Would you buy a property above the market price? No, right? No matter how lucrative it seems, it is never wise to give way to a fast moving market. But how can you identify if you are entering a fast moving commercial property market? I will tell you how. As well as how you can escape it to make way for profit.
Watch out for fast transacted properties!
Commercial real estate is ripe among foreign investors. But often this is also the cause of such properties changing hands fast and furious. When a property changes hands, the value increases a bit to make a profit for the present owner. That is why, if the property changes hands too frequently, the property price may increase more than it’s worth.
How to beat it?
If you see this – it is a sign of a fast moving commercial property market!
Ann Siang Shophouse in District 1
A shophouse at 13 Ann Siang Road was sold at S$8.5 million on Nov 11, 2020. And 7 months later on Jun 8, 2021, the shophouse was sold again. This time at a whopping S$9.28 million.
Have you noticed how the property changed hands twice in just 7 months? And this has increased its price by 9.17%! Yes, the shophouse is located in the most prime District 1. But it is debatable whether the seller sold cheap or the buyer is buying at a premium.
One thing is for sure! This is a clear telltale sign that the bull has been awakened for a run in the bull market. The price movement within such a short period is a sign that a bull party has started with a musical chair in play. I would see it as a good sign and a good time to start hunting for good assets.
Just don’t be the last person standing when the music stops during the musical chair game in play. Because that’s when you are at most risk of getting a raw deal. You have to move fast to make the best property investment.
Tan Quee Shophouse in District 7
Now let’s look at this shophouse in Tan Quee Lan Street. On May 31, 2021, the property was sold at S$12.588 million. Within just 2 weeks, on Jun 14, 2021, it changed hands again, at the same price.
The property transacted twice in just 15 days! What is the reason for such a hasty transaction?
There can be a number of probable causes such as:
- Maybe the authority or the information provider made a mistake of conducting the transaction twice within a period of 15 days.
- The first buyer may have sold the property to the second buyer at the same OTP (Offer to Purchase) price due to personal issues. In selling the property, the first buyer may have incurred a 3% stamp duty. And probably a finder’s fee as well to find the second buyer.
- The deal has been made for some critical reason that only the insider knows about.
Whatever the cause, the speed at which the shophouse changed hands is alarming. It is a sign of a buyer chasing the commercial property. Imagine how scary fast its price can elevate over the future years if it continues to be resold at such a staggering speed!
Club Street Shophouse in District 1
The last testament of a fast moving commercial property market is this shophouse. The property was transacted on Jul 9, 2020, at S$5.8 million. At that time, the asking price was S$6.5 million. But the property managed to scrape only S$5.8 million. However, in 10 months’ time, it was resold at a staggering rate of S$8 million on May 12, 2021.
The Club Street shophouse had a wild increase in price by 38% in just 10 months! This is the very monument of a fast moving bull run market.
Based on my two cents of opinion, it will not be easy to find an FH shophouse in District 1 for less than S$8 million in the current market. So, I shall not comment on whether this is a good buy or not.
In my opinion, the key factors that drive a real estate price are considered based on the following weightage of metrics:
A certain percentage of weightage lies on macro and micro trends. This heavily depends on the local Government’s policies on urban planning, immigration, and preventive cooling measures to curb asset speculation.
The data available on this weightage are fragmented and varied. But we should not neglect that there is a big influence on weightage in the market due to sentiment and customer euphoria. You cannot quantify it by using science. These factors are mostly driven by stakeholders and salespeople in marketing and advertorial campaigns.
Hence, what you can do is look at the movement of price carefully. Assess the price based on the weightage of metrics. Then only decide if the fast transacted property is worth the buy based on the price offered. And whether it is showing signs of a bull market. And how much risk or reward it will be weighing you in if you decide to buy the property.
Take stock of the rental yield of your chosen commercial property
When you invest in a commercial property, your primary aim is to make a profit. And the most common form of return is rental. So, you must assess if your property will offer you an attractive return. To do that, check out the rental yield over the years.
Currently, the rental yield in the prime districts of Singapore ranges as follows:
On average, the rental for the commercial property market is somewhere between 1.5%-2.0%. For freehold properties, the rental may be lower, at the borderline of 1.5%. This is the standard! Make sure your rental yield is slightly above the current interest rate. Suppose, if your property has a rental yield of 3% and the interest rate at that time is 2%, then you are in for a good investment.
That being said, you don’t want to buy a property with a rental yield that exceeds the average current rental or the interest rate by a wide margin. Because that is a sign of a fast moving market.
Look out for pitfalls!
If a deal looks too good to be true, it probably is!
If you buy a shophouse that already has a current tenant, check out the rental. Avoid falling prey to rental above the market rate. In other words, unsustainable rental yield. If you buy the property with a very high lock-in rental, it will be unsustainable. Because, once the current tenure ends, the tenant may not want to renew the property at such high rental.
He could find available space with the lower more reasonable rental. Hence, he will be more likely to break the lease to move to better options. And you will have a hard time replacing the tenant with the existing rental yield. As it is above the market range.
The price disparity is something that can look attractive at first glance. But as time passes, and you have to deal with the actual market trend, your investment will take a dip. The higher the disparity, the more danger you are in of incurring an investment loss.
