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Last Updated: 16 Jul 1998

How to evaluate your property investment

This report shares my research & some experiences to benefit NEW investors of overseas properties in Singapore, Europe, South America and elsewhere and to answer their frequently asked questions on the USA Orlando’s Whispering Oaks Investment Bungalows.

1. LOCATION. All properties need to be well located to attract tenants and achieve higher than usual capital gains.

2. AFFORDABILITY. Many overseas properties, except Hong Kong’s and Tokyo’s are affordable compared to Singapore properties.

  • Whispering Oaks’ cash outlay is 30% of US$135,000, $155,000 or $170,000 is affordable to many Singaporeans. For more information click here.

3. RENTABILITY. Many overseas properties are now vacant as they were bought owing to sentimental reasons of "motherland China", "Malacca condo or Perth being very near to Singapore", "nice sea view or golf course" and "education for children in London or Brisbane". A vacant property with no managing agent to take care of it, may be termite infested or may have its windows or roof tiles stolen.

  • Whispering Oaks are in great demand for rental because of its proximity to Disneyworld. You can make independent queries. For more information click here.

4. RENTAL GUARANTEE. There is no need for rental guarantees if your property can be rented out easily. What will happen after 2 - 5 years? Your property may be vacant as it does not attract tenants and rents were actually paid by the Developers out of his sales proceeds. Be aware of 10-year guarantees. The Developer/guarantor is usually a $2 capitalised privated limited company. It may declare bankruptcy and will not pay rental guarantees after 1 year. Some well located properties can pay the rental guarantees.

5. FREEHOLD. This aspect is frequently overlooked by Singaporeans when they buy overseas properties which are extremely cheap. You build wealth for your future and your children if you buy freehold. Some leasehold properties do appreciate, as in Hongkong and Singapore in the past 5 years but at a lower rate than freehold ones.

If you are a speculator, this is not important. Hongkong properties will be your best bet at the moment, the leasehold is 50 years and you may not get rental income, but capital gains may be very higher than Singapore’s.

China’s properties are generally 50 or 70 year leases but you need to check with a good lawyer as the property laws there are not well developed unlike the USA and Europe. You need to check out rental taxes and other taxes too as these are not well known, even by some Developers/realtors.

Indonesia has up to 20 - 80-year leases (20+20+20+20) but check on whether you own the land or the right to occupy the land (i.e. the air space above ground!). Jakarta has some attractive service apartment type properties for sale but you know you will be getting into short leases and the amount of payment to renew the leases is unknown.

Malaysia has freehold and leasehold properties for sale. Not many Malaysians will buy resale condos, even with a sea view as in Malacca because they love landed properties and have plenty of land. Fellow Singaporeans or foreigners will not pay the M$100,000 levy to buy your Malaysian condo. Therefore, you are stuck with a condo with no rental and no buyers in many instances I know. Foreigners can buy but the levy is the disincentive. It is believed that not all states in Malaysia impose such levies but it is best to check this out with the lawyer.

Philippines has been an attractive property investment area in the Manila region for the past 5 years, but you need to consult a good lawyer to get involved in real estate.

Australian properties are usually freehold. However most Australians prefer landed properties (unless they are in good locations in the central business districts) and renting rather than buying. It is believed that too many Australians do not have the buying power. Except for 6 or 7 "integrated resort status" developments which are over A$300,000/lot, most Australian properties are not permitted to be resold to foreigners. The locals can therefore press you down to 50% of the valuation price if you can resell or can find one buyer (permanent resident or citizen).

US properties are usually freehold too. However, I met some US landowners from California selling their properties in Hongkong at 50 or 99-year leases too. Please be careful if you are interested in the long term for your children.

  • Whispering Oaks bungalows are freehold and there is no restriction on foreign ownership and no levy on resale to your friends, family or foreigners.

6. CAPITAL GAINS. If the country has low inflation and good economic growth such as some states in the USA, you will have a bigger scope for capital gains. Affordable cash down payment, prime location and recurring rental income attract global investors..

  • Orlando, Florida is one of the top 5 growth states in the USA and your Whispering Oaks investment will have better than average capital gains 5-10 years from now..

7. AFFORDABLE MONTHLY MORTGAGE IF THERE IS NO TENANT. Singapore has excellent capital gains but your mortgage payments are over $2,000 if you have no tenant, assuming 70% loan. Your property can be repossessed or your spouse will have to work extra hard once to pay the bank.

  • Whispering Oaks bungalows mortgages are affordable even if there are no tenants. See Web Page for more details.

8. SIZE OF LAND. Unfortunately, in Singapore, Hongkong, New York and Jakarta, the majority cannot afford to own such big pieces of land in prime areas. A bungalow with 5,000 sq. ft of land in a non-prime areas will sell for S$3 million in Singapore.

