Pause for thought on the property front

By Lee Su Shyan
The Straits Times
Wednesday, Jan 23, 2013

SINGAPORE - The agents and other industry players selling non-residential property suddenly find themselves in the box seat, thanks to the latest round of cooling measures.

Anything from shophouses to offices and homes in Malaysia and Britain now look like better bets than homes in Singapore, following the drastic curbs on loans and additional stamp duty that took effect a week ago.

Those investors who had planned to buy homes in Singapore - and who have now been stopped in their tracks - are not lacking in funds. A natural instinct is to go ahead with a purchase simply because the cash is available and the mental preparation to spend has been done.

It's like going on holiday with the plan to buy that handbag, watch or art piece. Even if a chosen piece is too expensive, people are unlikely to come home empty-handed.

Of course, holiday purchases - big-ticket as they may be - cannot be equated with buying that investment property. But with investors already halfway planning to commit, they are more likely to look for an alternative rather than drop all plans and leave their money in the bank.

They should think twice. Buying a home as an investment means finding a suitable tenant and that can be a problem. Shops and offices face those risks and more.

These assets are more tied to the economy than residential property. When times are bad, people will still need a roof over their heads, but when growth slows and consumers stop spending, shops quickly feel the pain. A shop may go out of business because of a poor location or if there is more competition or simply because it is selling a product for which there is no demand.

Offices too are dependent on whether companies are expanding and need more space.

Then there are the risks of being just one owner among many. That is less of an issue if you are in a condo, but more pertinent if it is a shop or office building. If you look at older blocks such as Lucky Plaza - bustling nonetheless - or smaller offices such as Maxwell House, you will realise it is not easy to get multiple owners to agree to spend on improving the common areas such as lobbies, lifts, toilets and the like. Few would be willing to spend on joint promotion activities to bring in foot traffic.

Another consideration is how well the property can fare against the likes of the big property giants CapitaLand or Far East Organisation in terms of attracting quality tenants.

Plenty of possible negatives, yet investors seem to have put them aside going by the robust year the office and shop sectors enjoyed in 2012.

Shop units in the upcoming Oxley Tower in Robinson Road were snapped up quickly. Spaces, ranging from 118 to 409 sq ft, were sold at between $3,800 and $6,000 psf. Its office units also sold well, as did Paya Lebar Square and PS100, near the Tanjong Pagar MRT station.

Figures from Knight Frank show that the average price of strata shops jumped 28.4 per cent last year while strata offices gained 6.4 per cent.

Investors can always go offshore if Singapore seems too risky these days, but there are perils for the unwary overseas.

The downside of investing in London property, for example, includes the weak sterling and the hefty management fees the agencies charge for managing the property.

There is also the risk that cash-strapped governments in the West will start to shore up their finances by taxing property.

Already buyers have to pay higher stamp duty for more expensive homes in London, while there have been calls for Johor to raise the minimum sum for foreign property purchases. I could argue that if an investor takes a very long-term view, paying that 7 per cent additional buyer's stamp duty for the second residential property here can make sense.

Put another way, the $70,000 payable on a $1 million residential unit when depreciated over a 20-year time frame works out to $3,500 a year. In fact, $70,000 cannot even pay for a certificate of entitlement to buy a new car, which depreciates in value anyway.

But it is early days yet and it may be time for a breather on the property front. Perhaps the equities market can be considered.