singapore property weekly issue 174

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CONTENTS

p2 Why Cash-on-Cash Return is the New

King of Real Estate Investing

p8 Singapore Property News This Week

p12 Resale Property Transactions

(September 3 – September 9 )

Welcome to the 174th edition of the Singapore Property Weekly.

Hope you like it!

Mr. Propwise

FROM THE

EDITOR

mailto:[email protected]

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SINGAPORE PROPERTY WEEKLY Issue 174

Page | 2Back to Contents

By Gerald Tay (guest contributor)

In the last article, we talked about

capitalization rates (cap rate), which everyone

abbreviates as Net Rental Yield. Using it can

be a bit tricky, because the determinant of a

property’s value is the result of a certain

assumed net income stream. How can an

investor reconcile these two things in his

head: the property value, and the cap rate?

If I bought something with an assumed

prospective net income of $10,000for$1

million cash, you and I would both agree that

the cap rate and my ROI on that purchase

was 1%.

Why Cash-on-Cash Return is the New King of Real Estate Investing

http://www.propwise.sg/property-valuation-common-misconceptions-about-rental-yield/









One of the things investors ask me about cap

rates is: ―Why is this the most relied upon

metric for many property investors? If we’re

going to end up putting DEBT on the

transaction, doesn’t it make sense to look at

the cash-on-cash return?‖

Exactly!

Cap rates are not the only thing you

should look at

Cap rates - the yield on the purchase price -

are really the simplest measure of the

income-producing characteristics of a

property. It’s not the only thing you should

look at. Other important factors include the

property’s location, what the leases are, who

the tenants are, and many other real property

considerations.

The Cash-on-Cash return is a different

statement. It’s not telling you about the

property, whereas a cap rate is telling you the

income generating ability of the property

relative to the price you paid or will pay.

The Cash-on-Cash return is determined by

dividing the annual cash flow of a property by

the amount of cash put into the property

(typically the down payment and closing

costs.)

3 important things the Cash-on-Cash

return reveals

The Cash-on-Cash return reveals three

important things:

1. How you choose to finance it

2. Effect of the leverage



3. Element of debt risk

It’s a very useful and important piece of

information for you. Well it’s a choice between

eating your rice on a paper plate, a plastic

plate, a silver plate or fine china… But the

rice is still the rice. So you can think of the

caprate as talking about the rice.

The Cash-on-Cash return is telling you about

not just the rice but how it’s served to you

and, depending on your circumstances, you

may want paper plates or fine china (no right

or wrong) — it’s where you dine at, what is

your preference, what is your risk tolerance,

and so forth.

Cash-on-Cash return also tells you your risk

of holding debt - I’m at risk of not being able

to repay the debt tomorrow if the number is

too low. There’re all kinds of good and bad

financing risks and leverage. The cap rate

tells you about the property, not my decision

on how to finance it.

The Biggest Lies of the Real Estate

Industry (or maybe just a simple case of

childish ignorance)

They skip any mention of the fact that your

property requires paying off both monthly

mortgage payments plus interest to the bank.

Why would they mention only borrowing costs

(interest) and not mortgage payments?

By excluding mortgage payments they

attempt to improve the apparent returns. Well,

it’s certainly a lot easier to sell a property with

an ROI make-over.

Warning: One reason why investors lose

money is because rental income cannot cover

Debt Service.



Net Rental Yield: 3%

Borrowing Costs: 1%

Therefore, Property Yield = +2%

You see, the positive yield is only the tip of

the iceberg. And unfortunately for the little

guy…When he factors in monthly mortgage

payments plus interest, and if the rental

income cannot cover both, he’ll be going into

negative (outflow) cash every month - on top

of his other financial commitments! The

property becomes a negative investment and

a huge liability instead.

For the little guy, it's like riding a raft in the

ocean with a small sail and a tiny paddle. If

interest rates go up, you get creamed by

bigger mortgage payments. If you can’t afford

to pay or pay on time, they foreclose you. His

ownership may appear on the title deed, but

the deed belongs to the bank. Hypothetically,

the little guy is no more than a tenant for the

bank (landlord), rather than a master of his

property.