Compare the economy vs property price appreciation
Commercial properties in Singapore are gold mines for investment. If you are a foreigner looking to buy a shophouse or set up a family office, Singapore is the place. Everyone from overseas buyers to wealthy local high net worths wants to get a scrap of such property. Because these are rare finds.
Recently, I have picked up some attractive shophouses with rental up to 3%. I cannot disclose the full details here for confidential purposes. But if you wish to know the inside details, you can Contact Me by filling out this short form to show your more!
With such high demand, you can imagine why buyers would want to grab this property so fast and quick. This very urge to buy shophouses creates a hyped-up demand for such properties. It gives an over-the-top boost to commercial property prices. I totally disagree with falling for such fast moving properties. The deals I help my clients with would never be subject to this. Because if you fall for such a property then you may be at the edge of an upcoming property price bubble.
How to beat it?
Have a look at the commercial property market over the past few years. Below, I have listed the market price of shophouses for the recent 3 years.
Note: The price shown above is per square feet (psf) of the land.
Shophouse in specific because this is one commercial property that never goes out of trend. It has all the facilities a commercial investor looks for. As well as super high demand as they are rare to find as mentioned above.
Read more on: Should you buy or sell Singapore shophouses in 2021?
The table above shows the prices of shophouses in the prime districts of Singapore. You can see how the price has appreciated over the years. For each district, the median price of a shophouse has had a significant jump. Either from 2019-2020 or 2020-2021. This reflects that this type of commercial property has an excellent capital appreciation. Hence, worth the buy!
However, you can, in no circumstance, fall prey to the fast moving commercial property market. To avoid such grave mistakes, compare the property price growth with the GDP of the country.
The GDP of Singapore has badly suffered in the last year due to the pandemic. It is still in the recovery process with forecasted GDP growth of 4-4.8% in 2021. On average, taking account of 2019-2021 data, the GDP growth is at a negative 0.22%. In this regard, the property price appreciation should also be around this range. Even if it is not negative, it should not exceed GDP growth by a wide margin.
If the property price appreciates more than the current GDP of Singapore, it is a sign of an upcoming bubble.
You want to avoid that at all cost!
Because if your property falls in a price bubble then that means the economy is unable to catch up with the property market. But when the economy stabilizes, property price correction will take place. So, your property may cost less than your purchase value in the future. Or, it may not yield capital appreciation as much as expected. Thus, it will make the waiting period for overcoming the bubble price longer for you if you want to sell it at a profit.
Be aware of fast paced capital gain
We all want to buy a property that has an appreciative capital gain. And we should! But there is a difference between healthy capital gain and unnatural capital gain. Usually, a property’s capital gain is faster than its rental. But if the pace is too fast, you must avoid it.
How to beat it?
If the rental is lagging too far behind the capital appreciation, it is a sign of a fast moving commercial property market. Take the Club Street shophouse example above. Its price increased by 38% in 10 months. Its rental yield on the other hand is 1.5%.
If a property’s capital appreciation is more than 30%, it is definitely too high. In the future, the price will drop during the market correction. And you will be left with a property that has less value than its original price. Or the appreciated price will be lower than your expectation as it will suffer from price correction. Avoid falling for such properties.
How to buy a valuable property jumping the fast moving market trap?
Watch out for the above signs!
The signs described above are the fundamentals of investment. Know how to identify the alarming signs to steer away from fast moving commercial property market. Overall, Singapore is investment heaven. Foreign investment and cooling measures keep the Singapore property market balanced.
If you compare, for Hong Kong, the price to income ratio is 45.15% whereas in Singapore it is only 19.38%. Meaning Singapore property prices are both reasonable and affordable. But of course, only if you invest in good value assets.
How do I assess the market to yield attractive property deals for my clients?
I would describe myself as an unorthodox and unconventional person when it comes to making deals. I believe in being the first one to move and take action to deviate from the herd’s euphoria.
For decision making, I rely upon whatever data is available in the market. The data collection and visualization are often structured in my mind. I filter the noise and the bias of data using common sense and gut feeling.
The application and implementation of data science in real estate is a completely new area to me. But I have started harnessing that skill to facilitate my clients more vastly. I hope I can use data science to digitize the data collection and visualization out of my gut feeling and common sense. This is my stepping stone to transition from my core competency from a high “ART’ to a High “science” to better serve my clients.
The real estate process is a negotiating game between the two parties, buyer and seller. You not only have the property to think of but legal, issues documents, and hundreds of other things.
The question is do you want to get a good deal or THE BEST DEAL?
To get the best, you need to hire an agent with relevant experience who can maximize the value of your investment by forking out all your worst instincts and industry booby traps.
Recently, I have picked up some super attractive shophouse deals as I mentioned above. The rental yield on them is up to 3%. It is a testament to my proven track record.
As an expert consultant, I can equip you with information to get such deals that you won’t find on the internet.
My years of experience have developed a sixth sense when it comes to valuable buy.
I can recognize the patterns and filter out the problems to find the property that best suits YOU!
As for documents, legal, and the complex process of acquiring a property, you can lean on me and just focus on buying a good rewarding asset.
Having you on board is not a stick in the hay for me.
It is about helping you through this wonderful journey of new investment.
Browse through my services to see the value I can bring to you.
If you seek MAXIMUM VALUE for your future investment, drop me a message at +6585333888.
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