#16: Real Estate Asset Inflation | PropertyLimbrothers NOTG | S2 E16

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All right so we’re back with our season two

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of Nuggets On The Go and finally we’re back.

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And we just want to thank all our listeners

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who have downloaded our podcast and tuned in to our podcasts

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on Nuggets On The Go season one.

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We took a break.

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That was like

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I don’t know how many months, how many months did we take?

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[Daniel] Six months.

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Six months! Oh my goodness.

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Yeah, that’s Daniel, our sound engineer at PLB.

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So very excited to be back

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and thank you for all the support for season one.

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This is brand new season, season two right now

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and we are in the year 2021.

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And we’re gonna bring you

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through the series on Spotify and Apple Podcasts

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as well as YouTube on our PropertyLimBrothers channel also.

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So thank you once again

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and wishing everybody to have a great year ahead in 2021.

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Today, we’re gonna start off the season by talking

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about one of the very recent interviews that we had

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with one of our clients who we have known

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for the past 13 years and that’s Daniel and Sherry.

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So we just launched this Chit Chat Sessions about

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two days back on our Instagram, YouTube channel.

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And of course, if you have missed that

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you can head onto our YouTube channel to have a look

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at that 20 minutes interview we had.

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And of course the tour on their new landed property.

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So if you have seen that Chit Chat Session, so Daniel

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a quick recap for those who have not seen the episode.

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Daniel has been our client for the past 13 years.

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So we have been in the real estate industry for 14 years.

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This is the 15th year that we are

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in the real estate industry, myself and Adrian and of course

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we started PropertyLimBrothers in the year 2017.

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So Daniel was actually one of our very first clients

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in the first two years of our real estate career.

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We know him back then.

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He was just married as a young couple, himself and Sherry.

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They were a referred client

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from one of our previous customer.

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So they approached us because they need help

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and they need representation

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for them to buy and hunt for their first HDB property.

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So we actually helped them to purchase successfully

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a property in Punggol.

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At that time, it was a five-room flat.

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And back then, I still remember

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when they bought the place 13 years back,

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they were about 28 years old.

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This time they are

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at this current year, they are turning 41.

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So that was 13 years ago, first property.

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But the interesting thing why we want

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to interview them is that from that very first property,

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they have stayed in their first resale

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HDB flat for five years.

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And at the five years mark,

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we helped them to sell

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and subsequently we help them to purchase

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two private properties.

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And that is actually the beginning

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of their property journey.

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And this is something that

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is at the heart of a lot of families

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because sometimes when you have settled down

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on your first property, you have fulfilled the MOP period

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for the first HDB property,

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whether it’s a BTO or is it a resale.

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You will be wondering, “hey, should I make that move?

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Like a lot of my friends

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that are upgrading to private property

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and what are the setbacks?

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What are the pros and cons?”

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And usually this is a major decision,

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but of course we have also seen a lot of families

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because everybody’s busy with their professional work.

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And sometimes they put off this

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really very important

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planning phase

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and they put off this month after month and sooner or later,

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even though they have fulfilled their five years MOP period.

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By the time they really sit down and

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think through their plan is perhaps they’ve already lived

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in the HDB property for eight to nine years already.

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So there are some opportunity costs involved

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if you didn’t take the time to really sit down

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and plan your journey.

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I just did a interview

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with Singtel GOMO

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that was last week.

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And during that 45 minutes interview, I also spoke

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about this concept whereby actually in Singapore,

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we have a very short time span

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in terms of our property purchase and exit journey.

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Now, the key reason is because by the time most

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of the typical Singaporeans, once you graduate from

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let’s say tertiary education,

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and after army and you head on to university, settle down.

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By the time you start off your first career,

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you are perhaps between the age of 23 to 26.

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And then perhaps when you settle down, want to get married,

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wait for a BTO or buy a resale flat,

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that will perhaps be the time

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that you’re already close to 30 years old.

