Investing in real estate is a major financial decision that requires careful consideration, especially in Singapore where property prices can go for millions of dollars. With huge 5¬6 figures commissions on the line, it’s no wonder property agents are more cautious about the things to share and whatnot.
That is why, before committing to such an investment, it’s crucial to understand the potential pitfalls that your property agent may not disclose. If you are potentially looking for a property investment or looking for the right property for your own stay, this article is for you!
Understanding what you are investing in
Similar to investing in the stock market, being emotional in your property investment is not a good idea especially since owning a property in Singapore is considered a long-term commitment(unless you are willing to pay SSD😛).
Therefore, here’s what you need to know:
Misleading Profitability Calculations
Got potential to make good money!
Property agents often sell the idea of potential capital appreciation, leading investors to believe they can earn substantial profits. But that’s not exactly the full truth.
Since property agents often would speculative gains rather than consider actual cash flow and return on investment (ROI). As an investor, you must base your decisions on solid numbers and realistic projections.
Since their commission is based on how much the property PSF(per square foot) is sold for, agents and developers are more likely to push clients to purchase property even though the PSF of the property may not be desirable.
With information readily available, property agents are likely to push you to focus your research on these factors as a means on whenever the property is the right fit:
- Location – ALWAYS!
- Amenities – who doesn’t like to have good food nearby?
- Good schools – Singapore’s school prioritizes residents that live within 1km of the school to have a higher likelihood of entering. This is why some wealthier families wouldn’t mind paying extra to stay near to a reputable school.
- Community – It actually matters a lot! Places like Bukit Timah are known for richer people and Yishun is considered a ‘dangerous’ place to live in. Good community = better exit strategy in the future)
- Comfort – Do you think you would feel comfortable living here?
- Love ones – does the property fit well with your family? If you have elderly who needs more care, you may want to look into nearby healthcare facilities as well.
While all the above information is somewhat important to know. Here’s are other investment homework you need to take note of:
- PSF – do your research and know what is the right price to enter the market
- Holding power – are you able to afford the property for at least the next 5 to 10 years?
- Tenants – Check the rental yield and who exactly is looking to rent in the location (expats? What do they work as?)
- Developer’s track record – Has their past property development made substantial earnings? If so, by how much?
- Emotional state – Are you emotional with this investment? (less emotional is always the best)
If you would like to research more about property investing in Singapore, here are some articles for reference:
- Is it Wise? – Decoupling in Singapore’s Real Estate Market
- Is it a Good Idea to Buy a House in Trust?
- How Much Income Must I Make to Buy a Condo in Singapore?
- 7 Reasons Private Property Is Less Expensive than You Think
- Is Investing in Real Estate in Singapore a Smart Financial Move?
Factors Affecting Property Value
When evaluating properties in Singapore, several factors play a crucial role in determining their value. These factors include:
- property type (public or private)
- location (central core region or outside)
- lease tenure (freehold or leasehold)
- age of the property.
Private condominiums, especially those in prime locations, tend to have higher purchase prices and maintenance fees, which can impact overall profitability.
Therefore, to calculate the actual capital appreciation earnings from your property investment, it is critical all the fees are included. They are:
- BSD (Buyer stamp duty)
- ABSD(Additional buyer stamp duty)
- Agent fee
- MCST (Management Corporation Strata Title)
Property investors often forget that interest rate plays a crucial part in the potential earning of your property. The lower the interest rate, the more you can be earning your capital appreciation earnings.
Withholding negative Future development
Who would ever say that their product is bad?
Property agents may sometimes withhold information about negative future developments to protect their own interests or to secure a sale.
By not disclosing potential drawbacks or unfavorable changes, they aim to present the property in a more positive light and increase the likelihood of a successful transaction.
This behavior can be seen as a way to prioritize short-term gains over the long-term satisfaction of the buyer, potentially leading to misunderstandings or disappointment in the future.
What property buyers need to take note of
It is essential for buyers to conduct thorough research, ask relevant questions, and engage independent professionals to ensure they have a comprehensive understanding of the property and its future prospects before making a purchase decision.
P.S. Here’s what property agents might withhold information of:
- Potential “block’ view from upcoming development
- Poor condo maintenance
- Bad neighbors
- Superstitions unit number (e.g. #24-104 While it may have a great high level, a person who is superstitious would never buy such property because it literally means “die of hunger and confirms die”)
Negative Cash Flow
I make $20,000 in rental income.
Selling the dream of earning “passive income” through rental income has always been a fluff dream.
In reality, it’s common to hear buyers having to pay hefty price tags and substantial condo maintenance fees.
Even if rental income is generated, it may not be enough to cover all expenses, including mortgage payments, maintenance fees, taxes, insurance, and vacancies.
If not done correctly, this negative cash flow can erode potential returns and create financial burdens for investors.
Limited Capital Appreciation
While some investors rely on capital appreciation as a strategy, it shouldn’t be the sole basis for investing in private condominiums.
Property buyers often forget that the property market moves in a cycle and right now, we are in the midst of the sellers market moving towards the buyer market.
The market is unpredictable, and there is no guarantee that prices will rise significantly. Many new developments fail to achieve substantial price appreciation, leaving investors with little to no profit.
Instead, cash flow should be the primary focus, as it ensures a steady income stream and helps build wealth over time.
It’s your money! Not the Property Agent!
At the end of the day, you need to remember that property investing is a huge financial commitment, and your property agent may not be giving you your best interest.
If you are looking to invest in a property, you need to learn to do your own due diligence. To end it off:
No one cares more about your money than yourself