Now you understand why many gullible

investors lose money in property.

TIP: “Due to a maturing market, the huge

capital gains era is over, and Cash Flow is

taking over as the king of real estate.” –

Gerald Tay

Grasping the concept of Cash-on-Cash

return

An investor purchases a property for

$1,300,000.He obtains an 80% loan and

makes a down payment of $260,000.

Additionally, the buyer pays $50,000 in

closing costs, for a total equity investment of

$330,000.



In the first year, the property produces

$42,000 in net income, and after paying the

debt service of $37,000, the property’s annual

cash flow is $5,000.

To calculate the investment’s Cash-on-Cash

return, simply divide the cash flow by the total

equity investment:

By comparing cap rate and Cash-on-Cash

return, one can easily see that while the cap

rate is 2.9%, the Cash-on-Cash return is only

1.5%. Unless the buyer is willing to put down

more money as down payment, he’s using a

great deal of leverage with potential negative

cash flows– should rents fall and interest

rates rise.

For unlevered investments, Cash-on-Cash

return is redundant – if the whole investment

is made in cash, all periodic returns will be

Cash-on-Cash returns (excluding sale

proceeds).The majority of real estate

investments, however, are made with a

combination of equity and debt, as positive

financial leverage drives stronger returns.

Therefore, a prudent investor must

investigate a property’s debt coverage ratio

and overall rates of return, as they all

influence the desirability of the investment.



Concluding Comments

Cash-on-Cash return specifically drills down

to Return on Equity (ROE) invested, and only

considers returns that are driven by the

property’s net cash flow.Other metrics, such

as Internal Rate of Return (IRR), take into

account future cash events such as sales and

income, as well as the effect of principal

reduction on total project returns.These

measures are all important when evaluating

an investmentand will be discussed in future

articles.

Lastly, Cash-on-Cash return is particularly

essential because it is fundamental to value

investing.In today’s real estate market,

investors can no longer rely on future upside

or exotic exit strategies to provide acceptable

returns.Asset performance must be driven by

projectable, secure cash flow– there is no

better measure of cash-driven profitability

than Cash-on-Cash return.

By guest contributor Gerald Tay, who is the

founder and coach at CREI Academy Group

Pte Ltd, an organization dedicated to

empowering retail property investors with

smarter investing philosophy and strategies.

He is a full-time investor with over 13 years of

solid experience in building his wealth

through Property Investment and is financially

wealthy today.

http://www.crei-academy.com/










Singapore Property This Week


Residential

August sale of private homes hit a new

low

According to data from the Urban

Redevelopment Authority (URA), the monthly

sale of private residences has hit a new low

this August. Developer’s residential sales

have fallen by 15 per cent to 432 homes from

July to August. However, including the sale of

executive condominiums, developers would

have sold 490 homes in August. This would

have reflected a 13 per cent fall from the

previous month instead. Nicholas Mak from

SLP International said that the fall in

residential sales could be due to the Hungry

Ghost Festival in August. Developers tend to

postpone launches during this period as

demand is traditionally weak during this

month. Indeed, as compared to July, there

was a 20 per cent fall in launched units in

August, and only 351 units were launched.

This is the lowest number of units launched in

a month this year. As such, Desmond Sim

from CBRE said that the fall in private home

sales is not indicative of the market’s

demand. Alice Tan from Knight Frank believes

that potential buyers may be expecting

property prices to fall further as such they

have been more cautious about purchasing a

unit now. On the other hand, Lee LiatYeang

from Rodky& Davidson LLP believes that

there will not be any drastic price cuts due to

high land costs.



Also, developers may refrain from cutting

prices as they would not want to offend

buyers who had bought earlier units. Market

experts thus predict that 8,000 to 9,000 units

would be sold by the end of the year as they

expect launches in September to pick up.

