1) Size

The most obvious thing to take note of would be the size. That being said, a 1,000 square feet unit may look and feel larger than a 1,200 square feet unit. The layout of the unit, the colour scheme, furnishing and amount of clutter all add up to make a property feel large or small. As a buyer, you should learn to be discerning. A 1,200 square feet unit with a 400 square feet balcony should not be costing the more than a 1,200 square feet unit with little or no balcony space, all else being equal. Most properties are priced based on per square foot.

2) Shape

Is the property shaped regularly? Are there any odd angles in the property? Oddly shaped properties may pose an issue when placing furniture. That being said, some oddly shaped properties have turned out to be an advantage when coming up with a unique design. For example, a triangular shaped room on one side may present itself as an ideal candidate for a V-shaped display cabinet.

3) Natural Light

A poorly renovated property can be resolved by putting in monies to renovate the property. However, there is no way to solve the fact that the property does not have natural lighting. Turning on lights during the day is not a viable option. In an HDB or condominium, it is impossible to have natural lighting permeating through the whole property. However, the living rooms and bedrooms should be adequately lit during the day.

4) Natural Wind

Another factor which cannot be changed. It would be good to note that the windiest period of the day would be in the late afternoons and evenings. Thus if you are looking for a windy house, please conduct a viewing during these timings.

5) Any Leakages

Look out for brown patches on the ceiling. This is especially so for HDB flats and condominiums. The toilet or kitchen of the unit you are viewing is most probably under a toilet or kitchen of another unit. If there were any possible leaks, it would present itself in a yellowish, brown patch. A leak is not a deal breaker as most leaks can be solved easily. It would just mean that you may have to spend time and resources to resolve this issue. If the house is ideal except for the leak, it should not stop you from buying it. Especially if it is a simple patch job. In fact, you may be able to knock off a few thousand from the asking price because of the leak!

6) Flooring

Is the flooring something which you can accept? If it is then you can save a lot of money by reusing the previous flooring. Ask the owner if he has any spare tiles. Always remember that you can get professionals to clean up old tiles, polish granite or marble flooring to restore them to just as new condition.

7) Illegal modifications

Look out for any illegal modifications. If you are viewing a 3 bedroom property which has one room removed, do remember to ask the owner of the owner’s agent whether the modification that was done had the necessary approvals. If you are purchasing a landed property, you should ask if any extension was submitted. At times certain trellises or structures were erected without seeking the necessary approvals. If you purchase the property, you take over the responsibility of having to remove these modifications if there is a need to. It would be good to point out that there are many balconies or roof terraces with structures installed by home owners which did not seek the proper approvals. Yet it is because of such modifications which made the space more usable which indirectly improves the property value. So yes, you can still purchase a property with such modifications. Just be aware that in the unlikely scenario whereby you are asked to remove them, you need to do so.

8) Layout

Buying a property is not always about numbers. An efficient layout should be a major consideration. You would ideally want to have a functional layout. The dining area should be situated next to the kitchen. There are layouts whereby the living room is in between the dining area and the kitchen.

9) Ability to host guests

Is the HDB unit situated at the corner or along a long corridor? A corner unit provides more privacy. You may also be able to use the space outside your unit to place your buffet if you ever decide to have one. If it is a condominium does it have ample parking for guests? What is the condominium’s policy on visitor parking? If you are looking for a landed property, does it have ample curbside parking? It can get pretty crowded on days like Chinese New Year. If the property you are looking at capable of hosting your guests?

10) Neighbours

Remember to take a look at the neighbours and if you can, speak to them. In Singapore, homes are in very close proximity to each other. It would be good to live next to good neighbours. This can be a very important deciding factor when buying a property.

11) Future development

Look out for any upcoming shopping mall or train station coming up. That could potentially increase the property value in the longer term. Alternatively, you should also research and find out if there are any new developments around the corner which may obstruct the unblocked view of the apartment you are viewing.

12) Access to transportation

One of the often overlooked aspects is the access of the unit in question to transportation. Some HDB flats or condominium units are located far away from the car park. If you are in a big development then it may be wise to purchase a unit close to the side gate which leads to the nearest bus stop. Also, is the walkway sheltered? All these issues only present themselves when you start living in the property. It would be wise to think about such issues before you make a purchase.

Yours Sincerely,
Daryl Lum

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1) What is the market value of the property?

This is perhaps the most important question which a home buyer should ask. This establishes a price range and makes the offer process simpler. If the selling price of the property is way above the market price then the buyer is not going to get the property if he is not willing to pay a premium. The market price of a property also establishes the loan quantum which the bank will be willing to accept. Banks generally loan 80% of the market value of a property. Anything above the market value will not be financed and the buyer will have to fork out cash instead.

2) How much did the seller pay for the property?

This can be found out by doing some checks on the past transacted prices. For properties whereby the home owners have been living in them for decades, their profits can be extremely huge and thus they may be more reasonable with their pricing. Certain home owners bought their properties at a peak and may not be willing to let go of their properties at a substantial loss. These home owners may be more rigid in their price negotiations. They may rather continue staying in the property than to realise their losses.

3) How long has the property been on the market?

This can be an indication of how serious a seller is about selling his property. There may be instances whereby a certain property may be on the market for more than 6 months. One of two scenarios can be happening. Either the seller will be more accepting to the fact that his price is too steep and thus be more willing to negotiate or he may be unrealistic in his pricing which is why the property is on the market for such a long time. If a home buyer sincerely likes the property, he can try to throw in an offer to start negotiations. He will then learn whether the seller is a weary seller or an unrealistic one.

4) What was the last offer?

This is an important fact and knowing this would give the home buyer a gauge as to how much room there is for negotiation. If a home buyer’s budget is below the last offer on a certain property then he may want to save his, and many other parties’, time viewing that particular property.

5) What is the current market condition?

