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Don’t give up on Singapore property investing just yet

Admittedly, the last half a decade has been an eventful journey even for seasoned property investors.

2009-10: Singapore's residential property market lifted in part by global "hot money"

As we recall, the Global Financial Crisis ("GFC") of 2008 saw the US Federal Bank successfully reflating the US out of certain doom through quantitative easing and a low interest-rate environment, though it inadvertently exported its inflation abroad as "hot money" encircled the globe chasing a return. This had a contributory effect to the run on Singapore's residential property market in 2009 and 2010.

2010-14: Cooling measures kick in; investors switch to other segments or hunt for returns abroad.

The Singaporean government then responded to fears of an over-heating residential property market with a slew of cooling measures from 2010 through to 2013. Investors switched out from flipping residential property and into industrial property and commercial shop houses, resulting in rental yields of those assets being compressed to below 6.0% and 3.0%, respectively. The more adventurous treaded overseas, lured by a lower quantum of investment and higher prospective yields.

But those trades have hit the skids somewhat too. The fear of oversupply looms over the industrial property segment, low yields discourage incremental investments into commercial shop houses; and investors realized quickly, and sometimes painfully, that overseas property investments come with their own set of country and currency specific risks.

Present day 2015: Is property investing no longer viable?

Back in present day 2015, we are witnessing the cooling measures continuing to bite into the property market. That, combined with a lacklustre demand situation amidst a tepid economic outlook has resulted in the continual erosion of the rental market across most property segments. Capital values have not eroded as quickly as rental rates have because cashed-up owners who are still in-the-money are holding out in this "who will blink first" standoff with buyers, but the rising tide that is interest rates may change that.

For diehard property investors, the phrase "the fat lady has sung" certainly does come to mind. Are we witnessing the death of property investments as we know it? Or has the market overlooked something?

No, the proverbial fat lady hasn't sung

We turn the spotlight onto a segment of the Singapore property market that most of us would not care to mention, mostly because one would need to be able to afford the minimum pay-to-play price tag of at least of $250 million dollars, and is why it remains the domain of the likes of City Developments ("CDL"), CapitaLand, Real Estate Investment Trusts (REITs), and international real estate funds like Blackrock.

We are talking about the scarce and prestigious commercial office assets of Singapore's central business district ("CBD"), but you already knew that, because you also know that Singapore's CBD offices yield up to 5.0% sustainably owing to supply constraints; and according to Savills Research and Consultancy, Singapore's office property yields ranked 2nd globally behind only San Francisco as of December 2014. It is also a consensus among consultant researchers that this segment will witness double-digit growth in rental rates and up to 5.0% growth in capital values this year.

That's well and good but for the want of $250million, you say. Well, don't put down this article yet.

The advent of commercial "shoebox" units means that you can stand alongside CDL and CapitaLand as a fellow owner of prime CBD property.

You may be pleased to know that certain owners and developers like WyWy Group and GSH Corp are proactively bridging the divide to make such assets more affordable and accessible to individual investors through strata-title sales.

This is akin to residential developers' "shoebox" strategy which addresses the issue of affordability and quantum, especially in the current total debt servicing ratio ("TDSR") regime. Taking a $1.5million quantum as an example, one would only need $300,000 (20% down payment) to own a Rolls Royce-equivalent in Singapore's property landscape instead of millions of dollars.

Furthermore, commercial property is not subjected to additional buyer's stamp duty ("ABSD") or seller's stamp duty ("SSD"). The property "flippers" among our readers just sat up and took notice.

Such an investment offering a sustainable 5.0% yield with upside potential would minimize an investor's cost of carry, and potentially lead to a situation of positive carry, where the tenant effectively services the mortgage on behalf of the owner.

But before you rush out to incorporate CapitaCity or CityRock

As with any investment, there would be risks. Therefore, we advise our readers to engage a professional realtor and corporate secretariat to first understand the eligibility requirements, corporate ownership structures, and various tax considerations not least the goods and services tax ("GST") before rushing in.

Stanley Tan
Stanley Tan

Stanley Tan is a realtor at Singapore’s largest real estate agency- PropNex Realty, and leads an associate team- Principium.

He is a guest contributor on property-related matters on moneysmart.sg and BT Invest. His articles have been syndicated through Yahoo!Finance.

Previously, Stanley spent 9-years in various areas of investment banking starting with institutional equity research, culminating in a 2007 Asiamoney Broker Poll ranking of 11th amongst Hedge Funds.

Subsequently, Stanley furthered his career in Institutional Equity Sales and Corporate Finance until 2012 before joining PropNex Realty. In 2014, Stanley achieved the distinction of being a Top #50 producer.

Stanley has a 2.1 Bachelor of Science in Accounting and Finance from the University of London.