(Source: Business Times)

Profit yields for luxury condos slipping

Data from Urban Redevelopment Authority

(URA) Realis that was compiled by

STProperty.sg showed that from January to

August this year, 7 per cent of the transacted

luxury condominium units in districts 9, 10

and 11 were sold at a loss. This was 5.5 per

cent more than the same period last year.

Furthermore, the percentage of home owners

profiting from the sale of their luxury

condominiums fell from 83.5 per cent in 2013

to 62.2 per cent this year. Also, 4.5 per cent

of home owners have sold without making

any profit or loss this year. Buyers are finding

it more difficult to finance their mortgages as

the rental market has weakened. Christine Li

from OrangeTee said that the weak rental

market has affected luxury condominium

home owners the most as the monthly rentals

cannot cover their mortgages. Thus, home

owners with less holding power would have to

let go of their units, she added. Market

experts believe that property owners may be

exiting the market as they do not expect the

market to pick up. This is because they

believe that the government’s cooling

measures will continue to suppress demand.

Lee Lay Keng from DTZ added that falling

demand has pushed prices down. According

to the Business Times, in the first eight

months of 2014, a unit at The Hillier at Bukit

Timah was resold at a loss of $9,300;



and a unit at St Regis Residences in Tanglin

was resold at a loss of $2.06 million. Market

experts believe that property owners, who

had purchased these units in 2007, during the

peak of the property market, would have

made the most losses. Nonetheless, they

believe that profit yields would not worsen

significantly as long as the economy remains

robust.


80% of launched units sold at Highline

Residences

Highline Residences condominium which

recently launched 160 units in its closed-door

sale has received good response, said

Keppel Land. More than 80 per cent of the

launched units have been sold at an average

price of $1,900 per square foot after

discounts ranging from $28,000 to $68,000

were offered to buyers during the preview.

Keppel Land believes that the good sales

response was due to pent-up demand for new

private housing in TiongBahru. Highland

Residences has 500 units, and consists of

two 36-storey towers, a 22-storey tower and 4

low-rise blocks. Single bedroom units are

about 506 square feet while a four bedroom

dual key unit is from 1,227 square feet. The

condominium also has six penthouses that

are between 2,174 square feet and 2,260

square feet. Highline Residences will also

feature a rooftop communal garden.

Residences will enjoy lifestyle services that

are provided by Keppel Land, such as the

limousine services and housekeeping. Keppel

Land said that the condominium has attracted

both investors and homebuyers. Other

projects in the vicinity have had mixed

responses. While the sale of The Crest at



Prince Charles Crescent has been slow, the

sale of Alex Residences at Redhill has been

encouraging.


Mechanised car parks to be constructed in

HDB estates

The Housing and Development Board (HDB)

will be building high-rise mechanised car

parks in three HDB estates. These

mechanised car parks are expected to be

completed by Q3 2015. The mechanised car

parks are part of HDB’s pilot project to build

more sustainable living environments that use

technology. National Development Minister

Khaw Boon Wan said that these car parks will

ease car park shortages in older estates as

they will free up car park slots for visitors

according to the number of available car park

slots. Since this is a pilot study, HDB said that

parking charges will remain the same despite

the construction of the mechanised car parks.

The mechanised car parks will also add

another 219 parking spaces to the current

717 spaces.


Commercial

JTC launches Tuas site for sale

Under the Industrial Government Land Sales

Programme, JTC Corporation has launched

an industrial site at Tuas South Street 11 for

sale by public tender. The Tuas site has a

land area of 9,000 square metres and has a

maximum permissible gross plot ratio of 1.

According to JTC, the site the minimum bid

for the site is $6 million. It has been zoned for

business-2 development and has a remaining

tenure of 20 years and 10 months.