The state of the real estate market is important when making an offer. If the market is doing well, throwing in a low offer may never work. The buyer may end up missing properties that suit his criteria. If the market is soft, then as a buyer the room for negotiation is larger. If the general economy is doing badly or if there is a recession then prices should be extremely soft and more home owners may not have the holding power to tide through rough times.

6) What are the developmental plans for the area?

It would be wise to find out whether there are any plans to develop a new train line in the area or whether there will be a new shopping centre coming up. Such things can affect future home prices positively. In the immediate term the construction work around the area would make the area undesirable. This could result in less tenants wanting to rent the property. Also, if a buyer were buying a property facing the sea, he should do a little research and find out whether there are any plans to develop a property which would block his sea view. These are just some of the few questions which the home buyer should ask the property agent selling the property.

7) Are there any issues with the property?

Some properties may be illegally modified. They may have structural issues as well, especially if the property is a very old landed property. For HDB flats, it would be wise to ask the property agent selling the property whether the property owner has any debts with illegal moneylenders. Knowing the issues of a certain property would better prepare the home buyer against any unexpected incidents. If these questions are asked, then the home owner and the property agent have to truthfully tell the home buyer. If not the buyer may seek legal recourse if these issues come to light eventually.

8) How long ago was the last renovation?

Wires, carpentry, water proofing in the bathroom and many items in the house have a certain lifespan. If a renovation was done recently then the home buyer could possibly save on a major overhaul to the property. If the renovation was done decades ago, then it would be wise to set aside some budget to redo things like the wiring and plumbing.

9) What is the home sellers’ timeline?

Many buyers fail to ask whether the home sellers require an extension of stay after the sale has been completed. Most home sellers need to sell their current property before purchasing their next property. They may not want to look for temporary accommodation as it may be too troublesome for them to move around. Thus if the home buyer is in an urgent need of a property, such a property may not be suitable for them.

10) What are the transaction costs involved?

Many buyers fail to realise that there are many hidden costs involved in purchasing a property. The common costs involved are things like stamp duties, legal fees and agent fees. When in doubt they may want to get their property agent to list down these costs to them. This way they do not overlook certain amount which may present themselves later.

There are many questions that a home buyer should be asking when making a home purchase. These 10 questions are not exhaustive but in my opinion they are important questions that can have an impact on the home buyer’s life in the near future.

Yours Sincerely,

Daryl Lum

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So why then do you need a real estate agent?

1) For convenience

Imagine having to advertise your property for sale and then having to entertain the influx of calls on your personal mobile phone. After which you will have to try to arrange the various buyers to come to your property and after they have viewed the property you will need to make follow up calls to try to get offers coming in for your unit. If you had a property agent acting for you, you could leave the advertising to him, let him deal with the calls that come in and get him to arrange viewings to suit your timing. Most buyers are more comfortable voicing their concerns about a property to a property agent rather than to the home owner directly. These concerns are valuable information which your property agent can then communicate to you and from there you can gauge the level of interest and whether your property is appropriately priced.

Some sellers may find that to pay a property agent a transaction fee of 2% for selling their property is rather expensive. To get professionals to paint a house is also rather expensive if you compare it to the cost of paint. Some people may be fine with getting their hands dirty. However most would rather pay professionals to get a paint job done. These professionals do it for a living on a daily basis. They can do it faster and more efficiently. This is the same as hiring a real estate agent to handle a property transaction.

2) You pay for expertise

The paperwork to get a deal done is not extremely difficult. However I would like to remind those who think that it is mere child’s play that this is not the case. I have encountered DIY home sellers who sold an option to a buyer and did not realise that certain terms of the option were detrimental to him. When asked where he got that particular option from, he stated that he got it from a friend who used that in his property transaction. The problem was that his friend hired a property agent to represent him in his purchase of a property and had negotiated the terms of the option to favour his client. The DIY home seller had sold an option with extremely favourable terms to the buyers of his property. The particular term was pertaining to the Law Society of Singapore’s Conditions of Sale. He had also not consulted the help of a lawyer to draft an option as hiring a lawyer to do so would cost him money. Eventually the buyer decided to take advantage of a clause in the option and the seller had to fork out tens of thousands of dollars to fulfill this particular term in the option.

If he hired a good real estate agent to represent him in this particular sale it would have cost him a lot less to pay commission rather than the tens of thousands to rectify the situation. Real estate professionals do have the relevant knowledge as to what to look out when dealing with various real estate transactions. Moreover, real estate agents need to purchase professional indemnity insurance as mandated by the Council for Estate Agencies (CEA). This means that if such a situation were to arise even though you hired a real estate agent and if the real estate agent was truly negligent, you can claim against him and his professional indemnity insurance. A professional indemnity insurance ensures that clients are truly protected as claims will be paid out by the insurer.

3) You pay for experience

Being long in the line means that your real estate agent knows some things which you don’t. I once heard a real estate agent recommending a certain stack in a new development because those particular units offered a “pocket of sea view”. The development was not yet built and yet the real estate agent, through him walking the ground and analysing the plan of the development, was able to advise his clients of the possible advantages of certain units. A good and experienced real estate agent can help you to make the right decision. The property that you bought through him may end up having a much higher value as a similar unit in the same development.

An experienced real estate agent will also be able to tell you whether the market is picking up or not. These are the people who walk the ground on a daily basis. By the time statistics are released, the market may have already turned and an opportunity might have already passed.

4) The online portals are not truly DIY portals

The portals that are out there have got it wrong. In today’s day and age you need a DIY portal to be informative to catch on. Most DIY portals are focused on merely linking buyers and sellers. Some even charge a fee for using their portal! This seems counter-intuitive when the people who are using the DIY portal are doing so because they want to save money. Essentially a real estate transaction is perhaps the largest financial transaction most people will make in their lifetime and to trivialise the transaction as something that can be done by just about anyone is not the right thing to do. In my personal opinion the DIY portals are focused on monetising the portals rather than empowering clients who want to do a DIY transaction.

So then here are a few myth busting facts.

