District Rotations In Property Market

District Rotation

Basically, there are a few factors that can push up the property prices in a certain district, one salient factor is the government funding for development.

Government funding for development

It all started with development plans for some districts to improve infrastructure and amenities in the area with the interest of its residents, as part of the bigger master plan.

This will lead to more demand in properties as better infrastructure means better price, which will attract more real estate developers to build more properties. Eventually, new properties and amenities will reach a saturation point and this district will be considered as ‘developed’ or mature estate.

However, as it gets more crowded, some issues are now more intolerable such as traffic congestion, limited parking space, crowded public transport.

At this moment, the funds from the state will then be channelled to develop newer districts such as Punggol, Bukit Batok, Woodlands and Bidadari etc.

This is when early adopters receive comments from their friends saying that their new home is so out of the way. But soon enough, one can imagine, these  districts will be the new hot topics in town as they get the new facilities such as roof gardens, sky terrace designs, waterway hub etc. Such branding will draw more crowd to invest and move in.

And the cycle repeats to the next district – Tengah, the Forest Town.

10 Years From Now, Don’t Say We Didn’t Tell You To Invest In Property

 

10-years-from-now-dont-say-we-never-tell-you

10 years from now, You will be in your late 40s, some in your 50s. You might still have 1 last chance to have another stake in the real estate arena. But why did you not do it 10 years ago?

But why did you not do it 10 years ago?

Imagine yourself looking back, which of these will be your reasons?

Hesitant to upgrade your property

Unsure about your capability to afford a property

Chasing the bottom during recovery

Didn’t plan for retirement

My friends say to wait for cooling measures to be lifted

If you somehow can foresee yourself 10 years later in such situation, you still have a chance now to change it.

Start now. It is never too late if you start today.

 

How Much Should a Property Really Cost You?

how much should a property really cost you

There are generally three approaches to calculate the right price for any property; using historical data, using today’s data, and using future data. Most people use the first two approaches as they are more straightforward and easily understood, but in this post, I will focus more on the third approach – using future data.

Common approach – using historical and today’s data

Using historical transaction data – starting from launch price to the recent transacted prices, one will be able to calculate the average yearly capital appreciation and use that to estimate the reasonable price tag for a particular property at this point in time.

Using today’s data is only possible recently with the help of SRX’s live platform which provides real-time transaction information. However, this real-time information is not available for individual buyers or sellers who are not represented by an agent which put them in a less favourable spot when comes to getting the best deal.

By referencing to historical and present data, the common approach has a goal of validating if the current asking price is the right entry price to buy – entry strategy. In the next section, I will introduce an approach that is closer to an exit strategy.

Less used but powerful approach – using future data

 

This approach is not new to the financial world, but very under-utilized in the arena of real estate.

It is the discounted cash flow approach.

It looks at bringing the projected future income into today’s monetary equivalent so as to get a meaningful indication if the cost to purchase is worthy or not.

Step 1: List down all yearly income and expenses

  • Multiply recurring monthly income and expenses by twelve to get the yearly amount
  • Include all cost of buying and selling such as legal fee, agent’s fee and etc.
  • Set aside some expenses for some minor repair work

DCF 1

Step 2: Discount net cash flow for each year to present value

  • For each year, sum up all the income and minus all expenses to get the net cash flow for the year
  • Calculate the present value for each year by using the formula in the diagram below

DCF 2

Step 3: Sum up all discounted present value

  • Add up all discounted present value
  • You will get the net present value of this property
  • This is how much it should cost you to buy today

DCF 3

Should cost method is always wrong

Just like any estimate or projection, this should cost method will always be wrong. It can never be entirely correct.

Due to the assumption made on interest rate either constant for the entire time period or varies as per your subjective interpretation of the future and the inflation effects on future income and expenses, these uncertainty makes it only an estimate.

So why use this method?

Because we all have an interpretation of the future whenever we buy any investment product (consciously or subconsciously), and this method will allow you to quantify them into numbers.

Should cost method will allow you to quantify interpretation of the future into numbers.

Hence, by using these numbers will bring objectivity in when you are comparing a few properties based on the same assumptions.

