You can read Part 1 here.
Having decided to explore real estate investment, I was pretty lucky to have several resources available to help me, Mr. C being an invaluable one. My father’s good friend who had several rental properties was another, and he was the one who introduced me to my property agent, who was to play a major role later in securing a record breaking rental for me.
2011 was actually slightly late to be coming into the Singapore property market. Prices had been rising for a while now, and the first round of cooling measures had already been introduced. Due to local ownership laws, I could only qualify for private developments (as opposed to government housing). Privately developed properties are a lot more expensive and hence have lower rental yields, but they also have a lot better prospects for capital gain as there are slightly less controls in this market.
In 2011, there were, (and still are today), many who were concerned that Singapore may be in a real estate bubble, and might follow in the footsteps of USA. Back in 2011, my thoughts were:
1) Singapore is a very small (only about 600 km2!) and land is limited. Immigration is very strong, and the government has always been pretty vocal about increasing the population further. Housing demand should remain relatively strong in the coming years.
2) The Singapore property market has quite a bit of equity in it. Property owners have the wherewithal to withstand some correction in prices without going quickly into foreclosure. This means a race to the bottom such as what happened in the US is less possible.
I decided that it didn’t hurt to at least look around a couple of developments and talk to some bankers to see what was possible.
Mr. C was heavily lauding landed properties during this period, but these houses were going at 2 million or more, and I simply didn’t have the money. So condominiums it was.
After looking around a bit and doing some research, I decided that I wanted to look mainly at 2 bedders in the range of 800K to 1 million, with the mandatory 20% down (which would be around $200K to $250K). Banks had pre-approved me for 80% mortgage of up to 1.5 million, so financing wouldn’t be a problem. A $800K mortgage at then interest rates of 1.2% at a tenure of 40 years would mean monthly payments of around $2,100 max. With property taxes and conservancy charges (equivalent of HOA in the US), my costs should be around $2,600 monthly. This would be just be barely coverable by the market rental rates, but I would be building equity to the tune of $1,300 a month. Note that at this point, I was still not thinking about early retirement seriously, so positive cash flow was not really that important. I just needed to cover costs.
Then, my father’s good friend suggested that I look at the condo development where he had just bought two units himself, and was planning to move into. It was an older development, about 20 years old, and had huge grounds. It was also freehold, and priced lower than some of the 99-years leasehold properties in the same location. Coincidentally, Mr. C himself had also been interested in this same development for a long time, so all the more impetus for me to see it.
To Be Continued…