“I can sell the property myself!”

Yes you can. However will it be at a good price. Just about anyone can sell a property if price did not matter. Time after time we hear of sale records being broken and about the real estate agent who brokered the deal. Truth be told the paperwork is not that difficult, just like selling a vehicle. There is a large amount of paperwork to be completed but it can be done if one decides to go through it thoroughly. However there is more than just paperwork when it comes to selling a property. Negotiation plays a large part in a property transaction and property agents who are long enough and committed to their profession can help you achieve a very good price for your property. At times the positive price difference that a property agent can achieve is much more than the commission you are paying him.

“It is so simple. An agent’s fees are too high for the work they do.”

Well then a lot of people do work in their day job and they get very little work done in the day as well. Does that mean that their bosses can not pay them for the month? If a sink leaks and you have to change a tap would you do it yourself or just call the plumber. It is easier to find out how to change a tap than it is to find out how to draft a proper option that is favourable to a home seller.

“I can easily get the buyer. I will just advertise myself.”

A lot of times buyers purchase properties through the recommendation of their real estate agent. I encountered an extremely wealthy lady who sold off her detached house and wanted to purchase a 5 room HDB flat. She did not look at any advertisements at all and relied on her real estate agent to look for a property for her. A lot of deals are transacted with fellow real estate agents or co-broke agents. These deals are concluded by agents reaching out to each other through outlets like SMS or emails. Just because someone does not trust the service of real estate agents does not mean that others feel the same. Many people still depend on real estate professionals for their recommendations.

“Real estate agents are not professional.”

Well on the contrary. Since the Council of Estate Agencies was set up, the barrier to entry for real estate agents has increased substantially. On top of having to pass examinations to obtain a license to practice, real estate agents have to undergo Continuing Professional Development (CPD) courses. At times these courses are conducted by individuals who are legally trained and thus your real estate agent can point out certain things you may be unaware of when you undergo a property transaction. Real estate agents are also educated. Not everyone can become a real estate agent as the minimum qualification to become one is to have 4 ‘O’-Level credits. Some degree holders have also opted to join the industry.

“Real estate agents make a lot of money.”

Yes. The top ones do. However it would be wise to understand that there are a lot of costs involved. Advertising can take up a significant chunk of earnings. In some cases even up to half of the commission earned. Advertising on online portals and print media is not free and advertising bills can tally up to thousands of dollars a month if the real estate agent advertises aggressively. How else can he get the maximum exposure for a property to achieve that record breaking price? On top of that, prospecting methods like flyer distribution and telemarketing do not come cheap. Being self employed would mean that there is no employer’s CPF contribution and health insurance or company medical benefits. Yes your real estate agent may be making good commission on the sale of properties, however there are a lot of hidden costs which are not obvious to the general public.

“I want to save money.”

I understand but how much is your time worth? Your time may be better spent on other activities rather than worrying about the attractiveness of your advertisement or negotiating with a buyer to match your price. I find it perplexing that individuals do not put a dollar value to the time that they are spending. Your time can be better spent enjoying with your family or undergoing a personal development course rather than dealing with a transaction which you may not do very often.

So then where do we find common ground? In most cases I would think that hiring someone good to aid you in a property transaction is essential. Saving on commissions may mean that you may lose out on a good deal. So how do you spot the right real estate agent for you?

1) Interview a few property agents

Take your time to understand a few property agents and ask for their track records. Take a look at the properties they are currently listing and ask them how they intend to market and price your property. The common mistake that home sellers make is to go with the real estate agent that promises him the highest listing price. Personally I would pick the real estate agent that you find most comfortable with. You want a pleasant, welcoming and professional real estate agent to represent your property. Since an exclusive is usually for 3 months, it would be good to work with someone whom you can communicate well with.

2) Look for a full time agent

My personal view is that a full time agent can offer a higher level of service most of the time. A full time property agent is someone who does not have a day job whereby he is answerable to a boss. Imagine being in a meeting and not being able to answer a phone call from a prospective buyer. That is not to say that all part time agents are dispensing poor service. There are a lot of extremely proficient part time agents as well.

3) Look for someone who has been in the real estate line for many years

Or at least make sure that if you hire a rookie he has someone to guide him in your real estate transaction. Being in the line for a longer period would generally mean that that particular real estate agent would have more experience. He would also have been through some property cycles to know the tell tale signs of where prices are heading. It is such invaluable information which may help you make a more informed selling or buying decision.

4) Look for recommendations

Know of a friend or relative who recently sold their property? Ask them about their agent. If the experience was a favourable one, you may want to meet up with their agent to discuss about your real estate needs. Most real estate agents know that referrals are the most cost effective way to procure new business and thus do strive to do a good job in every deal they handle.

5) Last but not least, look at the agent’s profile

Almost all agents have at least a webpage or a Facebook business profile. Some even blog about real estate articles to keep in touch with clients. All these can aid you in making a decision to hire the correct real estate agent for you. Read up a little about the agent you are about to hire.

Dealing with real estate is not simple nor is it rocket science. Some may find it easy to handle their own transaction without a real estate agent while many will find that it is easier to just leave it to the professionals. Real estate agents should not be too flustered when a new DIY property portal comes about. Instead they should hope that these portals properly educate and empower those with the relevant knowledge to properly transact without a real estate agent. There have been instances whereby sellers or buyers who were not represented by real estate agents messed up a transaction. I personally believe that there will come a day when someone will get a DIY property portal right and it should come from within the real estate profession as these are the people with the knowledge to do it right.

Yours Sincerely,

Daryl Lum

p.s. I have been in the real estate line since 2004 and this article was written to give my personal view on whether clients should hire a real estate agent or not. This was written in light of the recent proliferation of DIY property portals.

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So why then as a home seller will you be convinced that your home can be sold at such a price?

There are many determining factors as to whether a house can or cannot be sold. However the main determining factor will always be the price. If one prices the property correctly, then you will start to see a lot of selling activity.