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So that is your very first property.

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You need to fulfil that five years MOP period.

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And the moment that you can sell first property

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perhaps you’re already between 35 to 38 years old.

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If you look forward,

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most people like to make their last move

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at age 50 to 52,

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now the key rationale is because

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most Singaporeans utilise their CPF funds

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for their properties in Singapore

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and there is a restriction.

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Once you turn 55, in fact

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you have to make your last purchase by 54.

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If not, there’s going to be a restriction on the amount of

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ordinary funds account that you can use

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from your CPF to put into your property.

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So by age 55, you have a new account that has been unlocked

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in your CPF account, which is your retirement account.

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In short we call it the RA account.

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If you don’t do your last purchase

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by age 54, technically speaking, you will see a drop

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in the amount CPF funds that you can use

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for your last purchase.

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And usually then people like to make their last planning.

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And of course by age 50 plus

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perhaps you want to slow down a little bit.

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You want to perhaps enjoy your retirement years

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and you might not want to take

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up so much debt and leverage on your property.

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And that’s the key reason why

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if you calculate from age 30 when you first purchase

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all the way to age 52 or 54 for your last purchase,

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that is actually a very short 20 to 24 years.

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So in between perhaps, you can make about four rounds

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of purchase and exit.

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Provided you plan in advance.

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So coming back to Daniel and Sherry’s case,

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they then sold off, we then helped them to sell their first

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HDB property at age 33.

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So they have fulfilled their five years MOP.

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So they were very determined because they wanted to exit

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from a HDB property because by age 33,

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both of them have higher earning power

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in terms of their career.

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So they of course understand, and they internally

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have planned as a couple that they want to then

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purchase a private property for stay plus invest

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in another private property for rental investment.

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So coming to this part, they are using this strategy of course

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with two separate names for each property.

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And this is very common in Singapore

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ever since the introduction of the different rounds

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of cooling measures, of course in order to own two properties

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without having to pay for additional buyer stamp duty.

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There is a very common route

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that couples will do provided that

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both couples are working

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and both have a decent salary to support

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the TDSR, Total Debt Servicing Ratio

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in terms of loan requirements.

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So of course…

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pardon me for the airplanes

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because our office is located in

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the Northeast area, so this is very close to

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of course the,

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what is that huh?

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Air base, oh Paya Lebar Air Base.

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Yes, yeah which will be shifted in 10 years’ time.

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So by year 2030.

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Yup, so of course, back to this topic.

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Yeah so Daniel and Sherry, they made a very decisive move.

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And of course we helped them to plan

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after a detailed calculation,

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we have then planned for one of them to purchase

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a larger property because their family needs are growing.

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They have kids.

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And so we helped them to purchase a penthouse.

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And of course the other property that we helped

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them to invest

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is a very rental grade property.

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So what do we mean by a rental grade property?

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Rental grade property means that

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if the main purpose is to hold the property for long-term

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then we wanna make sure that rentability

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in terms of two functions are being fulfilled.

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The first function is that the rental speed is not slow

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meaning that the rentability take-up rate is fast.

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And that will mean that when you want to switch tenants,

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let’s say a tenant exit after two years

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what is the timeframe that you will need to wait

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and market the rental property

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in order to get in the new tenant?

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So sometimes if you purchase properties

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that are not rental grade,

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you have long periods of gestation to wait

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for the next tenant to come in.

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That’s considered a rental loss

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because if you have three months

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of blank periods without tenancy, you’re losing three months

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of potential rental income and you yourself,

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not living there, having bought that rental property

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you will then have to act as a tenant to pay

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for the monthly instalment because by right,

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you should be receiving cashflow

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from your rental property to sustain part of an installment

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to the bank or the full instalment, per se,

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depending on what kind of property price quantum that you get.

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So for Daniel, we have short listed a property

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for them that is very close to the MRT station

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which is one of the key factors.

