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Monday, August 19, 2019

Is now a good time to enter the Property Market?

It is a question I ponder repeatedly.

Property seminars routinely pop up on my facebook feed with catching captions like - "how to turn 1 property into 4 on a median income salary."

I tend to take investment advice from property agents with a (huge) pinch of salt. As AK loves to say, Never ask a barber whether you need a haircut.

Property agents will always tell you that the "only way the market moves is up". "The developer will never reduce price."  If the development they are selling is large, they will say how the large number of future transactions will prop up your property price. If the development is small, they will wax lyrical about the ease to rent or sell due to no competition.

For would-be property investors/prospective home owners, I suggest you disregard all the noise and judge for yourself the merits of any property currently on the market.

Here are a number of questions I find helpful when looking at property:

i. Are any adjacent/surrounding plots of land marked for development? 

One of the many reasons why the response to One Pearl Bank was lukewarm could be that its adjacent plot of land (white plot) was designated for an integrated development with a comparable, if not higher, plot ratio. Nothing shits in your face more than having a later development erected a stone's throw from your balcony.  Alternatively, it could have been its rather ambitious pricing (starting from 2300?psf) for a Leasehold project.

When in doubt, always consult the URA Masterplan -

ii. How does its PSF pricing compare with nearby developments having the same / diff land tenure? 

A lot of property agents may try to sell you on an absolute quantum pricing. A 800k 1BR apartment may look "affordable" at first glance, but the correction question is whether it is "value for money"? What if it is only 400 sqft in size, i.e., you would be paying 2k psf.

I visited Daintree Residences showflat about a year ago when it first launched. And they were trying to sell 1 bedders close to 1900 psf. I found it ridiculous, considering that it was a leasehold development. Even more confoundedly, less than 20 metres across the road sat a 999-year (practically FH) development Terrene @ Bukit Timah, which was going for 1400-1500 psf. The agent / tagger was not impressed by my analysis and stated confidently that the developer will not drop price.  You can go find out for yourself what Daintree is currently going for.  Lesson learnt - follow your gut feel.If you feel ripped off, you probably are despite the agent's protestations.

iii. How does its PSF pricing compare with developments in other districts? 

For example, Gazania, a FH development in Bartley is pricing its 1BR units at almost 2200 psf. On the other hand, you have (much) more central FH developments e.g., Arena Residences (16xx-17xx psf), and Lattice One (17xx psf).  Probably does not take a genius to figure out why the take up on Gazania has been, to put it kindly, dismal.

iv. Are you financially comfortable with staying vested for more than 3 years? 

Why more than three years? Cause that is when you can sell your unit without the SSD penalty (Seller's Stamp Duty). Furthermore, if you are taking up a variable rate loan, you must be prepared for the interest rate to move against you. If you are already hitting close to the TDSR ceiling (which is calculated using a 3.5% interest rate), then any large moves in interest rates, or sudden retrenchment, is going to result in you potentially losing your home to the bank.

So, as you can see, when it comes to property as an investment vehicle, I am as cautious as it gets. Which was why I was pleasantly surprised last weekend, when i chanced upon a new development in Clementi - Parc Clematis.  

It has been a long time since we had a condo launch in Clementi. The density of condos in this district is almost criminally low, especially when you compare it to condo-galore districts like D15, with their ever-blossoming "cosy", "20-30 total units" developments erected at some cul-de-sac of some dinghy, two-lane, bi-directional road. You know what I am talking about.

I have always had a soft spot for Clementi. It was the estate I grew up in and spent most of my formative years. Who could ever forget the old Empress cinema and MacDonalds at the MRT station.

Sentiment aside, what struck me first about Parc Clematis is the price. At 15xx psf (indicative pricing), the developer Sing Haiyi is clearly pricing this condo for mass market selling. Nothing wrong with that. What is particularly striking for me is that, despite being a new launch, Parc Clematis is being priced comparably to Trilinq which was launched in 2013 (nearly 6 years ago)!  Eat that, inflation monster.

