Rents increased 30% in the last week??

Discuss about where to live, renting a property, tenancy issues, property trend and property investment in Singapore.
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germangirl
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Post by germangirl » Wed, 14 Mar 2007 1:32 pm

I just heard that a flat in my condo is for rent now, same flat like mine, which i moved in beg of feb this year.... the rent is 900 dollar higher than mine. Isn't that crazy? the exact same place, just a few weeks later??? That's an increase of almost 50 % in about 1 months !
Well, they did not find a new tenant yet....
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thelostfish
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Post by thelostfish » Wed, 21 Mar 2007 7:37 pm

Hi guys,

I hope non expats are also welcomed here hehe.

I was reading the posts here and maybe i can shed some light as to why the rents seems to gone out of control.

Prior to 2005, singapore's property market was badly hit. since the slump in 1997 due to the Asian Financial Crisis, and again around 2002.

Singapore property prices were a far cry from the prices set in 1997.

Throw in SARS, bird flu, and Sept 11, IRAQ war, etc. along the way ,Singapore market just cant seem to get back on track.

I was previously a mortgage banker, and almost everyone i have come across for the past 3 years were nursing huge losses on their properties.

And mind you, they werent exactly bad locations or any specific. Whichever property you bought in 1997, you are probably still staring at the financial loss.

The more hardy lot (your landlord), would be probably still hanging on to their property, continuing to pay the bank tons of interest over the years, taking in really low rent, and still having to pay property tax and maintenance. Why hang on then you wonder? Well, picture this example:-

Approx price paid for a 3room approx 1300 sq ft in the east in 1997: $800K-1000K

Loan taken: S$640K-$800K

Interest rate approx 4-5% , installment approx : $2800 to $3800

Price they were in 2005, approx : $400K to $550K

Loan still owing to the bank approx $500K to $700K

Rental for the past 5 years : Approx $1200- $2000

If the owner were to sell, they have to pay the bank appox: $100K to $200K or declare themselves bankrupt.

Hence if the owner can still afford to service the loan, he would try to hold out at least till the market turn better and hopefully break even.

Now, this is a very generic example. There are many cases where people lose hundreds of thousands to millions and never recovered, and a small number of cases where people bought low....u know the story

but an overwhelming number of singaporeans are in this rut. It is in my line of work i have come to this conclusion.

so end of the day, many singaporeans are sooooooo hungry/eager to get out of the rut, and with the property suddenly turning, (lower supply, increased demand) you can see why we are seeing the rents shooting up.

bearing in mind, rentals were coming from a real low, so it seems like it has gone up a lot, but i am sure compared to many cities comparable to us, we are still mostly ok. high. yes. but what you expect? cheap rents but booming economy?

I just went to value a flat in bedok, the poor gal, a young investor, bought the flat in 2000, thinking the market bottomed out and will pick up soon, paid in the tune of $700K for the flat and rented asap at around $2200. Fast forward to today, I valued her flat at $580K, and her rental was a scant $1300. I darent ask her installment lest to open up sore wounds. the place is in a very good condition too.

And the tenant balked when she asked for $1800, saying she is crasy to ask for 40% increase.

but is she?
Last edited by thelostfish on Wed, 21 Mar 2007 8:04 pm, edited 1 time in total.

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Post by thelostfish » Wed, 21 Mar 2007 7:55 pm

just wanted to add another point.

i think a fair rule of the thumb into ascertaining the rental you should pay for a unfurnished flat should be around 4% of the property value divided by 12.

example 1million value, 4% = S$40,000, monthly = $3300.

this is very generic. probably ok if used for outlying areas. and even HDB.

for a more prime area...maybe 4.5% would work better. :wink:

remember this is just a rule of the thumb, if you are really unsure of the rental market :D

also u can see property transacted prices at www.ura.gov.sg to give you an idea of property values

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Post by Grim Reaper » Thu, 22 Mar 2007 10:33 am

Interesting information you are sharing here lost fish, but when reading your rule for calculating the right rent, 4 to 4.5%, that means that basically the tenant is coughing up the equivalent of the mortgage of the premises.

