In last Saturday's article, Mr IPO shared his experience My First Property Foray - A HDB Flat - Ended In A $100,000 Loss. The loss happened in 2005. Since then, he has bought and sold some private properties, learnt many lessons and now owns a semi-detached house. Read on.....


city_sq_residences_H88.com.sgCity Square Residences is just next to City Square mall. Photo: H88.com.sgIT WAS 2005 and we were looking for a condominium in district 8 since districts 9, 10, 11 were too "expensive" for us.

We were deciding between 2 condominiums in district 8  - City Square Residences and Citylights.

The condos were still being constructed and there were no 'real units' to view. We had to decide based on the location, the floor plans and 'gut feel'.

As in all new condo launches, we can easily be influenced by glossy brochures, glitzy showflats and eloquent property agents. 

In the end, I chose City Square Residences over Citylights primarily because City Square is a freehold development. I was also "bought over" by the upcoming City Square shopping mall and the fact that it cost less than Citylights.

Citylights, in turn, has better views as the higher floors offer a panoramic view of the sea. I also had some concerns over the location of City Square as many foreign workers might gather at the park near the mall during weekends. 

We paid $631 psf for a very high floor 3-bedroom corner unit. 

Renting a condo unit

We still needed somewhere to stay while our condo was being built.

We decided to rent a 3-bedroom unit at a condo in the east near my parents, in-laws and the caregivers. It was a new condo that had just TOP and was built by City Developments. The owners were staying in a HDB flat and decided to rent out to us a 1,313 sq foot unit at $1,600 per month.

However, it was on a low floor (level 2) and facing the kids pool.

I have to say that the rental market was pretty 'bad' during the early 2000s. It was a tenants' market and the rental was 'relatively low' in 2005 compared to now where you can only rent a HDB flat with the same amount of money. I insisted on a 2-year tenancy.

One of the reasons for renting is that it allows me to feel the market vibes and it became a major catalyst for buying a second condo.

Buying a 1,259 sq ft condo unit

In middle 2006, I felt the market was turning up. The rental in my condo had already risen to $2,000 from $1,600. We started hunting for a second condo. 
We scouted intensively within the same condo and by late 2006, we managed to find a 1,259 square foot unit on the top floor. My wife and I have one principle in life, that is never borrow from our parents their hard earned money. At that time, we could have bought a freehold landed terrace house for around $900k-1m and a semi-detached house for $1.2m-1.3m in the same area.

The condo owners bought their place for around $660,000 during its launch and initially didn't want to accept a loss. However, they were 'genuine sellers' as they had committed to another property elsewhere. A good thing about buying during the doldrums is that it is a buyers' market. 

We saw the same unit 3 times and offered $600,888. I always like to end the buy offer with a nice number. Somehow, it gives the seller a good feeling and perhaps added incentive to accept my cheque.

The thing about property is this.... it is a very personal experience. It reminds me of a scene from Harry Potter. It is not you who choose the wand but the wand who chooses you. Property is probably the same, you will know it when it comes. The feel-good vibes from the property must be right and you will feel it straightaway. (In 2010, I did sell the condo unit and I will share my experience in a future blog post)

Our landlord was more than willing to let us terminate our lease early without any penalty. He could easily rent out the unit again at $2,000 or better but he wanted to move into the condo.

In Feb 2007, HSBC announced that it would have larger than anticipated losses from the default of subprime mortgages. This was the start of the subprime crisis. I tracked the subprime situation closely.

In June 2007, Bear Sterns had to be bailed out. This had a ripple effect on major Wall Street firms that lent money to Bear Sterns. The failure of Bear Sterns was one of the deciding factors for me to get out of the market. While the property market was holding up in Singapore, somehow my intuition told me that sooner or later, the reality would hit home.

Selling City Square Residences unit at a peak

In August 2007, I began to market my City Square Residences property actively. In Oct 2007, someone offered to buy my unit for $1,218,000. I decided to let it go as I didn't know how long the crisis would last and what its impact on the market would be.

