Rental yields are falling…will this sway Singaporean’s ‘lust’ for investment property?
In my client discussions, property investment is often one of the topics raised.
Often, when I cautioned my clients over the risks, emotions tend to override rationality. Such risk include :-
– low rental yields Vs a projected 4% yield for Endowment plans
– hassle in tenant managment Vs endowments that are hassle free
– buying at a high in the property cycle = potential losses if one is forced to sell at the wrong time
– being over leveraged
– risk of interest rate hikes and it’s adverse effect on one’s cashflow especially in an over leveraged situation
– sacrificing other more important financial priorities (child education, insurance protection and retirement planning) just to buy a property
A lesson that has always stuck in my mind was the Asian financial crisis in 1997-1999 – a very painful period in Singapore’s history. This period was marked by financial turmoil where many lost their jobs, faced investment losses as markets plunged, the property market went into a deep slump and interest rates spiked. The stars were aligned for a prolonged crisis.
I was working as a banker in the corporate lending business at that time. When the crisis hit, I become a debt collector overnight to salvage back the bank’s loan as companies we lent to became increasingly distressed. Also had the unpleasant task of winding up companies and going after the director’s personal assets.
Will this be repeated? Who knows but it’s better to play it safe than sorry especially if you don’t have deep pockets and have dependents to care for. Job security is also never a given.
With our government dead set on bringing prices down + strict loan requirements, being patient in your purchase should bring benefits.