So then, how does a home owner know that he is dealing with an overpriced home? These are 10 common signs that indicate that a home is overpriced.

Sign Number One: Neighbouring homes are listed for sale for a lot less

Well in short, this particular home is the most expensive listing on the market in that particular neighbourhood. Have you seen properties whereby the past transacted price is in the region of let’s say $1000 per square foot and then you come across a particular property which is listed for $1300 per square foot for a unit of the same size?

“I spent $150,000 on this renovation. It is the most beautiful home you can buy in this area.”

“This is the best facing with the best views. Moreover my home as a nice unit number.”

This a common response which homeowners give when asked about why they think they can list their home at such a high price. It gets even worse when they start comparing with what is out there in the market. Homeowner A may be listing his home for 10% above the last transacted price and then homeowner B decides to sell his property. Homeowner B, upon seeing that his home has a nicer renovation (in his own personal opinion) as compared to homeowner A’s home, then prices it another 10% higher. This vicious cycle continues and there will always be a few homeowners that are trying to outdo each other in terms of having the most overpriced home in the neighbourhood. So not forget, we should always be looking at the past transacted prices and these can be found on the various portals for both Housing Development Board (HDB) flats and private properties.

I personally met someone who would want to list his property on the market for an overpriced sum when there was little to no supply at that point in time. The plan did sound rather intelligent at that point. Prices should gravitate higher when there is a demand for something but yet supply is low. However more often than not buyers will just not make the purchase. It would be difficult to purchase a property that is asking for a sum much higher than its valuation as most buyers would require a bank loan. Suffice to say, after all these years, he is still holding firm to his ideals even though he has never gotten close to selling his property.

Sign Number Two: The homeowner appointed the property agent who promised him the highest selling price

Well they say talk is cheap and sad to say not every property agent is totally honest with regards to pricing a property. Homeowners, like most people, like to hear people agreeing with them. To get the listing, the property agent would then promise the owner that he will be able to sell his property for an extremely high price. This would then convince some homeowners to give an exclusive to such a property agent. As a homeowner you do not need someone to agree with you on everything. Hiring a property agent means that you are hiring someone to be your eyes and ears in the property market. He should be honest about how much your property is actually worth and advise you as and when to adjust your pricing. It is important to properly conduct interviews with a few property agents before hiring one. Your background search should be looking at his or her profile (this is rather easy as most property agents have an online presence) and hearing what he or she has to say about how to price your property. You want an intelligent, experienced and committed property agent. Not one who just agrees with you so that you will give him an exclusive.

Sign Number Three: The property is still on sale after a couple of months

The usual marketing channels should be fully utilised. Advertising on popular property portals, Facebook marketing, Google Adwords, co-broking channels and traditional print classifieds. However if your listing is still not getting a healthy number of viewings, then you may want to get concerned. Buyers are not a misinformed bunch of individuals who do not do their homework. In actual fact, home owners and home buyers are perhaps similar in profile. So why then do certain homeowners think that a certain buyer is going to walk into his home and offer 30-40% higher than a similar unit on the market? This is a perplexing question which even defies the smartest quantum physicists in the world. So after a while your amazing property with its beautiful marble flooring and stunning views is not getting any activity. So what is the problem? The answer is that it is priced wrongly.

Sign Number Four: Still no viewings, still no offers

Selling a home requires some work. You need to do a little spring cleaning to ensure that your home looks enticing to a potential buyer. However weekends have passed and your property agent has yet to even arrange a single viewing for your home. You told him that once the buyers started coming to your property, they would salivate profusely after seeing your beautiful Italian marble flooring and designer wardrobes. The truth is that buyers are well informed. They know that if a property is listed for such a high price, the home owner is perhaps thinking of testing the market.

“They can negotiate my asking price.”

By how much? If a property is listed at $1.5 million when its true value is $1.2 million do you think you would eat humble pie and accept any offer almost 20% off from your asking? It would be easier to negotiate with homeowners who have listed at a more reasonable asking than one with an overpriced home.

Sign Number Five: The buyers have “low balled” my asking price

Well if your home is worth $1.2 million and you price it at $1.5 million then technically if someone offers at around $1.2 million then that is a reasonable offer. It may sound derogatory you but that is just the market talking. The home has been on the market for over 3 months and a few seemingly “low ball” offers have come in. The offers are all around the same. Well this may be a way that the market is communicating to you. Home prices are not like stock prices where an exchange gives you instant prices. The property market is more discreet and thus home owners need to listen more intently as to what the market is telling them if they are truly serious about selling their home.

Pricing a property this high may inadvertently invite a low ball offer.

“The seller has been selling for more than 6 months. He may be desperate.”

This is how buyers may think. Thus they throw in an offer to test the homeowners resolve.

Sign Number Six: The only feedback for my home is that it is overpriced!

Well there should be more actually.

“The seller is not serious.”

“This fella is just testing market.”

Then there are the comments that your property agent might not be telling you. Not that he is hiding anything from you. It is really difficult to communicate feedback such as,

“Siao! Who will buy?” (Siao is hokkien for crazy)

“Ask him to wait long long.”

“Maybe need to wait a few more property cycles before this house can be sold at that price.”

The point is that the main feedback you or your property agent is getting has nothing to do with the fact that the house does not have a pleasant facing or that the renovation is not to the buyers’ preference. It is centered on the fact that it is overpriced and thus the buyers do not bother to give any other constructive feedback.

Sign Number Seven: The home has a lot of special features

Every homeowner is proud of their home. Their pride goes higher when it comes to selling their home. Many times homeowners have commented that their flooring cost them a bomb to install and that their cabinets are constructed by a well known carpenter or that their toilet fittings are of top grade and were imported from Europe. The fact of the matter is that not everyone may see the same value that a homeowner places in his renovation. The phrase “one man’s meat is another man’s poison” does hold truth in many cases when it comes to dealing with property. I personally have seen homeowners spend tens of thousands of dollars on their granite flooring and then wanting the buyer to reimburse them for their renovation which was done almost 8 to 10 years ago. The fact of the matter is that extensive renovation is going to impact the valuation of a home positively but not in an extremely large manner. It would not make sense for an extremely well renovated apartment in places like Bishan to cost more than an apartment of the same size and features but with simple renovation in Orchard road. The fact of the matter is that as a homeowner, you should not expect your buyer to reimburse you for renovation you may have done ages ago to your liking.

