What to do during a real estate downturn?

Is it too late to buy real estate and make money? Many experts who have been investing in real estate for decades will have seen the ups and downs of the real estate market cycles. Most will acknowledge that as long as one is prepared to stay through the bad times, the assets made will turn out to be a good investment. Of course it can be quite frantic to keep a real estate with diminishing paper value and if the cash flow is tight.

What if real estate values go down where you live? Here are some possible strategies for a real estate downturn.

Keep your property unless you have already made a profit

How serious is the problem really? Let’s say that the home you live in, your rental property, or the property you bought as a “fix and flip” goes down in value. Well, if you weren’t planning to sell right away, would it matter? Hang on until the market comes back. Historically, in the bigger picture, a real estate market will always come back.

If your current rental properties are having a positive cash flow with tenants, there is little incentive to sell, unless you have already profited from the value (which is still substantially high if one bought at the previous bear markets).

Emotions can go wild during a bear market, but with a well adopted strategy, one can still profit from a down market. In Singapore where land is scarce, real estate is a good hedge against inflation, though one may be worried about deflation nowadays. But if your rental properties are having a decent yield, you might as well just keep the properties for decent cashflow.

Manage your property investments like a business

One of the fundamentals of business is to look for a way to create more value in what you’re selling, whether you are renting a property, or straight out selling. And, if no one is buying (or renting), ask yourself why? Is there a way to add more value by making it more desirable for the buyer/tenant?

Some ideas might include changing the property–adding additional features that no one else has or making more favorable terms for a potential buyer/tenant. Having strong business skills means you have the ability to look at any market in any climate and figure out what to do next without panicking.

Also managing the cash flow is also important as it can help in your next property grab during a downturn. If some of yours has reached its peak value, it may be worthwhile divesting it away to get a replacement asset with potential.

Focus on the real goal.

No matter what type of business or investments you have, you need to have fundamental skills. During a downturn, one can have another opportunity to grab a trophy asset at a fraction of its normal value. This means doing your homework, understanding the macro and micro environment in the real estate market, looking out for good buys, getting to know professional realtors who can help you locate and negotiate good deals, and managing a sound financial plan with bankers and financial institutions. It is especially important to keep cash in a downturn as it will be a boon when you are in a position to take a trophy asset.

 

New office units for sale in Little India

Centrium Square, a development out of the former Serangoon Plaza in Serangoon Road, will be launched for sale expected to be held by end Feb 2016. The 19-storey freehold project consists of 231 strata units (143 office units, 39 medical suites and 49 retail shops). According to the marketing agent OrangeTee.com, 78 office units will be launched first. The sizes range from 570 to 1012 sqft. Indicative pricing is expected to be between $2600 – $2800 psf before an early bird discount. The retail units are not for sale, however.

Upsell your property at a downturn

When the property market is booming and buyers/tenants are plentiful for a limited supply of housing, home owners can afford to do little to invest in the interiors of their assets. Desperate buyers or tenants can commit a premium to a property just based on the location and other attributes other than keeping the interiors pretty.

However in the current lull market, this strategy will definitely put home owners’ assets at a disadvantage. When buyers/tenants are few and the supply is high, one have to upsell one’s property by investing in marketing, including making the property able to sell by itself. Attributes like location, outdoor views and surrounding amenities are usually beyond the home owners’ control after they possessed the property. What is really within a home owner’s control is the interior of the property. A well-maintained and beautiful home interior can be a pleasure to behold even in pictures and videos.

“Home-staging”, a termed coined by the Americans for a decorating technique, is a popular technique to turn a slow-moving listing into a sought-after trophy asset. Home staging including cleaning up, re-arranging the furniture and furnishings, repainting the walls and other sensory improvements to the property during home-viewings. The objective is to make a property to stand out among a buyer’s market, and to sell it faster at a possible higher price.

Some homeowners also engaged staging services from property agents, interior design specialists, furnishings companies and furniture leasing companies to spruce up the home interiors for better visibility among the crowd. Photography is also an important element to entice prospective buyers/tenants even before they view the actual place.

However if one has limited budget and resources to conduct a professional home-staging, here are some tips that one can do on his/her own.

  1. Declutter. In an urban city like Singapore, clutter can easily built up in a home after purchases after a sales therapy, or due to lack of time to maintain the interiors as a result of work. Clutter makes it hard for prospective buyers/tenants to see the property’s favourable attributes. So by conducting a spring cleaning to remove the clutter in the home will boost a better chance than a cluttered home.
  2. Keeping it clean. Marketing a uncleaned home to prospective buyers/tenants can be a turn-off. Thus make sure it is generally cleaned before conducting home viewing to prospects. Some key areas of concern include the areas/appliances commonly used by tenants (eg toilet, sofas, kitchen, ovens and stoves, curtains).
  3. Photography. Online marketing is the norm nowadays for home ads. Taking good photographs to showcase the property potential such as good natural light and large interiors are a must. Thanks to advance in the technology many smartphones can take pictures as good as compact cameras. Together with filters in different apps, the “feel” of the interiors can be adjusted to make a pleasant visual impact.
  4. Avoid “loud” items. Interior makeup can be quite a personal taste and hence making the interiors as neutral as possible is a important aspect to avoid putting off some of the prospects. Examples include a bright red statue or a neon pink curtains that maybe a home owner’s pride but it can put off some prospective buyers/tenants.
  5. Play up the good attributes. Decorate a balcony with unblocked view of the neighbourhood to create a warm and inviting atmosphere can be a plus.
  6. Use scents. Fix the source of bad odours instead of just spraying room scents. Some interesting scents include pumpkin spice or vanilla cookie scented candle to create a post-baking ambience for your home.