Non-Landed Residential Resale Property Transactions for the Week of Sep 3 – Sep 9

Postal

DistrictProject Name

Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

1 ONE SHENTON 2,239 4,522,780 2,020 99

3 RIVER PLACE 1,302 1,825,000 1,401 99

3 QUEENS 1,410 1,880,000 1,333 99

3 TANGLIN VIEW 1,851 2,200,000 1,188 99

4 REFLECTIONS AT KEPPEL BAY 3,186 6,510,000 2,043 99

4 CARIBBEAN AT KEPPEL BAY 1,335 2,175,000 1,630 99

5 THE PARC CONDOMINIUM 1,216 1,600,000 1,315 FH

5 REGENT PARK 904 930,000 1,029 99

5 VISTA PARK 1,076 920,000 855 99

5 PARK WEST 1,894 1,350,000 713 99

7 SUNSHINE PLAZA 861 1,200,000 1,394 99

8 KERRISDALE 1,259 1,398,000 1,110 99

9 THE TATE RESIDENCES 2,239 6,100,000 2,725 FH

9 ESPADA 377 955,000 2,535 FH

9 VISIONCREST 904 1,843,000 2,038 FH

9 PARC EMILY 969 1,650,000 1,703 FH

10 DUCHESS RESIDENCES 1,485 2,700,000 1,818 999

10 SOMMERVILLE PARK 1,302 2,060,000 1,582 FH

10 VALLEY PARK 1,216 1,900,000 1,562 999

10 SOMMERVILLE GRANDEUR 1,841 2,760,900 1,500 FH

10 SOMMERVILLE PARK 1,302 1,950,000 1,497 FH

10 ONE TREE HILL MANSIONS 1,615 1,700,000 1,053 99

11 TREVOSE PARK 1,948 2,770,000 1,422 FH

Postal


Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

12 ONE ST MICHAEL'S 1,259 1,550,000 1,231 FH

12 NEW COURT 1,152 1,175,000 1,020 FH

12 ST FRANCIS LODGE 1,238 1,055,800 853 FH

13 BLOSSOMS @ WOODLEIGH 1,410 1,750,000 1,241 FH

14 SMAILING COURT 1,528 1,375,200 900 FH

14 ASTON MANSIONS 1,012 860,000 850 99

14 THE ALCOVE 1,324 1,080,000 816 99

14 SIN CHUAN GARDEN 2,120 1,400,000 660 FH

14 EUNOSVILLE 1,679 1,090,000 649 102

15 ESPIRA SUITES 474 728,000 1,537 FH

15 THE COTZ 388 575,000 1,484 FH

15 COSTA RHU 1,776 2,300,000 1,295 99

15 WATER PLACE 1,227 1,550,000 1,263 99

15 THE ATRIA AT MEYER 1,615 2,000,000 1,239 FH

15 THE HACIENDA 1,206 1,480,000 1,228 FH

15 WATER PLACE 1,356 1,628,000 1,200 99

15 VITRA 1,098 1,160,000 1,057 FH

16 CASA MERAH 1,550 1,690,000 1,090 99

16 TANAMERA CREST 1,195 1,050,000 879 99

17 ESTELLA GARDENS 936 860,000 918 FH

19 KOVAN MELODY 1,292 1,385,000 1,072 99

19 CHILTERN PARK 1,302 1,250,000 960 99

19 CHILTERN PARK 1,270 1,130,000 890 99



NOTE: This data only covers non-landed residential resale property

transactions with caveats lodged with the Singapore Land Authority.

Typically, caveats are lodged at least 2-3 weeks after a purchaser

signs an OTP, hence the lagged nature of the data.

Postal


Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

19 THE SPRINGBLOOM 1,873 1,600,000 854 99

19 RIO VISTA 1,249 1,023,888 820 99

20 RAFFLESIA CONDOMINIUM 1,324 1,525,000 1,152 99

20 GRANDEUR 8 1,130 1,185,000 1,048 99

20 THOMSON PLAZA 2,411 1,700,000 705 99

21 PANDAN VALLEY 1,335 1,409,000 1,056 FH

21 CLEMENTI PARK 1,798 1,830,000 1,018 FH

23 THE PETALS 1,765 1,680,000 952 FH

23 HILLTOP GROVE 1,012 815,000 805 99

http://propertymarketinsights.com/

singapore property weekly issue 174

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