This is how you should shortlist and find the right property to invest.

Are you already using this method?

 

When ABSD becomes basic BSD

 

when absd becomes bbsd

We have heard countless times from different ministers on being too early to lift or even relax the property cooling measures, particularly the additional buyer’s stamp duty (ABSD) introduced in Jan 2013. What if the ABSD is here to stay and to merge with the existing buyer’s stamp duty (BSD)?

Perhaps when it is not an “additional” tax, buyers currently holding back will be more willing to embrace the new norm?

With the ever increasing sums needed for nation building, a steady stream of taxes is important to sustain Singapore’s growth as a nation. Social development has always been a big chunk of the nation’s spending at 52.9% in 2015, and as our population ages, more funds will be needed to cater for these social needs. Where do you think the money comes from?

 

Tax spending fy2014_2015.JPG
Source: IRAS – The Singapore tax system 

 

Furthermore, in order to remain competitive in attracting foreign businesses and high net worth individuals to Singapore, corporate and income tax have always been kept low and it will most likely to stay like this.

So where do you think the money have to come from? Road tax, cars COE, Property taxes, stamp duties.

Okay you see the point.

Let’s say only 15% of citizens have paid 7% for their second property after the introduction of ABSD. Within the next two years, another 30% – 50% will accept the fate to pay the 7%.

Sooner or later,  when half of Singaporeans have already paid the ABSD for their second property, it would somehow be seen as the new norm.

When the time comes, would it be easy to merge ABSD to the existing BSD?

And will there still be a mental barrier for buyers to wait further?

 

 

 

Supply and Demand of Singapore Property Market

Supply & Demandof Residential Market (5)
The Supply & Demand of the Singapore Residential Market

As I started off my career in a supply chain where managing supply and demand is what I do day in day out. I see great similarity when this concept is translated into the real estate arena,and this is how I visualise it to be.

 

black box of property market v2
the Black Box of Property Market

 

Let me first talk about the black box which is the  complex events that happen whenever a new property listing enters the market till an interested party decides to buy it. The characteristic of this black box is expounded in another post of mine.

As for this post, we will focus on what is happening outside the black box – the big picture.

Arguably, the number of properties entering and leaving the black box is determined by the collective efforts of different players and two driving forces, which are illustrated by the gears, wind turbine and the Sun respectively.

The players in the supply side are as follows;

  1. Home owners
    Creates supply when they choose to upgrade or down-size their properties by selling the current one.
  2. Housing Development Boards (HDB)
    Creates supply by launching new flats to ensure a steady flow of affordable public housing for Singaporeans.
  3. Real estate developers
    Creates supply when they won land tender, build and sell the residential units subsequently.
  4. Landlords
    Creates rental supply when they have properties to rent out and generate passive income.

On the demand side, there are four main players ;

  1. Developers
    Generates demand when they are doing bulk purchase for collective sales.
    Generates demand when they stagger units in new launch into different batches.
  2. Tenants
    Generates demand when they want to rent a property.
  3. Owners
    Generates demand when they want to buy another property.
  4. Investors
    Generates demand when they want to buy another investment property.

Other than the players in the real estate arena, there are two important driving forces which affect all the above-mentioned players.

  1. Government policies
    Whether is it cooling or warming measures, it has the aim of bringing property market to a certain future state that is aligned with the government’s growth plan in a sustainable manner.
    Arguably, the supply and demand of Singapore real estate market are probably the most well calibrated one in the region, possibly in the world as well.
  2. Broker’s strategies
    Having the interest of his/her client in mind, agents have to seek the best deal either by selling high or buying low by designing personalised strategies to facilitate transactions in the most optimal manner.
    These collective efforts of agents become a strong driving force that drives supply and demand, particularly in times of a property price reversal whereby a strong volume is vital to ensure a sustainable reversal.

If government policies are the gears of a manual car, broker’s strategies will be the acceleration and brake pedals that facilitate getting to the right speed based on the gear selected by the government.

Hence, you being a small player in the property market, have to understand the government plans well and work closely with your property agent to design personalised strategies for optimal growth of your real estate portfolio growth for the next 10 years.

What is your strategy?