PropNex CEO: What Seniors & Singles Should Be Thinking About Right Now

In this exclusive one-on-one interview with iProperty.com at the recent iProperty.com Expo at Marina Bay Sands, CEO of PropNex and Singapore’s leading real estate expert Mohamed Ismail Gafoor discusses the latest trends in the Singapore and Malaysia property market. He also provides valuable advice for 2 growing demographic groups in Singapore: seniors who own a house and are planning for their life after retirement, and singles under 35 contemplating their first studio home purchase.

Mohamed Ismail speaking to a full crowd at the iProperty Expo at Marina Bay Sands

Q. You have often emphasized that landed housing in Singapore is by far the best choice for real estate investors. Could you tell us why? 

Landed property will always be a goldmine – for the simple reason that land is in limited supply, and Singaporeans will always consider owning a landed house to be their ultimate dream.

However, not all landed properties are created equal. While the government can still release sites for landed properties with a 99-year lease, the existing stock of freehold landed properties are highly limited. I would lean away from landed properties with a 99-year lease as they present unique challenges for their owners. It is much harder for leasehold landed properties to meet the criteria for enbloc, as a 100% owner consensus is required – as compared to private condos more than 10 yrs old which need only 80%. There is only a 20-25% price difference at the entry-level for freehold vs. leasehold for landed properties, but the key advantage of freehold landed homes is that it provides for perpetual ownership, making it a much better deal.

Q. What are the possible implications of the proposal to double the entry price at which foreigners can buy real estate in Malaysia?

First of all, I can certainly understand the rationale behind such a policy proposal. Just as what has happened in Singapore, the Malaysian government is concerned about a property bubble forming, and likewise they also have to address the growing public concerns on the ground about rising property prices.

In spite of this, I remain very confident that the M$1 million minimum price for foreign purchasers of Malaysian property will not be a blanket limit across all states. In particular, such a policy would not be advantageous for the state of Johor especially when the entire Iskandar project is still at the infancy stage of development. It is likely the MY$1million minimum purchase price will apply to properties in the downtown KL region, but highly unlikely for areas such as Ipoh and Malacca.

As many well-off Singaporeans have already been picking up units well above the MY$1 million mark, it will not be surprising if they remain willing to pay for a good product which is still relatively affordable, particularly given the strength of the Singapore currency. Those most likely to be affected by the higher entry price are HDB upgraders, who have been mostly buying lower-tier fringe properties.

Q. What should senior citizens keep in mind when deciding if they should opt for the LBS (Lease Buy-Back Scheme), or “downsizing” to a studio flat instead?

PropNex CEO Mohamed Ismail

The LBS has the advantage of allowing seniors to continue to stay in the same flat in the same environment they have grown used to after many years. While some may be concerned about “outliving” the 30 years remaining on the lease under this program, the reality is that there are many seniors who will require specialized care at a health-care facility by that age. Hence, although the take-up rate for the LBS scheme has been low, I do see some do see some merit in this program.

However, I consider “downsizing” to be the more exciting option among the two.  Downsizing to a studio apartment allows seniors to be able to completely cash-out on their existing property and use part of the proceeds to buy a smaller elder-friendly property at a reasonable price. Living in an elder-friendly community with adapted facilities (e.g.: lifts and ramps) will also provide a close-knit community where seniors can grow old together. Furthermore, having a lump sum payment in hand also gives one a greater feeling of strength and security. However, the inherent risk in “downsizing” is that seniors who do not have necessary skill or discipline to manage their funds can lose everything very quickly. Hence, deciding which option to go is very much an individual decision.

Q: What advice do you have for single working professionals under the age of 35 who are contemplating investing into a private studio flat for their own-stay?

As Singapore’s population continues to increase, it is inevitable that property sizes will shrink. Although shoebox unit sizes in Singapore are still decent compared with cities such as Tokyo and Hong Kong, it is undeniable that reduced space and high density will lead to a compromised lifestyle.

For single working professionals who want to move out of their parent’s house into their own home for lifestyle reasons, I would say that it is perfectly okay to buy studio apartment –  but they really need to look out for the PSF (price per square feet) they are paying. Although the quantum of studio apartments may be low, all capital appreciation is ultimately a by-product of rental yield. Hence, the risk is that if rentals do not go up much, there is limited room for capital to appreciate. Paying high prices for an entry-level studio flat in the outlying areas could mean there may be limited scope for rental appreciation.

 

Results and thinking: which should come first?

A recent conversation I had gave me insight into how, as Singaporeans, we place too much emphasis on past results, and that our way of thinking is shaped by these results and other experiences observed.

