Tips for investing in high-end homes

Tips for investing in high-end homes

by Jacqueline Wong
05:55 AM Dec 03, 2010

Despite the numerous Government policies to cool the property market in Singapore, the high-end residential segment has not been adversely affected.

To begin with, the Government measures implemented thus far are targeted at the mass market, which has seen property values rising ahead of economic recovery.

Based on Jones Lang LaSalle estimates, the average resale capital value for areas outside the prime residential districts in 3Q2010 is 10.1 per cent above its last peak in 1Q2008; in contrast, the high-end properties are still trading at some 8.4 per cent below, on average.

In addition, the anti-speculative measures that have ranged from the earlier measures of raising investment costs through additional purchase outlays (higher loan-to-value ratios, seller's stamp duty) to the most recent restriction on buyers from speculating in both the public and private housing markets (particularly during the minimum five-year occupation period) have not affected the high-end buyers.

These buyers are usually long-term investors, if not owners, with strong financial standing. Furthermore, many are foreigners who mostly do not have a stake in the local public housing market.

While the high-end has not picked up as much as the rest of the market, latent demand remains in the former.

Besides the Indonesians, who form our traditional base of foreign buyers, an increasing number of buyers from China, India, Russia and the Middle East are now looking into the Singapore market.

Meanwhile, local investors have been looking beyond Singapore properties to overseas markets as well. The key motivation for many local investors is distinctively practical - acting on parental instincts to provide a roof over their children's heads while they pursue an overseas education, saving on rental expenses and enjoying a potential capital upside when the children finally finish school.

Additionally, further upside of these offshore investments could come from an anticipated recovery in the values of this asset class and the strengthening of the host countries' currencies. Australia, particularly Sydney and Melbourne, as well as the United Kingdom, are the traditional markets in which Singaporean investors are active.



INVESTMENT OPPORTUNITIES abroad

Within the Asia-Pacific region, excluding Hong Kong and Japan, there are many buying opportunities as home prices are generally more affordable than those in Singapore. However, foreign ownership usually comes with restrictive conditions which investors should spend time understanding before diving into these overseas markets.

Take Australia, for instance, where prices are comparable to Singapore's. Foreigners are prohibited from buying a property to be let out or used as a holiday home, although temporary residents may own a home during their residency in the country, subject to approval.

The UK and the Maldives remain the most open to foreign home ownership. Foreigners who own residential homes in the UK are allowed to lease out their properties and this offers an added income yield on top of potential capital appreciation. The Maldives is also very attractive - investors need only pay a transfer fee of US$3,000 ($3,900) to US$5,000 when buying residential properties in the country.

Increasingly, well-heeled investors have been buying holiday homes instead of conventional residential ones. A holiday home has an edge over a conventional residential one as it is managed by a hotel operator, which frees the owner from maintenance hassles. The investor also gets to enjoy the holiday home, along with the facilities, for typically six to eight weeks a year, in addition to the income generated from letting the asset out for the remaining months of the year. The owner typically splits 50-50 with the hotel operator, subject to a bed tax.

Jones Lang LaSalle has successfully marketed projects such as The Bulgari Residences at Bulgari Hotels and Resorts in Bali, yooPhuket in Thailand, The Tower in Central London and 12 Blues Resort & Spa in the Maldives.



INVESTING IN A PROPERTY

There are several basic but important factors that one needs to consider when investing in property.



Do your sums

Besides having sufficient funds for the downpayment of a property, you need to ensure that you have a sound cashflow once you exercise the option to purchase. Increasingly, governments are abolishing the "no payment till physical completion" or what is commonly known in Singapore as the deferred payment scheme, to reduce the default risk.



Know your market

Understanding the market you are putting your money in is essential as property values may be influenced by many factors - from economics to politics. Even the construction site that sits right across the road can affect your investment positively or negatively; validating the mantra of "location, location, location" in property investment. Given the uniqueness of each property, market research is all the more important. Jones Lang LaSalle provides a wide range of advisory services such as feasibility studies, market advisory and portfolio analysis for financial institutions, government agencies and high net worth individuals.



What unsettles you?

Knowing your risk appetite helps you determine a market that is most suitable for you. You would not want to engage in panic selling during price corrections. An individual's risk appetite is largely influenced by the holding power fuelled by his or her financial background. When investing abroad, there are the additional risks to consider:

- Distance - this means that you are unable to keep a close watch on your property and are thus less sensitive to developments that affect property values

- Exchange rate volatility - adverse currency movements will result in a lower return

- Ill-informed/unreliable agents - they cause you to miss out on opportunities simply by giving poor advice




INVESTMENT STRATEGIES

The conventional wisdom in investment is to buy low and sell high. If you had bought a typical prime property in Singapore during the last cycle, you would have earned a good 40 per cent capital gain when you sell your property today. Buying based on cycles would guarantee a profit regardless of the property you buy. However, this is often difficult in practice.

The residential market is very sentiment driven. Many investors act on a herd instinct - they buy into the market when everyone else is already in there. This usually means the gains are typically less as the market is quite heated. In addition, many buyers tend to be emotional in their purchases and this will affect their judgement and handicap their decision-making skills.

Speaking to seasoned investors and advisers will allow you to leverage on their insights into the market and help you avoid herd-driven behaviour.

As you look for your ideal property, bear in mind the importance of value investing. While mass market projects tend to be cheaper on a total quantum basis, high-end properties remain timeless given the quality finishes, comprehensive facilities and higher leasing demand.

For example, based on an analysis of the caveats lodged, the median price of a unit in Seasons Park located along Yio Chu Kang Road today has grown by about 9 per cent since it was first launched in 1Q1996; in comparison, the Regency Park along Nathan Road commands a median price that is 59-per-cent above its initial launch despite it being a much older project.

A new property mantra then should be: "Location, location, quality."



The writer is head of residential, Jones Lang LaSalle Singapore. She is supported by Tan Yali, senior analyst, research and consultancy.


Source: www.todayonline.com