And we all know that property is a long term investment, so why buying a condo, renting it out and after 5 years moan that the return on investment is so low? As stated, property is a long term investment and the profit is to be made on a longer term than the few years most people here wish for. Quick profits are always on the mind, but are in most cases far from reality.

Therefore as a tenant I would never agree to the proposed 4 to 4.5% rent, I am not gonna finance the owner's investment.

I am not blaming you, but your information shows why property here is so vastly overrated by agents.
Time will come....

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Post by thelostfish » Thu, 22 Mar 2007 11:23 am

Grim Reaper wrote:Interesting information you are sharing here lost fish, but when reading your rule for calculating the right rent, 4 to 4.5%, that means that basically the tenant is coughing up the equivalent of the mortgage of the premises.

And we all know that property is a long term investment, so why buying a condo, renting it out and after 5 years moan that the return on investment is so low? As stated, property is a long term investment and the profit is to be made on a longer term than the few years most people here wish for. Quick profits are always on the mind, but are in most cases far from reality.

Therefore as a tenant I would never agree to the proposed 4 to 4.5% rent, I am not gonna finance the owner's investment.

I am not blaming you, but your information shows why property here is so vastly overrated by agents.
well as i mentioned is a rule of the thumb. you may end up paying anything from 3-3.5% for units that arent so "hot" in demand. But while you may not pay 4%, there are other who would. In fact some areas have gone to 4.5%.

Justification is simple. If I have a million bucks, and i place in a bank now. I will be looking at a 2.5% return. almost no risk, no hassle, and after all liquidity is good, no?

If I am a bit more adventurous, i may place in foreign currencies, with obviously higher risks, and maybe able to achieve 4-6% p.a. interest. but then there are exchange rates to deal with, which i am not very good at.

but having said all this, renting out a flat aint so simple, they pay 1month commission firstly to the agent, they pay the maintenance charges if any (typically from $150-$300/mth), they pay property tax, and they have to deal with depreciation.

My point is not to say who is right or wrong. Just giving you the other side perspective.

at the moment bank's mortgage interest rates are around 3.5% to 4.5% depending if you are in the first year or second year. fixed or floating. but i digress.
Last edited by thelostfish on Thu, 22 Mar 2007 11:28 am, edited 1 time in total.

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Post by thelostfish » Thu, 22 Mar 2007 11:26 am

Grim Reaper wrote:
I am not blaming you, but your information shows why property here is so vastly overrated by agents.
oh sorry but i do believe the rental markets are determined by the tenants out there. so if you wake up in your current neighbourhood suddenly seeing rentals shooting up, i would really blame the new-comers =D

agents despite their claims, arent that powerful to change the market.

its a simple demand and supply logic.

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Post by Jeppo » Thu, 22 Mar 2007 12:11 pm

And we all know that property is a long term investment
Sorry Grim but property isn't a long term investment in that you wait until you sell to get the return. All property investors look for the properties to be self financing, that way they can expand and many people retire on the generated income.

As far as the rental in Singapore is concerned it's actually very low compared to places like north America where the rental is basically a minimum of 10%.

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Post by Grim Reaper » Thu, 22 Mar 2007 3:27 pm

Well, I guess you based that on the US of A then.

On a short term, property is speculative investing in 99% of all cases, just like lost fish explianed happening here in Singapore in the last 10 years or so. Nevertheless there are still smart people making short term big profits in property even here in Singapore.

But as a rule I would consider it a long term investment (like you said, for retirement for example, ask sundaymorningstaple here) rather than making a quick buck.

10%? That is really a lot more than back in Europe.

Although I do agree that it is simply a question of demand and supply, sometimes the demand is not real, but just an airbubble, hence the situation described by lost fish, people end up losing huge amounts of money.

