Property Investments

I was having an interesting discussion with a top property agent about what to recommend investors who want to maximise their dollar in a booming property market like today's. I'm not too sure if I am right but I believe that in a land scarce country like Singapore, enbloc potential properties perhaps would yield rather good returns for an investor.

Step 1: Find an old property. One that doesn't go with the theme around the area. In this discussion, I shall base it on one of my favourite properties which I hope to attain in the next few years, Orchard Towers. The building is very very old compared to the surrounding and being just outside the Orchard CBD area, it has a lot of potential. Tha land is what we call a "white site". ie, you can build both commercial and residential on the land.

Step 2: Check out proposals for enbloc on the web. Hello... it isn't too difficult to source for things on google... For starters I'll give you a link to a proposal by DTZ with regards to a collective sale for Orchard Towers.

DTZ Proposal

Step 3: Calculate the potential profit. Look at the recommended reserve price. They are talking about $2547 per square foot per plot ratio. That is the RESERVE price. ie. the lowest price that they would sell.

Step 4: Look at the papers. Is anyone selling? In the start of 2009, I met an owner who agreed to sell me a 334 sq ft office for $488,000. However he backed out of the deal after accepting the cheque. I did not pursue the case as I took pity on him. Let bygones be bygones as I didn't lose any money.

Step 5: Calculate the minimum amount of money that this property would yield if it achieved an enbloc. Look at the URA master plan on the URA website. Do a search for Orchard Towers by keying in the address and you will see that for commercial, the plot ratio is 4.9. If an enbloc were to happen with that DTZ proposal, the owner of a 344 sq ft unit would receive $2547 x 344 sqft x 4.9 = $4,293,223.20.

Step 6: What do you need to do to buy a $488,000 property? Have 30% cash downpayment ($146,400). Have money for installments, stamp duties, agent fees and other miscellaneous fees. Anyway, you can rent out the property which would mean that it would more or less cover the installments.

A loan of $341,600 (70% of purchase price) for 30 years at 3% interest would result in a monthly installment of $1437.67. You would need to rent the office out at a price around this amount to cover your installments.

If you did, your $146,400 could possibly grow to $4,293,223.20. A return on investment of 2932%!!!!

Cool or what?

From what I see, this is really unique to Singapore. Our prices can only go up in the long run. The next cycle will be higher than the one that just passed us. Don't forget that reserve price was based on the last enbloc boom. The next one should be higher.

Point to make: Invest in Singapore real estate. Don't try to time the market. Try to price the market.