Sign Number Eight: The property agent’s exclusive has expired

“Hey wait! I thought this home was listed by a lady? Why is it that a male agent is listing it currently?”

Many months ago you saw that home listed by a certain property agent and no one else. Today it is listed by a different agent. What has happened is that the homeowner has given an exclusive of three months to the first agent and when the first agent could not sell the property, he gave it to another agent. There could be a possibility that the first property agent did not do a proper job in getting maximum exposure for the home but more often than not, the property is overpriced and the homeowner is just trying his luck and got a property agent to list his property. Anyway listing a property is of no cost to the homeowner.

Some homeowners go through cycles of different property agents. If they were serious about selling their home they might do better sticking with a property agent with a good track record and who gives good advice.

Sign Number Nine: The property is listed by many property agents and the listing seems to be bumped up many times

Online portals like PropertyGuru are places where most buyers look when it comes to searching for a new home. A property agent pays such portals a certain amount for a year’s subscription and he has fixed number of listings he can place in the portal, namely 50 for a PropertyGuru account. Most property agents do not have that many exclusive listings to post and thus if a homeowner comes along and wants to keep his listing open then some property agents will gladly advertise for him even if his home is overpriced. The fact is that buyers may call and residual deals may occur. This is of little interest to the homeowner despite what many homeowners think. There is no way to monitor what multiple property agents are doing. Some may not be advertising your home with the correct details and others may list your home at a more reasonable price. Many months down the road and the home is still being listed by multiple agents at the same overpriced pricing. The listing has been bumped up so many times that just about everyone in the market knows about this home but yet there are no takers.

Sign Number Ten: Neighbouring homes are actually selling

3 months ago there were 5 units including your home being sold in your development. Today all the other 4 have been sold and yours is the only one left. Only thing is that yours is not really the only one left. There are another 6 new listings in the market and yours is still the most overpriced one. You start to get the feeling that you are tired of selling and start making excuses like,

“It’s ok. I am not in a hurry to sell anyway.”

However selling your property today would allow you to lock in profits and perhaps upgrade to that dream condo or maybe by selling and downgrading you can fully pay off your next home and live debt and perhaps stress free.

One of the most interesting comments I have heard when a home buyer commented about a home that was on the market for more than a year was,

“What is wrong with this house? Is there ghosts inside? Or is it some serious murder happened in the house?”

Just like homeowners that come up with interesting reasons as to why their homes are worth an overpriced amount, buyers are equally funny when it comes to why a home is not selling.

Selling and buying a property can be a rather tedious and long drawn out process. However it can be made much simpler and done very efficiently if it is priced correctly. For this a homeowner needs to do some research on how his home should be priced or he can hire a property agent to better advise him on how to price and market his home effectively.

Yours Sincerely,

Daryl Lum

www.daryllum.com

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Another common way to invest is to invest in the shares of a company. (Commonly known as stocks on the stock exchanges for those companies that are listed) This gives investors a percentage share of this particular company. Investors then hope that over time, through good management, the value of the company which they have invested would have risen. Then they can sell off the shares which they have previously bought to another willing investor for a higher price as compared to what they had previously purchased.

So then what happens if investors are not familiar with investing in the stock market but they have cash sitting idle in their bank account? They can hire someone who is familiar with investing to invest on their behalf. These individuals are called fund managers. They are usually experienced investors with the relevant knowledge when it comes to investing in stocks. These fund managers come up with funds whereby they will pool investors’ monies together and make investments in stocks for these investors. These fund managers will spend time analysing the stocks available for purchase and make purchases on behalf of the investors. The investors, on most occasions barring any large market collapse, gets potentially healthier returns than if they were to leave their monies in the bank. Also, with pooled resources, the fund manager can then diversify and buy a large basket of stocks, thereby lowering the risk of losing a large amount of money on just a few stocks.

How then is this applicable to real estate? It is very much the same situation. Investors with large amounts of monies sitting in their account can also invest in funds managed by fund managers but instead these fund managers will use their monies to invest in properties. These fund managers are usually people with vast experience in investing in real estate. They will develop a fund and get investors to pool monies into a particular fund. The fund managers will then use these monies to buy multiple properties, thus diversifying the risk as compared to an investor purchasing a single property by himself. Property funds are not new products but the concept of investing in them, for one reason or another, has not caught on in our local context yet. Property funds allow investors the chance to invest in real estate classes that otherwise would not be available to them if they did not pool their monies into a fund. For example, investing in a hotel might be out of reach for a single investor. However, if there were a pool of investors, their collective efforts might just be enough to purchase a hotel. If the fund is large enough (i.e. there is a large enough pool of investors in a fund), the fund manager may be able to purchase multiple buildings to further diversify the fund’s portfolio.

Are property funds a new concept? Apparently not. In Singapore, many people are aware of investing in unit trust. Our CPF savings can be used to purchase certain approved unit trusts under the CPF Investment Scheme. These CPF invest-able unit trusts are generally funds with a fund managers pooling investors’ monies and investing in the stock market or in bonds. Think of property funds as the same structure. Instead of investing in stocks and bonds, the monies are invested in properties.

Remember, property investment is not always a sure win investment. There are many people who do lose money purchasing the wrong property at the wrong time. Psychologically speaking the people who lose money are less vocal than those who make money and this would explain why it seems like everyone is making money through property investment.

“When unsure, ask. When very unsure, hire someone else to do it for you.”

