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Is it time to look into Prime properties?

Buyers who are tempted to buy or speculate prime properties on the illusion it’s discounted today should read this first.

Read even if you’re not considering prime properties. The context is important for any real estate considerations.

Some “experts” are suggesting maybe now is a good time to look into prime properties. Those who said so are living in the past. The others are just ignoramus.

Any of them actually grew up or owned properties in these expensive areas during the early 1980s to 1990s Singapore? Have they witnessed the locality’s past developments and infrastructure?

Try answering these 10 questions:

  1. What multiple factors heralded the golden age of prime properties from the 80s to 90s and started its decline after?
  2. Heard of Miramar Mansion and Newton Heights condos along Newton Road?
  3. How many en-bloc sales happened on the same sites since 1985?
  4. What are the recent developments sitting on those sites today?
  5. What is the current development in between Miramar Mansion and Newton Heights?
  6. Price and size of a 4-bedroom condo in 1985?
  7. What shopping malls were in the vicinity from 1980?
  8. What was public infrastructure like during the 80s in Newton area?
  9. What was Singapore’s economy like during the 80s?
  10. Where was the closest National Library?

You may be stumped for answers. I rest my case.

I know the answers to the questions. And if you have intentions to buy/invest in Newton locality or prime districts, I strongly suggest you find those answers first.

Some “experts” are simply speculators who give real estate a bad name. They speculated like gamblers during the hot times of the 80s to 90s before getting hit hard by the 1997 Asian Financial Crisis and yet failed to learn any hard lessons from it today.

Know the lands well before starting on any battle campaigns

As a school boy, I lived and schooled in District 10 & 11(specifically Newton Road) for more than 12 years since 1981. The condominiums I lived in are named Miramar Mansion and Newton Heights, both of them separated by one other development in the middle.  The former is a 1,970-sqft 4-bedroom apartment, while the latter is a 3,500-sqft 3-level penthouse apartment which served as a weekend home.

Since 1981, I’ve witnessed Newton area’s past developments and transformations that had cause & effects on its property prices since the 1980s versus today’s maturity of the locality.

Here’s what you need to know about prime properties before you even consider them.

Definition of Prime Properties

Districts 9, 10 and 11, i.e., Orchard, Cairnhill and River Valley; Bukit Timah, Holland Road and Tanglin; and Novena and Thomson.

After the implementation of property cooling measures, prime-location properties were the first to take a hit (refer to Figure 1).

Two particular measures were responsible for this:

The Additional Buyer’s Stamp Duty (ABSD), which imposes progressive taxes for Singaporeans depending on the number of properties owned, and a flat 15 percent duty on all foreign buyers, regardless of the number of properties owned;

And Total Debt Servicing Ratio (TDSR), which restricts the total loan amount available to buyers, to 60 percent of their income.

Google is not a synonym for research.

Due diligence means on-ground experiences and insider knowledge that provides real in-depth understanding into the locality.

If you want to be a successful investor, knowing past, present and thinking its effects on the future is clearly an important part of your due diligence.

I’ll cover Newton Road, District 11 during the 80s.

1980s District 11 – Brief History of Locality

Large air-con shopping malls meant for the privilege few

Goldhill Square

 

Goldhill Shopping Centre

In the 1980s, large air-conditioned shopping malls were largely absent from residential public housing developments. The government’s key priorities then were to build sufficient public housing and provide quality jobs – not built fancy shopping malls like those we have today.

Therefore, shopping malls were considered very attractive location magnets especially for wealthy property buyers – and mostly exclusive for private residential areas in those days.

Goldhill Square and Goldhill Shopping Centre (Now rebranded as United Square) were the only large shopping malls in the entire locality of Newton/Dunern/Novena area and therefore extremely popular with many wealthy shoppers.

The next expensive shopping destination was next door – Orchard road. There were no other large malls to be found nearby.

Novena Urban Planning Area – a future development 

In 1985, a large empty piece of grassland sits directly opposite Goldhill SquareThe future Novena Urban Planning Area still 15 years away from its developmental infancy. 

Public Infrastructure 

Cairnhill Community Club

Newton Hawker Centre before renovation

There are only two popular attractions from the early 80s that are still in existence today – Newton Food Centre and Cairnhill Community Club. From 1985 to 1995, the food centre was the only largest and most convenient food centre to find any hawker food for miles!

Public Transport

Trans Island Bus Service (TIBS) in 1980s.

In 1985, buses (non-aircon), cars and taxis were the only form of transport around the island. Mass Rapid Transit was unheard of and the North-South line was only in its mid-late stage development.

The MRT system was officially launched on 12 March 1988.

Newton and Novena MRT Station thus provided a tremendous boost in prices for properties strategically located within its vicinity. 

The Golden Age – Residential En-Bloc Fevers of the 80s & 90s

There was great property price escalation from 1986 to 1995 in Singapore. Profitable en-bloc residential sales were very common in prime districts in those days. Every private property owners would speak and dream of it.

For instance, Newton Euro Asia is the latest development on the old site of Miramar Mansion. It was there for 14 years since 2002 – being the 3rd or 4th development since 1983. This prime site was very popular with developers with 2 successful en-bloc-sales done before the 1997 Asian Financial Crisis hit.