Innovative thinking is needed to solve Singapore's housing problems. (Image courtesy of ThinkStock.)

Innovative thinking is needed to solve Singapore's housing problems. (Image courtesy of ThinkStock.)

Too much emphasis is placed on funding performance history. Yes, it is useful for us to measure current housing performances against past performances, such as keeping tabs on the house prices. But relying on old methods to solve new problems can only take Singapore so far.

Like other problems that Singapore faces, issues in the housing market are dealt with using a heavy reliance on technical analysis, like comparing past and present rates of Build-To-Order (BTO) housing over-subscription, price hikes (and drops) and so on.

To effectively resolve our housing needs, our thinking and funding should not be entirely based on performance history and past results. Rather, creative thinking and efficient execution of policies should directly lead to positive results.

I believe this is partly the reason Singapore’s government housing policies have been stuck in a virtual limbo. Back when Singapore was struggling towards independence and naysayers doubted the country’s ability, it was then Prime Minister and current Minister Mentor Lee Kuan Yew’s vision to model Singapore after successful countries that made the country what it is today in just three decades.

Today, however, things are much different. Singapore is now one of the most successful Southeast Asian nations. The problem of rising housing costs we face now is a completely different set of problems that requires new approaches to solve. We cannot afford to be rehashing the same solutions in a situation that calls for innovative thinking.

National Development Minister Khaw Boon Wan’s solution of releasing a bumper supply of BTO flats is one way of quickly dissipating demand; but in the future, when there is no more land to release, even more creative thinking will be needed to fulfil housing demands. Policy makers have already begun exploring the construction of homes skywards and seawards, so what about doing so downwards for instance?

If Singaporeans and their government are looking to make a change, why not take a leaf from companies with exceptional visions? One such company is Apple, which did not start out in the mobile phone industry. While it took established mobile phone giants like Nokia and Motorola 10 years and hundreds of models and features to get to where they currently are, Apple accomplished similar achievements in half the time and with only one phone model.

If we encourage a culture of innovative thinking to solve not just Singapore’s housing problems, but other issues in transport and healthcare as well, we will certainly get positive results.

Agree to Disagree

In ‘The Little Boy And The Dollar Notes’, the allegorical tale of a young boy being presented with the option of taking either a $100 bill or a $10,000, the boy chooses dollar bill. This goes in the face from the advice he receives from people around him to take the larger denomination, but the boy is suspicious of whether the stranger who presented him with this unlikely choice would in fact hand over such a large amount as a $10,000 bill.

This reminded me of situations where everyone has a view and thinks they are correct or have the best answer. Ultimately, only one side may be correct, but does that make the other side incorrect?

Yes and no.
It’s possible to say “yes the other side is incorrect” because subsequent results show them to be so. However, in the case of the allegory it could be argued that based on the information the boy and the crowd had available to them at the time, they both made valid points. ‘The Little Boy And The Dollar Notes’ exemplifies how when presented with a set of limited facts, many different points of view can be expressed.

Sometimes it is important to step back and consider other people’s point of view. Walk in their shoes and take time to understand their frame of reference rather than facing off in an argument. You can still disagree with them, but there is no need to put down their point of view.

Just agree to disagree.
I believe that this point of view – agreeing to disagree – happens in a transparent and open environment like the stock market.

In a property transaction, for example, there is a buyer and there is a seller. The buyer believes that the current price is cheap, while the seller thinks that the price is expensive. They agree to disagree and the transaction is settled.

The buyer’s point of view could be based on oversold markets, good valuations, recovery, TA ‘buy’ signals, analyst recommendations, and so on. Similarly, the seller also has their set of reasons, whether they be overheated markets, overbought situations, recessionary forces, bearish indicators, TA ‘sell’ signals, or analysts with sell calls.

Reading a newspaper the other day I came across two articles. One was titled ‘Markets Sell Off Due to Greek Debt Crisis’, and then, on the same page, there was another article – this one entitled ‘Oil Prices Ease Due to Impending Greek Debt Resolution’. This frank contrast of views on the very same page epitomised to me how two different results or opinions could be gleaned from the same information. I concluded that price is defined, as the amount the next greater fool is willing to pay.

In a previous post of mine I talked about how supply and demand affects on the HDB market and how, although prices may seem high, sellers will price their product at a rate they believe someone is willing to pay. This is especially true in Singapore where, everyone has their point of view on property prices.

The sellers feel the market will enter a price correction in the future. The buyers feel that the sky’s the limit – and that prices will continue to climb. If the correction never comes, the sellers will be cursing themselves. If a reversal occurs, the buyers have overpaid. Only time will tell, so right now, I agree to disagree.