Yours Sincerely,

Daryl Lum

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The fundamentals of buying a property is simple. A property is always a home first and this stays true to just about any property owner. It is only after getting their first home will home owners think of perhaps indulging in some property investment. This then goes to the mere fact of desirability. How livable is a certain place. Factors that attract people to a place will be things like security, infrastructure, good neighborhoods, cleanliness and the openness of a certain place to foreigners. In this aspect cities like Singapore, Hong Kong, London and Melbourne come to mind. For our purpose of illustration, I will focus on Singapore as an example. Singapore is an extremely safe country, roads and railways are efficient, living conditions are ideal with good education, extremely clean and welcoming to civil people who wish to settle in the country and contribute to society. This is what a sound property investment should look like. Investors will always look at a property as an asset that he can either sell it for a higher price than that which he paid for or as an asset which will yield him good income by renting it out. However, a genuine home owner will be looking for a conducive place to live. In today’s ever crowded global property market, there are many options for investors. However, the most secure property investment is one which ticks both investors’ and home owners’ criteria.

Many buyers have seemingly jumped into places like Iskandar in Malaysia or Phnom Penh in Cambodia. The prices which they may have paid for these properties may be lower than what they might be paying if they were to purchase a property in Singapore, Hong Kong, London or Melbourne but if one were to truly look at the fundamentals of these places, Iskandar or Phnom Penh may not be worth what the investors have been paying. Fundamentally the places are not exactly the most livable places. Security is always an issue and corruption is still rampant in these places. Due to money leaking out from the system and into the pockets of corrupt officials, infrastructure is usually poor. Transportation is a hassle and schools are often very poorly run. Now imagine for a moment if a large multi national corporation were to even think of setting up it’s regional headquarters in Iskandar or Phnom Penh and if they were to offer their head management an attractive pay package to take up a position in such a place. Would this head management bring their families along to live and grow up in such an environment? These top executives are already paid massive pay packages in their positions where they are. It would be a great ask for them to uproot their comfortable position to move their families into a developing country with little or no infrastructure and where security is a concern everyday.

This is where I believe property investors have gone awfully wrong. Just because places like Singapore and Hong Kong are more expensive than places like Iskandar and Phnom Penh does not mean that money cannot be made. Leverage is more readily available in places like Singapore. Financing is easy to come by for individuals who are working and have good credit records. Interest rates are attractively low. Currently banks in Singapore offer up to 80% financing on the value of a property at interest rates of 2% and below. In contrast, buying a property in Phnom Penh would require at least a downpayment of 50% of the value of the property at interest rates in excess of 5%. In certain cases, the loan application and interest rates may be so prohibitively difficult and high that the buyer of the property may choose to pay the property in full rather than finance it. Let us take a look at this scenario.

Buying a SGD$1,000,000 property in Singapore
Downpayment 20% = SGD$200,000
If the property were to appreciate by 20% to SGD$1,200,000 and was sold, the SGD$200,000 would make the investor another SGD$200,000
Return on equity = 100%

Buying a SGD$200,000 property in Iskandar or Phnom Penh
Downpayment  100% (no financing) = SGD$200,000
The property would have to appreciate by 100% to SGD$400,000 for the investor to make another $200,000 and match the previous example’s 100% return on equity

In my humble opinion, I would rather take a chance on Singapore real estate appreciating by another 20% before I can see properties in Iskandar and Phnom Penh doubling in value.

Why so?

Simply because Singapore is a place where it is a good place to live. On top of that the investment climate is very favourable. Places like Singapore, Hong Kong, London or Melbourne will always be attracting large multinational corporations to set up offices to take advantage of the good infrastructure and educated work force. Costs of living will always be creeping higher as incomes rise in these places. This is in contrast to Phnom Penh whereby the salary of a teacher is in the region of USD$200. The fundamentals of such developing countries is very wrong. Rather than spend monies on investing in good infrastructure and more importantly good education for their people to add human capital to their work force, they are obsessed with building condominiums, commercial towers and even sky scrapers to announce their arrival onto the world arena. Look at the multiple ghost towns that China has created. With 1.4 billion population they are finding it difficult to get people to purchase these properties. Look at developers in places like Iskandar who are adding more than a million units to the housing stock. I fear to see where the demand is going to come from. It seems to me that this is a game of passing a lit dynamite from one investor to the next.

Investors should always look at whether a certain property that they are about to commit to is going to be a home for a family. Not just about hoping to sell it off for a quick profit. The irony in property investing is that to be a good investor you must think less like an investor and more like a home owner.

Yours Sincerely,

Daryl Lum

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“High risk, high returns. Low risk low returns.”

If we were to stick firmly to this statement then we should always invest in the asset class with the higher risk as it would bring us a higher return. Investors fail to see that there is a missing word in the statement and that word is “potential”. Let us rephrase the statement and now it goes like this,

“High risk, high potential returns. Low risk low potential returns.”

The word potential thus inserts an element of doubt that the expected return would turn out to be less desirable and not as predicted or hoped for. In the real world, many investors have been burnt because they had hoped for above average profits. A recent incident to note would be the China stock market crash which effectively halved the stock market indices and bankrupted many investors who were heavily leveraged to purchase equities. They had focused on the potential gains and not on the potential losses. It is the potential to make a windfall that drives investors to make decisions that are irrational and potentially financially suicidal. What then would the flip side of investing in risky assets be? Government bonds are certainly safe. However looking at the poor take up rate of the recently launched Singapore Savings Bonds would point to the fact that Singaporeans are not warming to the idea of getting an annual yield of between 2 to 3 percent. This goes to show that investors in Singapore have grown a little hungrier for higher returns on their investments. Let us analyze how the face of investing in Singapore has changed since the last fifty years.

1) It is getting harder to get supernatural profits above what the market deems as a normal rate of return.