Property comes in all varieties and one needs to know indepth what is hot and what is not.

and a 100sqf appartment for 3 million singdollars (the latest Marina bay development) may be an investment worth the risk in Singapore, where land is scarce, but the same amount fo money per square foot would be laughable in for example Amsterdam (way over the top, much cheaper over there) or London (way too cheap, much more expensive there).
Time will come....

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Post by huggybear » Thu, 22 Mar 2007 4:31 pm

i side with Grim Reaper (really, do you want to bet against death???).

Jeppo what are you talking about? My guess is you are on the young side? The US recession of 1992 - 1994 saw house prices decline 20-25% in areas like LA. Housing is a piss poor short term investment because of things like closing costs and fees to agents you have to pay. You remind me of one of those infomercials in the states from people who buy property (for no money down!!!) and rent it out. At this point in time, I think you'd be hard pressed to find real estate speculators doing well in: Miami, New Orleans, Detroit, and a variety of other locales. The sub-prime market in the states absolutely imploded and now most banks are not giving out 0 down loans anymore...u need around 10% now which means u're gonna need some capital.

As for singapore housing...it's pure supply / demand. You can't blame the people moving here. Why don't you blame the corporations that need talent? Of course that's another discusssion / thread of "Why do companies hire foreign talent instead of local people??"

As for the mentality of holding on to an investment until it comes back into the black. That's really stupid. liquidate the investment...lose the 100/200k, and take the meager remaing investment you have left and invest in another market. i.e. if you still had enough to invest, maybe you could have invested in something else such as vietnam equities or something to make money back. as for bankruptcy...anytime you invest money to the level that you could file bankruptcy...well that's just retarded.

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Post by thelostfish » Thu, 22 Mar 2007 8:54 pm

huggybear wrote:anytime you invest money to the level that you could file bankruptcy...well that's just retarded.
tell that to the millions of people from all walks of lives, to the small corporation to the big corporations over the generations whom have gone bust.

also for my original post about the gal who was in a sorry state of affairs. Well she could not liquidate either since she doesnt have the 100k odd to pay off the outstanding loan.

also you cant say those people were totally stupid, in fact she was a smarter lot who bought AFTER the crash in 1997/98, thinking its the bottom.

sometimes, the risks were unforeseen, like SARS or Sept 11? Whoever thought USA would be attacked so damn easily? or that the recession would last 5-6 years? or that cows could go mad and birds could infect us. or that USA will go to war so often...oh wait, maybe that's was for-seeable :lol:

As for comparing to property prices plummetting during a recession. Well what did you expect? during the recessions almost anything anywhere will lose some value, no? shares/stocks, interest rates etc. if you compared to the property values since 1995/6 here in singapore to their lowest point in 1998/99, about 40-60% lost in value. but at least the property is still there.

some hot shares back then (i shalln't name them) have lost more than 1000% :???: :shock: and even gone bust. sure you may say not all shares were like that, and i would say not all property were like that either. I know of a lot which have already surpassed their highs attained in 1995/6. on the other hand, I have seen people who have lost 100s of thousands to millions overnight on shares. and they never recovered.

but all this is tiresome to debate, since really, its different for everyone. some like to invest in property, something tangible, some like to invest in shares/currencies. but any investor would tell you that shares are much riskier. and hence also higher returns

back to the topic about rentals, my posts were meant to shed some light as to why it seems like the rental rates gone mad. which i feel, it may not be totally true.

I was trying to explain that if the rental you were paying is about 3-4%, i think you dont have TOO much to complain about. cos anything lower, frankly is cheap, and given today's market its probably a rather unpopular flat/location. (refer to my earlier post about bank giving 2.5% on your CASH) :?
Last edited by thelostfish on Thu, 22 Mar 2007 9:14 pm, edited 4 times in total.