  • 11,000 SQ. FEET of freehold land in Whispering Oaks is big even by American standards and does not cost the earth. The area is a growth area in terms of tourism and upgrading of the pavements and roads within the next few years.

9. RENTAL RETURN. For new investors, check out this figure which is calculated in at least 2 formulae. The best is to study net rental return. In Singapore, most properties give <1% if they are rentable. A gross rental return of 3% is commonly quoted by real estate experts. The widely used formula for Australian properties for net rental return is: Net annual income (rent minus statutory fees, maintenance, agent management fees)/purchase price based on vacant possession.

Gross rental return is calculated as Total annual rental income/purchase price, based on vacant possession. This is usually 6% and <3% for many Australian and Singapore properties respectively. After payment of maintenance fees and operating expenses, you will need to pay cash to service your bank loan.

  • The respective net and gross rental returns in Whispering Oaks bungalows are 12% and 21%. This is because the capital values are much lower than equivalent Australian & New Zealand property investments which are sold based on gross rental returns of 6 - 10%..

10. MANAGEMENT AGENT. If the property is in a prime location, you will have too many agents wanting to manage your property at the lowest cost to you as in the Whispering Oaks investment bungalows. Make independent checks yourself. If your property cannot be rented out because of bad location, you will be lucky to find one agent.

For those investing in holiday homes, be aware that you may get nothing much from rentals. I know of Australian managing agents who charge $65 to change bed sheets/tidy rooms every time your short-term guests leave. This covers over 50% of your daily income and in the end you will find your rental income very low. Or you may have the 60:40 sharing formula with the managing agent taking 40% of the gross rental. There are many profit sharing schemes. Management fees can be as high as 15% of rental income in Australia & 20-30% chargeable by some American and Malaysian managing agents. .

  • For the Whispering Oaks bungalows, please contact me for details of fees involved. Unless you are managing your own place, there will be many good agents interested in renting your property.

11. SALE TO FOREIGNERS NOT ALLOWED/DIFFICULT. This factor has been overlooked by the early investors of Australian properties. Other than those with integrated resort status, Australian properties cannot be resold to foreigners. If a country has restrictions on resale or imposes a $100,000 levy on resale as in Malaysian properties, it will be extremely difficult to sell when you need to. Legally, it may not be possible for your children who are foreigners to inherit your Australian asset unless you migrate to Australia.

Singapore prohibits foreigners from buying landed properties and restricts them to buying condominium development which have 6 storeys and above.

  • The Whispering Oaks bungalows do not have such restrictions.

12. $/SQ. FT. How many foreigners can afford your 2-bedroom condo in non-prime areas selling for $600/sq. ft? Now, Bishan 8, near Bishan MRT is selling at $1,100/sq. ft for 99-year lease condos. The capital values are very high and your rental return will be extremely low.

  • Whispering Oaks’ cost of purchase are <$100/sq. ft.

13. PAYBACK PERIOD. How many years of rental income will you recover your cash deposit?

  • Do look at the figures in the Web Page for Whispering Oaks. It is less than 5 years based on 1996/97 rental rates. Singapore’s properties will take >30 years!

14. POLITICAL STABILITY. Since many of us can afford one small overseas property investment, it is best to invest in a country which is politically stable such as the USA. Otherwise, you may lose your assets to some squatters with political connections.

15. TOO FAR MINDSET of older Singaporeans. As the younger generation of Singaporeans travel more, I hope the "too far" mindset should NOT be a consideration in investing in the USA. It is the world’s No. 1 country in economic power and certain counties like Orlando are high growth areas and attracts many foreign investors. Disneyworld attracts 34 million visitors in 1996 compared to 6 million for Singapore and around 3 million for the Gold Coast Australia. Therefore, the prospects for capital gains are much greater in the long term (over 5-10 years).

16. If you can find a new property selling at VALUATION PRICE, you have a good deal.

  • Whispering Oaks financiers will finance 70% of the purchase price (which is the valuation price). You will not get a nasty shock as had happened to me in Australian property purchases which were sold above valuation. The financier bank will lend you at 20-30% below the bank’s valuation price, not purchase price which is some 10-20% higher than valuation price in many cases. You have to top up with more cash.

In summary, look at the prospects of getting regular HIGH rental income from tourists rather than from the local residents. High rental incomes lead to high capital values and demand for your properties in the long term. There will be higher expenses in holiday type rentals too but you get higher income.

Asset accumulation (owning income-producing property with tenants paying the bank loans for you) is what make people prosperous. You will lead to a better quality of life for you or to you being able to retire early if you don’t like your boss if you have >1 asset. The Whispering Oaks bungalows are better than your usual overseas property investment for the various reasons stated above.

Please visit Orlando with your family to get a real feel of the tremendous and continual growth of Disneyworld and Orlando and to conduct your own research. Please contact me if you need further information.

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Dr Sing Kong Yuen

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