The normal rate of return is something that is hard for us to place a number on. As a rule of thumb I personally would assume that investors would find anything with a yield of higher than 5% as attractive and would rarely expect a return of investment to yield them in multiples of the original invested amount. Long gone are the days when a property owner could purchase a property for a mere SGD$10,000 and the price would appreciate to more than a million Singapore dollars. Such scenarios are not unheard of. There are indeed many instances whereby a landed property owner is sitting on a plot of land which has a value of more than a million dollars and yet the price which they paid for would be in the region of SGD$10,000.  This would be a rate of return of more than 10,000 times the original invested amount. To put this into perspective, if prices continued to appreciate at the same rate of return, a $1,000,000 HDB flat at The Pinnacle would cost $10,000,000,000 in 50 years time.

2) Investors are getting more savvy and are usually well educated.

In the past, investing was usually only done by those who had the financial might to do so. In the earlier years of Singapore’s development, not many people were interested in where they could put their savings to yield a higher rate of return than the meager savings interest rate that their deposits were earning in their savings account. Investing in the stock market was rather unheard of and the Asian Financial Crisis of 1997 did little to invite new entrants to the market. Property ownership was a primary concern of most people rather than owning multiple properties to yield good rental returns. However, the investment climate has changed and we have a more educated population today who are savvy enough to understand that they need to understand about investing to grow their wealth. In today’s market, banks are trying to outdo each other, financial innovation is very much alive and investors attend multiple investment courses.

3) There are well defined laws to protect most investors.

Access to legal representation has been more prevalent due to the fact that the general public is more affluent. On top of this the internet has led to a proliferation of legal information. Lawyers are often viewed as the “go to” people when one needs legal advice. It is very common for the common man on the street to use the phrase “let me check with my lawyer” whenever he is unsure about any matter. The flip side is that if every document and situation were to be scrutinized by a lawyer, the cost of resolving issues would increase. The Singapore regulators have also put in place checks and balances to ensure a conducive climate for investing and although scams whereby investors have lost large sums of money still exist from time to time, these are generally few and far between. The authorities have also come down hard on mis-selling and misrepresentation of financial products. The penalties are severe and the culprits are usually reported widely in the media to prevent a repeat of such behaviour.

These factors have collectively contributed to a rise in the number of investors in the market. Imagine a large number of people sniffing out investment opportunities at any one given time. This is the reason why great investment opportunities in the stock market and real estate market are difficult to come by. This places a lot of pressure on the already low yields that are coming out from these markets. This is why in today’s market, we deem a yield of more than 4-5% as something that is deemed healthy and attractive.

This is where investing in alternate asset classes can take investors back to earlier days when yields were less depressed. To get supernatural profits once again, investors have to look at something that is less common and thus less competition from other investors. One form of investing that can be done is through crowdfunding. The concept is not new and it is essentially pooling monies from different investors and putting them together so that collectively the group has a stronger bargaining power in the market. To put it loosely, investing in unit trust is similar to crowdfunding. Thus the market is perhaps not too unfamiliar with such a concept.

Let us thus borrow an example of a certain investor by the name of Warren Buffet. Mr Buffet is widely regarded as the greatest investor of all time and his returns have over time have far exceeded the performance of the S&P or the Dow Jones Industrial Index. One compelling reason that investors fail to realize is that people like Warren Buffet are dealing on different terms as compared to the common retail investor. Mr Buffet, due to his financial might, can acquire companies at terms that are unavailable to the retail investor. For example, during the peak of the financial crisis in 2008, his company, Berkshire Hathaway, was called on to make an investment in Goldman Sachs. Mr Buffet negotiated for extremely favourable terms. He bought a $5 billion stake in Goldman Sachs that paid an annual dividend of 10%. Berkshire also received warrants to buy an additional $5 billion worth of Goldman Sachs stock within a 5-year window at a price of $115 per share. Such terms were hugely favourable and only available to people with great wealth and thus bargaining power like Warren Buffet and Berkshire Hathaway.

Let us then summarize

1) Buffet and Berkshire Hathaway is rich

2) Because he and Berkshire is rich he has a good bargaining chip

3) Because he has a good bargaining chip he can get terms that normal retail investors cannot get

4) Buffet is also very well trained and experienced to source out great deals and manages money well

Individually we cannot compete with people like Warren and perhaps collectively as well. However we can learn from his example and this is why crowdfunding to invest can work.

1) Crowdfunding makes the collective group richer

2) Because the collective group is richer, the group has a better bargaining chip

3) Because of this bargaining chip, the group can get terms that normal retail investors cannot get

4) All we need is a well trained and experienced team to source out great deals and make sure that there are checks and balances in managing the groups’ monies

However, all crowdfunding platforms are not created equal. This is why personally I am not in favour of investors buying into units trusts that invest into equities that are readily available to retail investors. Crowdfunding platforms are commonly referred to as funds as well and namely I prefer to invest in real estate funds which have a collective competitive advantage. Due to the nature of real estate in the fact that it takes great wealth to own just one unit of real estate, it takes great wealth to accumulate real estate in huge numbers to diversify one’s real estate portfolio. This is the difference when it comes to investing in a real estate fund. The collective wealth of everyone allows the fund manager to negotiate favourable terms when the fund makes a purchase on the asset. This is the attractiveness of a property fund or namely a property crowdfunding platform. There are just a few things to take note.

1) Crowdfunding has risks involved and these risks must be managed

Due to the complex nature of binding an agreement when it comes to pooling a large group of monies together, there will be a need to hire professionals with expertise to ensure that the monies are well managed. The fund manager should be credible and preferably regulated by the Monetary Association of Singapore. The contracts should be drafted in English and should be vetted properly by legal professionals before investors start placing monies into the fund.

