Thursday, May 22, 2008

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Reasonable ROI only if price dip 40% : Singapore Property Investment Advice

In this post, Smart Buyer Sean thinks that property price will have to dip 40% for return on Singapore property investment to yield a reasonable rate, like 5%. In fact, in most other neighbouring countries, property investors look at a typical 10% rental return for the level of risk that property investment presents and it's lack of liquidity as an investment vehicle.

Posted by: Sean
Posted: 22-05-2008

When major condo developments start to TOP, we will see the ultimate collapse of the property market

When The Sail, RiverGates, Cosmopolitan etc start to TOP, lets witness how successful they will be in getting new tenants to pay a 5% rental returns. If they can't, then be prepared for a major collapse in the property market here. Imagine a 2-bedroom The Sail asking price is S$2.2 million but rental returns can get only $6,500 per month (I am using a benchmark maximum on how much a small 2 bedroom (900 sq.ft) can demand in prime district). That means a pathetic 3.5% rental returns. Lower than the current inflation rate.

Cause the existing asking prices are unrealistic when we ourselves know that rental returns cannot go up anymore to the roof. In fact, rental is going down. No decent investor will even consider purchase anymore when ROI is less than 4% per year. There are so many other countries with much higher ROIs. Only idiots will buy now.

Even if sellers reduce their prices by 10-20%, their condos are still unattractive for buyers. They need to cut it down by 40% to make the genuine buyers come back.

Well i prefer to place my money in FD and earn 1% with no risks rather than buying a home which most certainly end up having a lower value as well as no tenant. I rather earn less than have sleepless nights.

And especially now when property price is expected to crash anytime, no one wants to buy. Unless buyers see a real adjustment in price, no one will come in to buy except of course a few foreigners who are entirely ignorant on Singapore property market altogether.

I have already said long long ago that property price will drop. See how many negative reports we have now on property market from

Credit Suisse
Sumitomo Bank
Barclay Bank
Nomura Bank
For details of these banks' forecasts for the Singapore Property Market outlook, ps read this Singapore Property Forum thread.

These are big conglomerates and I prefer to trust them over real estate agencies or developer reports. In fact, I dont need them to tell me property price is heading south. As long as November 2007 last year, I can sense the market is cooling down and heading for an eventual collapse.

Guys what we about to see is a real collapse in Singapore property. Why I said that ? Most of the sellers are still dreaming of selling their units at record prices which are unattainable considering that recession is coming while rental is cooling down and many thousands of units coming into the market soon. So as a result of them still holding on to their units, they will actually bring up the number of available units for sale or rent in the market. And these numbers will blow up like a big bubble waiting to explode.

At times, some sellers will have no choice but to get rid of their units due to financial reasons, but for some who are financially strong, they will try to hold as long as possible only to see the situation getting worst with more and more units for sale including their units...and buyers getting lesser and lesser with the recession and economic slowdown coming. The number of enbloc buyers will also disappear as they will have already bought all their new homes. Speculators will no longer come in cause they dont see the potential of making money from buying Singapore property now. They will not come back until property price is adjusted by 40-50%.

As such, we now only have real genuine buyers in need of a home and these people naturally are not willing to part with their money in a big way. In addition, the government will promise to allocate more lands for B&D HDBs which might make them more attractive for genuine home owners.

Eventually, market collapse will happen. Cause we will have a situation of 20 or more sellers and only 1 buyer. And by then, seller will dig their own graves. Upon seeing the grave situation, major funds will start dumping their units which they buy in blocks, while foreigners will start selling their units here when they realise their units cannot get 5% or more in ROIs. Many of the foreigners and foreign funds have been duped into buying prime units with the hopes of capital appreciation and high rentals. When these do not materialise, see whats their next actions !

(The post has been slightly moderated.)


Wealth Journey said...

I am interested to do property investment but i am new to this and would like to seek advice from more experienced investors.

If I have $2mil in cash, how do i go about doing the property investment? Do I leverage or should i purchase outright?

I am also of the view that property prices will head south. So, I will probably wait for the correction.

However, before that I would like to prepare myself theorectically on my gameplan.

Your advice is appreciated.


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