How not to lose $3.7 million on your home value

April 12, 2016


home value

A article on home value | Photo: The Ritz Carlton

Most Singaporeans don’t sell their houses at a loss, because let’s be clear: if you live on a tiny island with over five million people, and 16 per cent of them are multi-millionaires, and there are literal planeloads of rich people who still want to move in, selling property at a loss means you don’t understand the concept of money. Either that, or you are making a special effort to do so, via the following:

The Ritz-Carlton Residences sale

On 18th March 2016, someone sold a unit at the Ritz-Carlton residences at a loss of $3.7 million. On top of the loss, the sale fell within the penalty period of the Sellers Stamp Duty (SSD).

The SSD imposes a tax on property sold within the first four years. The tax is 16 per cent for the first year, 12 per cent for the second year, eight per cent for the third year, and four per cent from the fourth year onward. For the Ritz-Carlton sale, the penalty was eight per cent, or a whopping $568,000.

Whoever made this sale undoubtedly had problems to solve, and I assume at least one of those problems is a life-threatening allergy to money. But while this is a spectacular example, there are a few other ways to follow suit:

1. Buy without holding power

Whether your property investment works out well is directly proportional to your holding power. Buy the biggest possible house you can get a loan for is a common, and overrated, tactic. The problem here is twofold:

First, interest rates for property loans are not fixed. This catches foreign investors off-guard all the time: Singapore banks don’t have perpetual rate mortgages. Most of the fixed rate loans revert to floating rates after three to five years, so that means repayments can go up.

Most residential loans are pegged to the SIBOR rate, and as of now that rate is almost double what it was back in 2011 (together with the bank’s spread, interest rates on residential properties are around 1.8 per cent.)

For that reason, it’s a good idea to be braced for the possibility of higher interest rates. If they go up, and a property is no longer pulling its weight, you’ll want to sell. But until you get a good sale price, you’ll need enough cash to ensure you can handle the rising mortgage.

The second, related problem is that property markets are cyclical. You want to sell during an upmarket, which experts have recently defined as “not today.” Today prices are down, which is great for owner-occupiers but not sellers. Having holding power ensures you can wait for that situation to reverse.

In Singapore, each property peak has historically been higher than the last. That’s why property is a good investment. But that’s true only if have the capacity to hold on, and sell at the right time.

2. Place all your bets on niche properties

Some properties target niche demographics. Examples are shoeboxes that mainly exist for single expats to rent, low rent properties (e.g. A commercial space you want to convert to a hostel), or extremely high end properties (e.g. Ritz-Carlton residences).

These are properties that only specific types of people look for. A shoebox flat, for example, is unfit for any family size beyond one person and her goldfish. As for luxury properties, you run the risk of being the first to suffer in a downturn. With the current state of the economy, for example, buying or renting a $7 million condo may not be an affordable luxury to many.

This isn’t to say it’s inherently wrong to target niche markets with property investments – just that it’s best left to landlords braced for the risk. If you’re looking for a second property and you’re new to this, consider the advantages of versatile, mid-range properties. Don’t be too quick to stake your bets on something exotic.

Three-room and four-room resale flats, or mass market condos, can cater to a wider range of tenants and buyers. You can browse a wide range of Singapore’s better property listings on

3. Catch a falling knife

Those of you in the stock market already know this term. The idea is that you don’t catch a falling knife, you wait till it hits the ground and then pick it up. It’s a lesson for property investors who like to try and time the market.

Most of us know that the best time to buy is when property prices are down (duh.) I even mentioned this in point 1. But go back to point 1 and notice I said the down market is great for owner-occupiers. As in, people looking for a home to stay in, and not necessarily an investment.

As an investment, it’s too simplistic to say “buy when prices are down.” Timing the property market (like with any market) is extremely difficult. At present, property prices are down around 8.4 per cent from the peak in 2013 – but with cooling measures locked in place, we don’t know when price declines will stop.

You could end up buying when the property is “cheap”, and then watch in horror as the price continues to decline even further in the next five years. It could be a decade before you break even on the sale.

For this reason, it’s best for amateur investors to move in as prices are starting to rise. Forget about playing Warren Buffet, and trying to guess the exact point at which the market will turn.

As for owner-occupiers, don’t worry about market timing at all. Move in when you can afford the home you love, period.

4. Follow the herd into a hotspot

Beware of property hotspots and fads. By all means, consider the merits when everyone rushes for a location; but make sure there isn’t too much overcrowding.

A good example of this was the Iskandar craze – when Malaysia announced the new Iskandar region, buyers and developers poured into the area. This resulted in the construction of 336,000 homes in the area, which is bigger than the number of private homes in, oh, the whole of Singapore. This despite Iskandar expecting a population of just 3.17 million people, and that in 2025 at best.

The massive supply glut means many landlords there are going to be locked in a perpetual price war to attract tenants, and it won’t do any favours for resale value either.

So unless you’re going for a potential loss, take a lesson from there. When you see the herd stampeding in a particular direction, think twice before joining in. If you’re going to take the plunge, try to ensure the property you pick has a decisive advantage of some sort. For example, the only thing that will distinguish one mass market condo from another in Iskandar is going to be proximity to the town centre or railway lines.

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  • Reply Andrea Kennedy April 14, 2016 at 10:10 am

    Great article. And I do not say that very often in Singapore.

    • Reply Jamal April 14, 2016 at 11:33 am

      Hi Andrea, thank you so much for appreciating the article. It’s just an example of our dedicated team here. Assuming, you do not ‘stay’ that very often in Singapore, I think Singapore is a very nice place to spent time in, very multi cultural but a bit costly. If you, anytime, happen to look for a place to live or rent here, please free to visit our website and there you would be able to find options of your choice. May be a nice home can attract you to stay here often 😉 Have a nice day!

  • Reply Andrea Kennedy April 14, 2016 at 12:11 pm

    I live in Singapore. Keep up the entertaining writing, it’s the best way to educate people.

    • Reply Jamal April 15, 2016 at 3:05 pm

      Great! That’s so nice of you, Andrea.

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