2) The platform should be one that has a competitive advantage which the investor cannot get if he was not in the platform

Crowdfunding should provide the investor with a certain form of advantage. For example if an investor were to buy a property for $500,000 but instead he could own 10% of a fund which owns 10 units of a similar property for just $400,000 then there is an advantage for him to place his monies with this certain fund. Collectively crowdfunded platforms can purchase properties in bulk and thus obtain large discounts off the prices of these properties. Alternatively, crowdfunded platforms can use their strong financial might to purchase larger properties, for example large buildings. Larger buildings usually have a lower per square foot price as compared to small individual units. This in turn translates to a higher potential rental yield than if an investor were to buy a small unit by himself. Furthermore, collectively the fund can obtain better terms with financial institutions with regards to financing the bulk purchases. This would perhaps translate into better loan to value and lower interest rates and ultimately healthier return on equity for investors.

3) The cost to run the platform should not be so high as to erode away the profits because of the competitive advantage

There is cost associated in setting up the platform and maintaining it. The legal fees to set up the fund and the management and marketing fees to market the fund will cost some money. Hypothetically speaking if the fund has a 40% margin due to the fact that the monies are pooled together and pay 15% away to setting up the fund and to the people managing it then there would still remain a healthy profit margin of 25%. However, if the cost of setting up and managing the fund were to be higher than the potential margin of the platform, then it would not make sense for investors to invest in this certain fund.

4) Crowdfunding platforms help to defray potential costs when investing individually

In the local Singapore market, there are costs associated with buying multiple properties like the additional buyer’s stamp duty. These costs do not need to be paid by investors when investing in a property fund. Moreover investing in a property fund is akin to adding to one’s property portfolio without adding to the physical number of properties which one has. In today’s climate whereby those who have multiple properties have to pay more taxes on their investment properties, investing in a property fund can be a good alternative to saving the hassle and monies associated with owning a physical property on your own.

5) Real estate crowdfunding can be a rather low risk investment with high potential returns

Due to the fact that a crowdfunded platform can purchase units at below market price, there is thus more potential for an upswing in the value of the asset acquired. The crowdfunded platform can also enter the market at the development stage and reap the returns of developing the property. Due to ability of the platform to get in at a low entry price point, the risk of acquiring an asset that would be difficult to make a healthy profit would be much lower than if an individual investor bought an individual unit from a developer.

Just to summarize, the fact that there is an ever changing and competitive investment climate one has to look at alternative forms of investment to better the returns out there in the market. I personally believe that the mantra of coming together to invest collectively will be around for a very long time.
Yours Sincerely,

Daryl Lum

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1) It is impossible to time the market to perfection
Many people will always mention that they are waiting for the opportunistic time for the market to tank before entering and buying up all the price area properties at distressed prices. While the market does correct itself from time to time, the reality of it is that in a place like Singapore, where it is one of the most livable city with almost full employment, property prices are rather resilient. The government has put in place measures and safeguards to ensure that this does not happen. The truth of the matter is that Singapore is a financial hub and property loans takes up a large portion of the portfolios of banks in Singapore. To have a catastrophic fall in property prices is a situation whereby the government will always look to prevent.

2) Investors have an unbalanced portfolio of assets
Many investors look to property as the only way to invest. They neglect the fact that there are other asset classes like equities, bonds and even using the money to start a business. What this means is that the layman investor keeps cash stowed away in his bank account for years on end, always waiting to make that one effective property purchase to catapult him to financial freedom. The reality of it is that there are tens and maybe hundreds of thousands worth of cash sitting in his bank account. This money is never going to earn more than the meager interest that the banks are giving. While this money is sitting idle, asset prices in the property market and stock market are getting higher. This layman investor meanwhile is seeing his ability to make a purchase erode further. The money should have been placed in other forms of investment that have the ability to appreciate over time and yet offer the investor some form of liquidity. The obsession with property investment causes many to have an impractical bias towards property in their investment portfolio.

3) Not all properties will appreciate over time
Singapore has come to a point whereby it’s asset prices are closer to the top than it is to the bottom. We have come a long way from the time when a flat cost a mere $7,000 to now whereby resale flat prices have crossed a million dollars. The notion that all properties will appreciate over time should be debunked and replaced with the following sentence.

“Property prices in a developing country with good governance and an open door policy towards foreign investment WILL appreciate over time”

This statement can be made in Singapore back in 1965 and perhaps to a large extent before the turn of the century. However, in today’s context, with property prices at our current levels, we will not be seeing many examples whereby property values can jump multiple folds.

4) Effective use of leverage
Despite what Warren Buffet has been warning about the dangers of leverage, not many people can afford to pay for their properties in full. There is an effective way to go about using leverage especially if the money can be put into other forms of investments which will give a higher rate of return than the interest to be paid. Leveraging gives an investor a better rate of return on his equity. Take the following illustration into consideration.

Property Price: $1,000,000
Cash used in purchase: $1,000,000
Property value increases by 20% to $1,200,000
Return on equity: $20%

Property Price: $1,000,000
Cash used in purchase (20% downpayment): $200,000
Property value increases by 20% to $1,200,000
Return on equity: $100%

In today’s relatively low interest rate environment, cost of leverage is low. Property investors should not be afraid to leverage on a potentially money making asset. There are loan packages which offer investors the flexibility to refinance their loan after the lock in period. If there is nothing in the market to give better returns than the cost of the interest, then the investor can choose to repay a portion or the whole of the property to the bank. In spite of this, there are still many investors looking to pay more than the required minimum downpayment on the property purchase.

5) Analysts are not the best people to listen to
Analysts are usually the people who produce articles in newspapers and magazines. Their main motive is to sell publications. Their views are usually based on hindsight and not indicative of what will happen in future. True investors go on the ground to analyze the sentiment on the market. It is perplexing as to why people listen to analysts way more than they do to property agents when the property agents are the ones who are on the ground dealing with transactions. It would be wise for keen property investors to get to know people who are familiar with property investment having gone through the process themselves.

While it may seem that investing in property is the best way to make decent profits, investment does come with a large degree of uncertainty and risk. Not everyone can stomach fluctuations in the market. Thus in my opinion, although all of us are told to consider investing our money, investing is not for everyone.

Yours Sincerely,

Daryl Lum

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