Industrial property prices drop after 4 years

Industrial property prices eased last year after rising for 4 straight years. Rents fell consecutive for 2 years. The current gloomy manufacturing scene and supply glut in the near term should lead to further moderation in prices and rents. Industrial property prices fell 1.5% in Q4 from the preceding quarter, resulting in a full year fall of 1.7%. In the preceding year, the prices rose 3.5% in 2014.  Vacancy rate islandwide rose 0.2% to hit 9.4% in Q4. This is the highest in 3 years. About 2.9 million sqm of industrial space will be ready this year, to be added another 1.6 million sqm next year.  Average annual supply and demand of industrial space were just around 1.7 million sqm and 1.2 million sqm respectively over the past 3 years.

TDSR woes to home owners

According to a news report today, home owners are finding it difficult to refinance their homes in the current backdrop of falling home prices. Many home owners who failed to meet the TDSR criteria or the banks’ credit assessment criteria could not refinance their homes.  However MAS seems not to be very worried of the implications. Accordingly less than 10% of existing borrowers have a TDSR of above 60%. This number is expected to reduce as the loans are repaid over the years.

Should the refinancing option is off the table for home owners, possibly for most the only option is to sell off the property even at a loss.

MAS stated that TDSR objectives are gradually met. Almost all new loans were below the threshold of 60%, with quite a significant number of new loans having TDSR of below 40%. The overall objective of TDSR is to encourage prudent financial management among households by reducing the growth of household debt.

Bulk sales in the making for developers

As the deadline for hefty penalties is approaching, various developers adopted various measures to avoid them. Some previously public listed developers chose to delist their companies from the stock market. Others had used their affliated companies to buy over unsold units. There are also some developers chose to find bulk buyers for their properties. CDL is believed to market one of the two towers at Gramercy Park which is yet to be launched. OUE is also offloading one of its towers in Twin Peaks.

Gramercy Park is about 90% completed and is expected to obtain its TOP in Q2 2016. It has 174 apartments in the freehold site. CDL has until mid 2018 to sell all the units before incurring Qualifying Certificate  (QC) extension charges. The asking price is believed to be around  $2600 psf.

For the 231-unit Tower 1 of Twin Peaks, which is a 99-year leasehold project, the TOP was obtained in Feb 2015. It has until next year to sell the unsold units before incurring QC charges. The average price of the other tower was at $2861psf.  So far 72 units were sold.

Many developers are giving good discounts now in the current lull market especially on the luxury segment. Individuals and funds may find this time to do property shopping at a rare opportune time.

Property news spotlight

In today’s papers, some of the articles caught my eye. One is that of property stocks which were considered undervalued. The stocked mentioned includes Reits and real estate developers. These stocks in fact take up 2/3 of the undervalued stocks in Singapore. Some investment experts recommended to be selective in the current uncertain market moods, to choose selected offshore focused S-Reits (eg FCT, Keppel DC Reit and A-Reit) and developers (eg WingTai and UOL).  Other under valued property stocks (above $1B capitalisation) mentioned include OUE, Yanlord, Perennial, Ho Bee Land, Hongkong Land, Wheelock, United Engineers, Guocoland and others. It could be a opportunity to buy these stocks at a low but do note the risks involved.  It could also be a good chance to note the properties under these companies as one may be able to get a better bargain than usual.

On the real property aspect, Shunfu Ville at Bishan is going for another shot at the lull collective market, after failing to find a buyer at last year’s tender. The minimum price according to JLL is $688 m or $750psf ppr. Each owner could potentially bag $1.92m if the deal goes through. The intention to put back into the market may be boosted by the recent sale at Siglap GLS site which was sold at $624.18m.

Normanton Parka also did not attract any buyers despite some interest from 2 developers.  The reserve price is $840m or $605 psf ppr for the leasehold property site at Kent Ridge Park.

At Vivocity near Sentosa/Keppel area, MCT is embarking an asset enhancement initiative to strengthen its F&B offerings in a bid to further boost the mall’s appeal. MCT’s other assets includes Harbourfront, PSA building and Mapletree Anson. The occupancy rate for its overall portfolio is 98.4%.

Prime Waterfront Homes and Living in Singapore

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