Value for money - paying 15-16xx psf for Clementi - an extremely under-served, popular, relatively central, mature estate passes my "value for money" bar.  Indeed, you might have heard that some resale HDB transactions (on top of Clementi mall) already went for above 1M.   A+

Stack/Unit layout - I was quite enamored by the facing of all the building stacks (N-S). Not a single stack would have afternoon/evening sun issues. You can always rely on a Chinese developer to prioritize εΊ§εŒ—ζœε—.  What was less impressive is the dated design of some of the 3BR and 4BR units, which still utilize a long corridor for accessing the bedrooms, which results in a massive waste of space (unless you were looking for a makeshift home made bowling alley). However, it is noteworthy that some stacks do offer dumb-bell layouts and these are certainly worth looking at.  A

Surroundings - The good: Parc Clematis is situated adjacent to a landed estate enclave. The bad: It is also close to the AYE. The good/bad: It is within 500 meters of ultra popular school Nan Hua Primary. Good if you are a parent, or prospective landlord. Bad if you hate children (kidding) and school bells.  A-

MRT/Mega-Mall - Parc Clematis is also marketed at being 500 meters from the MRT/Clementi Mall (owned by SPH REIT by the way). I think that is a bit misleading to be honest. 500 meters measures a direct displacement. You do have to get across a bridge and at least one covered walkway to reach the mall/train.  I estimate it would be at least a 8-12 mins walk depending on your pace. But if you drive, then you are literally a stone's throw from JEM, Jurong Gateway, and the future Jurong Lake District / CBD.  A-  

All in all, I must say I am very tempted. I have been out of the property market since I sold Visioncrest in mid-2018.  Perhaps it is time to get back in.

If any reader is interested to have an obligation-free tour of the showroom, please feel free to reach out to the chio lady in the sticker below.

(This is not a sponsored post!)

Tuesday, August 13, 2019

Keeping my faith with AIMS APAC REIT

Used about half my proceeds from the Ascendas Htrust sale and added 100 lots of AIMS to my portfolio when it went XD @ 1.44.

In hindsight, could have waited a bit longer. The next day, it went as low as 1.41/1.42. Then again, thousand gold cannot buy early know.

I continue to be quite optimistic on AIMS.

Compared to ESR REIT, AIMS is arguably a safer play due to its comparatively lower gearing (33% vs 39% of ESR REIT). 

Furthermore, there is a lot of untapped GFA for AIMS properties.  One DBS Treasures report puts it as 600,000 square feet of untapped gross floor area.  This coupled with its substantial debt headroom makes AIMS attractive since it would have some flexibility to use debt to finance AEI or repurpose some of its assets to improve its NPI.

The other thing going for AIMS is that it is a relatively small cap player, with market cap of slightly less than 1B.  For perspective, Ascendas REIT market cap is 9.5B, Mapletree Ind is 4.5B and ESR is 1.7B. There is a distinct, and not entirely remote, possibility that AIMS may get acquired by a larger player, further unlocking value for shareholders. I would prefer that not to happen, because it would mean I have to find another 7% yielding investment, which is difficult in today's environment.

AIMS is now my second largest investment at 320k, only slightly lesser than my FCOT investment at 380k.  So I am unlikely to add even more unless there is a very compelling share price correction.

I have some funds left over from the Ascendas sale. Hopefully the present correction provides additional opportunities to buy discounted assets.

Onward to FI friends! 

Tuesday, August 6, 2019

Market on sale again - what are you buying?

Feeling a bit like Moses every morning when I log into my trading account and review my watchlist.

Huge sea of red.

Only difference being, I cannot part a road through it with a wave of my staff.

Ascendas HTrust

I sold all of my ascendas htrust on 25 July @ 1.05.  Happy to take the money off the table basically. And certainly, did not think that Ascott BT REIT is worth the 1.30 issue price. I was up about 53k on capital gains alone, not including dividends received since 2017. So I am rather pleased with the outcome.

As a result, I am looking at the red sea with a tiny bit of cheer. Well at least I may not have a problem finding a new home for the recycled capital.

Eagle HTrust

Just days before my sale of AHT, I also initiated a small position in Eagle Htrust. Just so I still retain some hospitality-related REIT in my portfolio. Being a new REIT with no track record, I am careful to size my position appropriately.  Bought about 21 lots at USD 0.685. So far so good. Holding up. I thought the dumping was a bit overdone and 0.685 entry gave me a margin of safety (and close to 8% yield if the forecast in the prospectus is worth the paper it was printed on).


CRCT intends to raise funds for buying three new properties via a private placement and a preferential offering to existing shareholders. The preferential offering is a 87 shares per 1000 shares held, priced at 1.42-1.44.  A bit non-plussed to be honest. With CRCT trading at 1.52 right now, it is barely any discount. Unless I cannot find other places to park my funds, I do not think I will apply for any excess beyond my allotment.

I am now on the prowl for good deals. The usual suspects are the three banks, although i have a preference for DBS and OCBC.  Both offer >4% yields now and may be considered defensive plays. I am just hoping there is more depth to the current correction (GO DONALD AND XI!) and hopefully I can pick DBS up below 24 or OCBC below 10.

All the REITs still look very richly priced to me at this time, except one or two which I am monitoring very closely. Heh. Better not disclose which REITs these are until I manage to lay my hands on them. HAHA.

Onward to FI my friends.