Over dinner the other night some chaps at the other end of the table were discussing how clever they had been with their Singapore property investments, my end of the table was discussing the latest mall opening so I carried on nodding but turned my attention back to these savvy-investors...
“I bought my Luxury condo in 2008, bottom of the market (as it turns out) I absolutely love it and I’ve made a packet” - This is a home purchase, which doesn't sound like he attempted much analysis whilst buying and he has only made a packet on paper, until he sells it! And so the conversation droned on... I actually ended up discussing the relative merits of one mall's parking area over another with the girl to my left (N.B. I cycle everywhere and dont own a car).
Why am I writing this? Apart from improving dinner conversation... many people/ companies get burnt through incorrect property investment, every time this happens the Media generate negative stories which invariably point the blame at the developer-sales team.
Actually most of the time someone takes a tumble it's usually due to greed and lack of understanding on the part of the buyer, the instances of underhand skulduggery as a percentage of total volume is very low. What we need is
for the flow of investment money to be channeled in the right direction ensuring a constant stream of venture capital and that it is applied to construction that will enhance our future.
Over the next weeks I will explore the concepts of property investment- today and into the future, but for today here's the framework.
Proposition one: Property investment is the use of excess capital/income to generate further income, capital appreciation or leverage debt. This will include ideas about appropriate risk/yield levels for property.
Proposition two: For the individual- buying a home is about necessity or lifestyle and holiday homes are at best a mixed approach of excess money being used to finance 'holiday annuities' partially subsidized by rental with a capital 'retirement' bonus at some point in the future.
Proposition three: Businesses, funds and governments have the resources to afford professional valuers, market analysts and economic consultants to show how owned property can save cash-flow expenses, provide ‘safe’ income and increase wealth gradually over time as well as hedging the risk of exposure in other markets.
Proposition four: Property investment needs to be in multiples or portfolios, Eggs and baskets spring to mind when I read about singular property investments. Portfolios of property may have a commonality but with pre-determined strategies can provide a predictable return.
Proposition five: Just because property investment is good for one does not mean it will be good for another... ‘Holding Power’ What percentage of your capital can you allow to be tied up in a non-liquid asset?
Proposition six: Not all property is equal- shoe box flats, luxury condos, residential suburbs, commercial, industrial, overseas and owner operated. Each of these has its own investment signature and should only be entered after careful analysis.
Proposition seven: Property lifetime, not just lease versus freehold but the actual timeline of earning power generated by a property, just because concrete lasts generations does not mean your luxury-city-apartment will still be commanding super-profit-yields.
Proposition eight: The future? What does the future hold?
Hopefully, knowledge for individuals based on risk/yield/holding power awareness not listening to performance paid brokers.
Global levels of certification for interaction with buyers, in the same way that we have international Health and Safety regulations for construction to ensure the safety of the end-user.
For the big boys, awareness of how property investment alters the entire market from a corporate head office in the city trickling down to affordable housing and the ability of people to lead their lives.
Sustainability is touted by so many people as a buzz word that I hate to use it but as my old boss used to say, you have to leave enough meat on the bone in any sale that everyone has an exit strategy.
Construction methods and design, how will new materials hitting the market effect design and usage? How tall can we build? How small can we get away with? Who should be deciding the future?
Investing in property is to use your resources to provide a resource for someone else for a consideration, this is a responsibility.
So what should the government be doing? 'Nothing' I hear shouted from many corners, the free market is great! The last 5 years may have just be a glitch in the system but the hardship and setbacks in global development could probably have been avoided.
Developers are ‘in it’ for only one reason yield! Does that make them right? Most are only thinking as far as the sale and those who tout long term responsibility are usually only jumping on the band wagon of the latest trend, which again only has a limited time span.
What are the realities today? Well..
Last night at a very interesting seminar the key note speaker (Mr Lester Chen of Beacon Rock Consultancy) talked about scarcity of land in Singapore, he also talked about reclaiming land from the sea and building dormitory cities in Malaysia... all very informative, but then my favorite the hard facts- Singapore is aiming to increase
its population, so lets stick to round figures and postulate that-
Current population 5 million
Desired population 6.5 million
Household size 3.5 people/unit
Housing Development Board units in pipeline 50,000
Private condos in pipeline 80,000
Therefore to house the extra 1.5 million people we will need an extra 425,000 units but there are only 130,000 in the pipeline leaving a shortfall of 295,000 units!
Now let's enter the realms of developer fantasy and imagine an average unit sells for $400,000 this means an unsatisfied desire for $1,180,000,000,000 now lets take 25% for a developer yield... $29,500,000,000!
Okay that's enough for now with figures like that, anyone who wasn’t already heading for the classifieds is now
Next week- some solutions! Mostly impractical and some ridiculous so let me know if you have any ideas.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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James Harrison is the General Manager - Singapore at Fortune Real Estate Group and Viva Vino Ltd, Singapore he is also the Commercial Director at PortUtube