So I sold my condo in Q4 2007 and that was before Lehman Brothers went belly up in 2008. I managed to sell at the peak back then. 

I thought I was a 'genius' in selling at the top but with the benefit of hindsight, the unit which I sold at $1,000 psf rose to more than $1,500 psf in 2012.

I wanted to switch out of district 8 and move into either District 1, 9, 10 or 11.

It was early 2008, I had just sold my first condo for a handsome profit and was sitting on a pile of cash. The feeling was good because as I had shared with you I lost at least $100k during my first foray into the property market.

Actually, I didn't make a lot of money. It was probably slightly around $450,000 before stamp duties and broker's commission. I felt the pinch of the broker's commission because it represented almost 5.8% of my profits!

Brokers commission = 2% x 1,218,000 x 1.07 (gst) = $26,065.

Profit before stamp duties and commission and loan termination = $450,000

% brokers' commission = 26/450 = 5.8% !!!

Now you will be interested to know what I did with my new-found wealth. I promise to be truthful and you will be quite disappointed.

After spending on a nice holiday in December, buying some nice watches for ourselves, I then blew it on my dream car! I upgraded from an entry-level Japanese car to a German car.  

$160,000 gone towards a nice car. While I wish to tell you that I had utilized the money wisely, I am sorry to say that this wasn't the case. But I have never regretted buying the car, so the "atas" feeling over this 5 years was probably worth it.

I also invested $50,000 of my cash into a pre-IPO Chinese company. Now you know my risk profile? I went in with my eyes open. On hindsight, this was a risky investment but I guess being flushed with cash can cloud one's judgement? (I am not saying this investment is a bad one). So here you go.... almost half my profits gone.

A few major things happened in 2008. The market sentiments were extremely bearish and people start to wonder which company would go bust.

Property prices in Singapore started to correct as well.  

On the hunt again

In Q1 2009, I rubbed my hands with glee because I really didn't expect to be able to experience 2 cycles within a short 10 years!  

The earlier years of trading and losing in the stock market actually helped sharpen my market "feel" and I had learnt to trade the property market as well.

I began hunting for properties. I told a good friend that if she was looking for a property in the River Valley area, please call me along. I even told her to hunt for units at Rivergate or The Sail whose units were being advertised for between $1,300 to $1,500 psf.

I called an agent who had advertised a long series of units for sale at The Sail @ Marina Bay. He said he would arrange viewings and call me back but he never did.

Between May and Sep 2009, I visited many showflats -- The Arte, the Illuminaire on Devonshire. The units at The Arte were being sold at between $850 to $900 psf if I remember correctly but I didn't like that location.

The Illuminaire showflats were super crowded and that was in the midst of the crisis! In fact, all the 2 bedroom units were gone when I visited on the third day of the launch and they were transacted around $1,600 psf. Prices has since gone up to around $2,500 psf.

For one reason or another, I didn't pull the trigger. I don't want to give any excuses here but basically I missed the boat. I couldn't make myself chase after rising prices.

By Nov 2009, I gave up looking at condominiums as I felt that they were overvalued. The recovery was so fast that I couldn't catch it!

In Dec 2009, I decided to turn my focus on landed property for my own stay as I felt that landed homes offered better value and more space and I should "exercise my right" as a Singaporean to own a landed home. I started to hunt for an intermediate terrace and found one in District 15. It has a land size of 1,600 sq ft and was a 2 storey house with an attic and the built up area is around 2,700 psf.

The owner asked for $1.68m and I paid 1% deposit that evening. I was in a hurry as we were flying off the next day for our holidays. Big mistake.

I had no experience buying landed homes and I didn't do any homework. When I came back from the holidays, I started to do my homework and discovered two "harsh" realities.

1. We are paying record prices for landed homes in that area! In fact, I would be the record holder if the transaction had gone through. I realised that landed homes are valued on the land size and not the built-in area.