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Plus it is also in a hot zone

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with a lot of existing tenants pool.

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So rentability has always been great for them.

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In fact, the rental yield

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is great for this particular property.

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They are still holding that property right now.

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So that happened

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when they were age 33 and 34, they bought a penthouse.

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And then at age 34

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they bought a rental property through us.

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So fast forward to

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last year in year 2020

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because their family needs are growing again.

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And at the same time, things have changed

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because the key investment principle

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on why of course

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families or investors love to invest in properties.

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Of course, there are a few varying key factors

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on why properties are always a very good physical asset

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for you to store your value.

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But the key principle is that properties are assets

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with a good store of value,

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provided of course, there has to be several considerations.

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Like what is the balance lease

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for this particular property?

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Are we talking about a freehold property

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or are we talking about a 99-years leasehold property

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with let’s say a balance lease

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of 50 years or maybe 40 over years?

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So that is a different story, but properties in general,

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they are a great store of value.

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Now, the key reason is of course

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because of increasing construction costs because

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of the varying factors that we are in Singapore.

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Land scarce and we have a whole topic

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in our YouTube channel talking

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about why Singapore is different

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and property is of course the means

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kind of needs in terms

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of Singapore being a very high ownership rate

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kind of country compared to other countries

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because in a lot of different countries,

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they have perhaps a higher internal rental rate

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where most of the tenants are actually

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the citizens themselves.

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But Singapore is different

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because our ownership rate is so high

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and most Singaporeans love properties.

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I mean, from young, we are conditioned.

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We have a concept

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of owning our own property, having our own nest.

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So we are quite different in Singapore.

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And coming back to the factor

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that properties in general, they are a great store value.

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And with inflation, increasing construction costs

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varying factors, plus the way that we are

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in right now with so many cooling measures being plucked

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into the existing price index.

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Singapore is of course

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on the very gradual trend in terms of our property price.

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So things have changed for them because firstly,

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they now will want to,

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perhaps with the increase in the price of their penthouse

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on the day that they bought at age 34.

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All the way to now at age 40, there has already

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been a price appreciation for their current penthouse.

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And so they want to exit

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from it, park that capital, initial capital

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with the capital gain

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plus the amount that they’ve paid down in mortgage

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and pump it into a freehold landed property.

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So we talked about that in the entire episode.

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And that entire episode is talking

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about what was their mindset as a seller,

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why did they decide to go on this journey with us

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from HDB, to condo to landed.

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And of course they’re still holding

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onto that investment condo property

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which is so-called continuing

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to give them very good rental returns.

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And now of course they are holding

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onto their new landed property for their own family needs.

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And at the same time, it’s a freehold property.

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Sometimes, store of value

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have varying performance

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as years goes by

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because different properties have different performance

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in terms of their price appreciation factor.

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Is it plateauing?

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Is it increasing?

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And sometimes it’s a matter of putting your capital

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in a different property after several amount of years

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because perhaps that current property that you

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are holding right now, in terms of the performance

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versus another property, it has, so-called

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not performed as well because perhaps it has reached

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its level that is at a plateauing stage.

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So sometimes it’s about transferring your wealth,

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your capital, so that you transfer it to an asset

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with a better store of value

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or with a better chance of appreciation of value.

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So that is of course the key fundamental

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reason why sometimes families or investors,

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they switch properties.

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So I would strongly encourage you to have a look

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at that particular Chit Chat Session.

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And of course, by having a look at that,

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you will then understand a little bit more

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about what we are talking today.

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We hope to bring you more episodes on Nuggets On The Go

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season two, and meantime, we hope that you take care

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and that’s the end of today’s session.

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It’s great to be back

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and we will see you very soon.

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So meantime, take care, I’m Melvin Lim,

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PropertyLimBrothers, stay tuned, of course,

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to our home tours at all times,

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we launch home tours every week as well.

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And we hope to see you again, take care.