During the glorious 80s to mid-90s, luxury developers were so bullish on property prices that en-bloc sales were done on average every 6-8 years in the locality!

After the Asian Financial Crisis, the number of successful en-bloc sales plunged and were pitiful compared to the heydays. Since 2009, developers have shifted their focus to mass markets (Outside Central Region) for greater profits to make.

Singapore’s Economy from 1980 – 1995

In the 1980s, Singapore became the world’s leading producer of hard disk drives – an early form of memory storage used in computers at the time.

The first two decades of Singapore’s economic history could be described as the “take-off” phase.

The economy grew by an average of about 10% each year during this period, and Singapore emerged as a newly-industrialised economy at the forefront of developing countries.

In 1985, the Singapore economy went into recession – the only time in our history the domestic economy contracted while the global economy was still growing.

The recession was a significant milestone in Singapore’s development history.  It led to a fundamental review of the policies and strategies that prevailed at the time.

From 1985, the transition from a labour intensive model to higher valued services brought in a great number of well-paid foreign expertise and wealthy businessmen into the country.

In fact, the key story post-1985 recession up till the Asian Financial Crisis of 1997, was the rise of Singapore as one of Four Asian Tiger economies.

1980s Property Prices versus Today

Miramar Mansion my home then (1,970-sqft), was bought in in the region of $500,000 or $253 psf between 1983 -1985. (Note that 1985 was a recession year) 

In 1985, a new 4-room HDB flat (1,130-sqft) in a new non-mature town cost on average $50,000 or $44 per square foot.

In Feb 1995 just before property prices plunged to the abyss, a 1,970-sqft 4-Bedroom apartment in Miramar Mansion was sold (likely en-bloc sale) at $1.29million or $655 per square foot. The annualised gains for the owner was 10% p.a appreciation rate or more. 

However, between the years October 2004 to December 2007, 6 out 10 sales transactions were unprofitable for Newton Euro-Asia. (Future descendant of demolished Miramar Mansion on the same site)

In other words, you have a 60% chance of losing money buying into this property in this period.

Another property down the road – Newton One (Future descendant of demolished Newton Heights on the same site) – Before you think $1,650 per square foot was still a good buy in October 2009, consider this. By September 2015, the latest transacted for a similar size unit was $1,833 per square foot. On paper, you may have booked a profit – 1.7% annual appreciation rate.

But if you take into consideration holding costs like bank interests, property expenses and annual inflation rate of 2.7% over the same period, you would have made a real loss selling today!

A similar 1,195-sqft unit in Trilight (Between Newton One and Newton Euro-Asia) bought in 2009 for $1,679 per square foot was sold for $2,218 per square foot in 2015 – making an annualised return of 4.75% excluding heavy property expenses, negative cash flow from low rentals and costly bank interests.

As a comparison, an old resale apartment in Geylang was transacted in 2009 for $555 per square foot. A similar unit within the same development was sold for $879 per square foot in 2015 – making an annualised profit of 8% per annum – And these returns are not inclusive of ongoing positive rental income and free cash flow over the period!

The REAL Rich owns prime properties as “Toys” and NOT speculation!

During our family’s wealthy times, we owned and bought many properties including land as early as 1970s.

The term “investment” has a different meaning to what an ordinary retail investor would understand. For the rich, prime properties were simply bought to “park” excess cash generated from various income cash cows – protect against inflationNOT to grow them as retirement assets or speculate to make more money!

There’re other reasons owning luxury properties like elevating status symbol or as weekend home.

My rich grandfather never knew or even bothered what his properties were worth.

Another example – Take the rich Chinese foreign buyers. Even losing some money from parking their money in our country’s real estate market is still a better bet than parking their money in their own country!

With changing economic landscape, the golden age of prime properties is over.

The days of glory speculating in luxury properties are spent. The 1997 Asian Financial Crisis has seen the demise of foolish speculators and with them the dream of riches and ego. They once had luxury cars, expensive homes, jewels for the wives; everything a materialistic man of their status should have. Now they just had memories.

What’s your Net-worth to play in the super-league?

Stay out! – It’s never a game for ordinary retail investors/buyers unless your Net-worth looks something like this – You may get away if a bear market hits:

Net-worth levels excluding value of primary residence (Your home) in US$ Dollars,

Level 1: Millionaires – Over $1 million

Level 2: Multi-Millionaires – Over $10 million

Level 3: Ultra-High-Net-Worth – Over $30 million

Level 4: Centi-Millionaires – Over $100 million

Level 5: Billionaires – Over $1 billion.

I’m on Level 1 currently. However, there’re strategic reasons why I’ve stayed clear of prime properties even though prices have dropped.

Focus on things you can do rather than on what you can’t.

One thing for sure, I would love to maintain a sane mental health.

I’ve explained the obvious.

STOP trying to gain approval from others what you buy and invest. Investing isn’t about boosting ego and showing off. It’s about being strategic to attain your personal financial goals.

 

Click Here to JOIN Me for a Strategic Walk-the-Ground to Area-Specific Opportunities!

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To your investment success,

 


About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs crei-academy.com with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

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