2. The banks were only valuing the home at $1.5m and I would need to cough up the difference on top of the 20% downpayment.

On top of that, the house needed renovation which would set me back by another $100-150k.

After much deliberation, I decided to "cut loss" and move on. It was the worst Christmas I had. I became Santa Claus and gave the owner a big Xmas present of $16,800. My wife has always been supportive of me and I am pretty thankful.

(The house was subsequently sold for less than $1.68m but today, I believe it is worth $2m to $2.3m as landed homes have moved up very strongly in the last 2 years.)

For the next 3 months in 2010, I concentrated on district 16, an area which I am familiar with. In early Mar 2010, during one of my viewings, I met an acquaintance from my old school who had just become a property agent. He was marketing a 3 storey corner terrace of the size of 3000 sqft for $1.95m (if I remember correctly).

I didn't like that house as it was situated right at the T junction and the layout was odd with a small living room area and an elevated dining area.  But I found an agent who was "hungry" and willing to work hard for a friend and I knew he was someone I could trust.

Finally, landing a semi-D

In late March 2010, I had narrowed my focus to the street which I where I grew up on. I wanted our kids to grow near their grandparents. I SMS-ed my agent to find out more about a house there that was advertised.

The semi-detached house has a land size of about 3,500 sq foot and 2 levels and an attic. The plot ratio is not "optimised" but I "like" the feeling of "space". 

The house was in reasonable condition but still required some renovation. We viewed the house twice. I made an offer for $2.128m but the agent representing the seller asked for time to consider the offer and promised to give us a reply by the following Tuesday. 

I had lined up my banker in the last few months. I got a pre-approved limit --- I knew exactly the maximum loan amount which the banks would lend to us.  

Secondly, prior to making the offer, I SMS-ed the banker for an indicative valuation of the house -- it was valued at least $2.3m. 

Thirdly, I had been researching and viewing the landed homes around the area and I knew the market prices. 

My first offer was rejected, as expected, but luckily there was no competing offer. The seller's agent said that the owners were expecting at least $2.3m. It was interesting to note that when we were viewing the house, the owners were never around. In fact, there were tell tale signs that all was not well with the family. There was only one pillow, one bolster and one set of toothbrush in the master bedroom. My agent then did a search on when the house was 'last marketed' and noted that it was about 6 months ago. 

The owners had tried to sell the house 6 months earlier at $2.3m. We wanted to put in a bid of $2.2m as our second offer, but my agent advised me to be 'patient' and not appear to be eager buyers. As such, we put in a second bid at $10,000 higher or $2.138m.

To our surprise, our second cheque for a mere $10k increase was accepted. Lesson learnt - couples in a messy situation are serious sellers as they want to get out of the marriage as soon as possible even though the offer was about $200k below market. 

We spent the following 8 months renovating the house and I never regretted buying this place. As you know, prices of landed homes shot through the roof in 2011-2012 and the increase was even better than that of condominiums as Singaporeans start to realise the value proposition of a landed home. 


The contents were first published on a blog, 2Y Real Estate Fund, and are edited and republished with permission. Visit his blog as the author has many lessons to share which are not covered here for brevity.
  
 

Comments  

0 #3 hodo 2017-08-28 02:54
looks to me like a slide down dementia lane.
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0 #2 Nybluedog 2014-01-29 13:24
Some of those comments about blurring investment and own stay property as faux pas. Have you really ever owned an own- stay property that is so ideal to you that you wouldn't give it up even if it has appreciated many times over, in hope that you'd eventually be able to land a dream home eventually? Really? I see nothing wrong in the author being pleased with all that capital appreciation of his own stay property, since he might just decide to monetize its value, to combine with his stash from his earned income or passive income to buy his real dream home someday. That dream home can even be passed down to the next generation. Quite ideal.
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0 #1 Sam 2013-09-07 13:18
I see you have managed to rebound from the 100k loss. It's a happy ending... Perhaps you have the property cycle to thank, because it has been a strong upcycle.
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