Thursday, 1 October 2015

Is it a good time to go bargain hunting?

I'm glad to have an opportunity to work with Straits Time and have a weekly Saturday Column.
With the current cooling measures such as Total Debt Servicing Ratio (TDSR), Mortgage Servicing Ratio (MSR), the property market has been slow for the last two years. 

Investors and property buyers are bidding their time, hoping and waiting for an easing of the property cooling measures. But there are savvy investors are taking the opportunity to look for bargains given the slow market. So the big question is: How do you find bargain buys?

When a property is prefect, prefect location, fantastic amenities and facilities, the price won’t be prefect. And if the properties is price lower than expected, check thoroughly before you snap it up.

To start off, what is the property tenure? Properties with a 99 year leasehold are usually priced lower than those which are freehold. Other factors to consider are location, accessibility, condition (for those buying existing properties) and also the surroundings. If the unit is affected by noise pollution or comes in shabby condition, these can push down the price. 

Turning flaws into opportunities

In today’s market, short term investment has become impossible due to Seller’s Stamp Duty(SSD). If you sell your property on the first year, you would have to pay 16%(SSD), legal fees and agent fees. this means you need to make at least 25% capital gain before it’s worth selling. 

From the investors perspective, the rental yield of the property is a major consideration. The higher the rental yield, the better. 

Going by figures from Urban Redevelopment Authority (URA), properties with 99 year lease have a higher rental yield than freehold properties.

The reason is leasehold properties are usually cheaper than freehold. When tenants look for a place, the property tenure does not matter to them. Those looking to rent are more interested in the rental rate, location and condition of the unit. 

Properties auctions make a good hunting ground for investors looking for a value deal. You can pick up good quality homes at property auctions as the number of residential properties available at auctions has gone up, in part due to owners who cannot afford to keep up with the mortgage payments 

With the market being slow, you may face less competition. But there are requirements buyers have to fulfil. One is that the successful bidding has to pay a 10% of the successful bid price and cannot forfeit. Do your homework and research on properties you are bidding for. 

SRX has a feed of undervalued properties. Get your agent to keep a lookout for these properties and keep you updated. If you have a keen eye for furnishing, you can consider buying a piece of property even if it is in poor condition. Check carefully if its shabby condition is simply a matter of replacing worn out furniture, getting a fresh coat of paint or other issues which can be easily rectified at minimal cost. If problems require extensive renovation and repair work, then drop the property from your shortlist.

If you're buying a property for investments look for projects in areas being developed, especially those in vicinity of upcoming MRT stations. Keep up with the news about these projects under construction and get ready to invest when they are about 2-3 years away from completion. 

Lastly, when it comes to investing your money in a big ticket item like property, make sure to do your homework well and calculate your finances to fully leverage on your cash flow. As US investment guru Peter Lynch says ‘Know what you own and why you own it”

By Alicia Koo 

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