which he would have to pay

3. My broker service fee of 2% + GST for selling the unit

4. Legal fees and early cancellation fee for his mortgage (Property was just TOP, and CSC not obtained)

Adding up (1) to (4), the amount was about S$100k OR 8% higher than his initial purchase price. He had to sell the unit for S$100k above purchase price in order to breakeven, and to get back his initial capital paid for the down payment.

This seemed like an impossible task at that point in time, because there were still unsold developer units, and to make matters worst, there was going to be more new launches nearby Foresque Residences coming up and strong cooling measures by government.

As Mr Tam was really in a hurry to sell off the unit, we agreed that we will call it a ‘fire sale’ at that time to attract maximum exposure. Do note that the actual unit could not be seen yet as keys were not collected. Below is one of the old marketing pitch sent to agent cobroke groups.

Image 3: Mass send to cobroke groups

After 2 months, we were still not able to secure a buyer for the unit. At this point, Mr Tam and I had a chat about why he bought the unit at Foresque Residences. He told me that he liked that the development was near nature, and he found that the development being about 16-20mins away from MRT by foot acceptable. He also added that he was also considering Waterfront Keys/Gold at Bedok Reservoir when he was planning to buy the unit in 2011.

At that juncture, I told him “If you had bought the waterfront collection at that time, it will be easier to sell, more demand and the Bedok reservoir MRT was announced”.

Image 4: Profitable transactions Waterfront Gold / Source: Squarefoot

When I told him that a unit at Waterfront Gold would be a easier sell, he went on to say that he did prefer Bedok reservoir area, but the agent he bought the unit from manage to convince him that Foresque Residences was a better buy. Now buying a unit is entirely a property buyer’s call. An agent can only provide you their insights, and I am not suggesting that the agent gave the wrong advise. What this case study tells us based on the information available is, properties bought at the SAME time period can and will perform differently. Hence, property selection is critical.

Eventually, I sold the unit at Foresque Residences and Mr Tam managed to achieve breakeven price. However, if he had bought a property like Waterfront Gold (see Image 5 below for the location) which had better capital appreciation, the additional profits could have helped him in his situation with more profits to reduce his debts, his property also could have been sold quicker, reducing any emotional stress faced.

Image 5: Waterfront Gold location / Source: Streetdirectory

Let us now look at both Foresque Residence and Waterfront Gold performance over the years. Both properties obtained TOP in 2014.

Historical Transacted Prices – Foresque Residences

Source: Squarefoot

Historical Transacted Prices – Waterfront Gold

Source: Squarefoot

Analysing both Foresque Residence historical price trend, it has been rather stagnant overall, while price trend for Waterfront Gold had gradually increased until 2015. Both trended downwards after that to where we are now in 2018. During the period of 2011-2014, both properties performed differently with Foresque Residence being rather stagnant and Waterfront Gold prices were rising.

When we buy a property, it is common to buy what we like, or sometimes get swayed to buying something else. If we buy what we like, we need to consider if the majority of buyers will think the same, else this will be an issue later on when re-selling the unit.

Foresque Residences (surrounded by Forest) and Waterfront Gold (surrounded by Water) can be great Properties to stay, however when one considers potential profits, being near amenities (MRT, eateries, etc) which usually attract more demand is an important consideration. However, it is also critical NOT to overpay for amenities. I will share more about this in a separate article.

You may not know if an unforeseen event that requires you to sell off your property will happen, but if you take care of your property decisions and selections, i believe you should be safe.

Case study #1: 8 years NO profit??

You probably would have heard or believe that buying a Singapore property is a sure win, as long as you can hold, you will make money.

Unfortunately, this is not true for owners of Vivace, an apartment located in Robertson Quay vicinity.

Here are some info about Vivace.

Source: Squarefoot

In short, it is 999 year leasehold (As good as freehold) development in District 9. The owner, whom is currently a landlord I am representing, bought the unit in 2010 through another agent then.

In 2010, she bought the 441sqft, 1-bedroom unit for S$900k (inclusive of stamp and legal fees) as an investment.

8.5 years later, in October 2018, her unit is valued at the same price she bought. You can refer to the price chart extracted below.

The property has severely under performed the markets as many investors who bought properties in the same time period (2010) actually made huge profits.

If we were to analyse this property investment at Vivace, although the price remained stagnant from 2010 until now, the effects of inflation actually caused her a net loss as her property did not appreciate with inflation.

The weak rental market does not help increase her investment returns either. All in all, the opportunity cost of holding this investment property is massive!

In my opinion, I would attribute this stagnant property investment to entering at the wrong price and investors are not willing to pay a much higher price for resale units there due to Low rental returns, leading to lower demand and transactions.

In conclusion, not all properties perform in the same way. Property investors should not assume that their properties will definitely appreciate and see capital gain with time. Unless you wish to hold your property without seeing profits for a decade, do your due diligence and choose your property investments wisely.