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Post by thelostfish » Thu, 22 Mar 2007 8:59 pm

huggybear wrote: Housing is a piss poor short term investment because of things like closing costs and fees to agents you have to pay.
again, tell that to the people who have earned around $800K - $1mil using about 150K cash and 150k CPF (central provident fund) over the past year.

piss poor? compared to what? :o

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Post by thelostfish » Thu, 22 Mar 2007 9:09 pm

Grim Reaper wrote:
On a short term, property is speculative investing in 99% of all cases, just like lost fish explianed happening here in Singapore in the last 10 years or so.
1.) there were almost no property speculators since 1997 to about 2004, save for a short rally sometime in 2000. (in defining speculators, i assumed you took the govt's idea about selling a property under 2-3years after it was purchased)

2.) what short term investment isnt speculative? save placing them in a bank.

(sorry for the multiple posts, but i am rushing off work and too lazy to quote them all in one post. cheers :-| )

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Post by humpbackwhale » Fri, 23 Mar 2007 12:39 am

Hi lostfish,

Just saw from the newspaper that today a orchard condo hit a new record high of $4000 psf, since you are in this property scene so long, may i know what is the difference in property price between prime area (orchard, 9, 10,11) and places like east coast, bedok, tampines in 1997 during the peak?

It seems now there is a big diff in price between city area and outside city, i would like to know how much will the price increase for outside city eventually so that i know what rent these areas (east coast, bedok, tampines) is going to be like. TIA!

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Post by huggybear » Fri, 23 Mar 2007 7:35 am

humpback whale.
if u scroll up just a tad
and read the post by lostfish, he correctly points out that from 1997 - 2007, property prices were stagant. after ten years of no growth, property prices (in orchard area only) have exploded. i rented my apt last month on river valley road. the rental rates are now 22% higher, and my landlady actually called my agent to complain...where's bugs bunny when you need him? what a maroon. i read in the straits times that they're realeasing more HDBs to rent out? that shud further depress HDB prices which are in decine.
edited to add:
not to mention that every where else in the world property prices have exploded while singapore has been still water. (tokyo, seoul, hong kong, london, new york)

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Post by huggybear » Fri, 23 Mar 2007 9:56 am

thelostfish wrote:
huggybear wrote: Housing is a piss poor short term investment because of things like closing costs and fees to agents you have to pay.
again, tell that to the people who have earned around $800K - $1mil using about 150K cash and 150k CPF (central provident fund) over the past year.

piss poor? compared to what? :o
man i don't know where to start. first the comment was more for Jeppo. I think the "average" investor in the USA looks at a five - year horizon for real estate. were there people that were buying and flipping in a few months or even weeks? yes. were they the majority of the market? no. were other people left holding the bag and sitting on losses? yes. is this still going on? no.


piss poor compared to what? hmmm...well real estate assets (unless you're buying a REIT or a home builder like toll brothers or Capital Lease), is a hard asset. It's not a liquid product (you don't call your broker and sell it within 30 secons), and there is no transparent price. If you buy a security such as a bond or stock or even just invest in a time deposit with a bank you can easily monitor a transparent price and can easily liquidate if you have. if you own an apt, you have to list it...then show it to potential investors and go through an onerous negotiation / closing process.

if instead of holding on to your apartment for the next 7 years (in 2000) u liquidated and invested in the singapore stock index (straits times) u would have made 65% return. so even tho now you are finally in the black, the opportunity cost of sitting on the property means you're really down at least 65% .... or you could have invested in london property and u'd be up about 1,000% (including the ccy appreciation of the GBP). if u opened up a NZD time deposit...u also would have made a fortune. but typical from what i see so far from the locals...when things go bad...they just hide and wait for the dust to settle.

tell what to the people that made a lot of money in short term investment? that they are one of the lucky few and that many others like your friend were left holding the bag? the newspapers only report the few people that made spectacular gains (thus encouraging uneducated naive investors to jump into the fray not know what's going on). if you talk to any investor, they will only ever tell you about their successes, they usually won't talk about the losses they are hiding unless you ask them about it.

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