Saturday, December 09, 2006

[RealEdge] ST Saturday Special Report : Still bleeding after all these years



Dec 9, 2006

Still bleeding after all these years
Investors who jumped in during the property market boom in the 1990s are still nursing paper losses in the hundreds of thousands

By Joyce Teo

AMID the current red-hot interest in the property market, it is easy to forget that many property owners are still nursing paper losses in the hundreds of thousands.

Many of these unsuccessful investors waded in before 1997, during the property boom in the early 1990s. Others jumped into the market during a mini-recovery in 1999, only to see the market turn south again soon after.

Some bought 99-year suburban condos as investment properties, and these apartments are losing value each year as their leases run down.

In the heady years leading up to the peak in 1996, some even borrowed from relatives and friends to buy properties.

One 38-year-old insurance agent, who asked to be known only as Mr Tan, was caught up in the property market frenzy in 1996.

He bought a 900 sq ft freehold apartment in Katong for $680,000 or about $756 per sq ft (psf). Early this year, he sold it for just $340,000 or $377 psf.

'My rental was not enough to cover my instalments. It's a matter of biting the bullet and moving on,' he says.

'I've spoken to agents and bankers. They tell me that prices won't ever go close to $680,000 and interest rates will still rise.'

He says the value of his property started dropping just a year after he bought it but he held on.

'You tell yourself that the price will drop for one or two years and then pick up again,' he says. 'After a while, you get so disheartened, you just leave it alone.'

Like Mr Tan, many property investors did not expect the bubble to burst in 1996.

But a combination of anti-speculation measures and the financial crisis killed the party. Apart from a mini-recovery in 1999, the market has remained largely in the doldrums since.

Ms Jennifer Sia, 34, bought a three-bedroom executive condo at The Rivervale in Sengkang in 2000 for $549,000. She thought the price would not go down but it did.

The office administrator says: 'We will just stay in it until my son is of schoolgoing age. Then I may move to a place near his school.'

Most investors with money-losing homes bought into the hype during the market upturns, believing that property prices would continue to climb.

A retiree who invests in the financial markets, Mr Lim, says he bought an apartment in Clementi in 1996 for about $620,000, believing that 'you can't go wrong with property'.

'But then, supply rose. There's a condo around every corner. It appears that only iconic and new projects are the flavour of the month.'

Mr Lim says his freehold property of about 1,000 sq ft is now worth $550,000. 'It's a very bad investment. I don't believe that it is easy to make money from property,' he says.

'It's not a case of everything is up in the market now.'

Some high-end homes have recently hit 1996-peak levels and some developments have attracted queues, just as in the mid-1990s.

A property industry veteran says: 'Real estate is always driven by sentiment, by the herd instinct. When things are hot, people will rush in as they are afraid to lose out.'

He cautions that the market, however, can also turn the other way. Investors should go in only if they can afford the losses in a worst-case scenario, he says.

Mr Andy Ong, the chief executive of ERC Holdings and founder of the Financial Planning Association of Singapore, says: 'Land supply in Singapore is limited, so property prices will rise. But they may not rise fast enough for some to see returns in their lifetime.

'If you want to buy, go for a quality project with good yields, and you must be able to hold.'

Indeed, certified financial consultant Leong Sze Hian says the new bankrupts he has met single out housing loans as their biggest problem.

For investors, a typical problem is when they cannot get enough rent to cover mortgage payments.

Mr Mike Loh, an executive in a local firm, knows this problem only too well.

His parents, now in their early 60s, have been struggling with a $4,000 monthly mortgage payment for a 99-year leasehold Bukit Panjang property since 1997.

The 32-year-old says: 'I came home one day and my parents simply said, 'We bought a condo.' It was their first investment property and they went for the hype.'

Mr Loh's parents bought a 904 sq ft two-bedroom unit at Maysprings for about $530,000, or $589 psf. They have been able to rent it out for just $1,000 to $1,200 a month.

Similar apartments at Maysprings condo were recently transacted at an average of $362psf - 39 per cent less than what his parents paid.

Mr Loh's parents, who live on a landed property, have had a huge chunk of their CPF savings wiped out by the mortgage.

'One moment of madness one weekend and you end up paying for it your whole life,' says Mr Loh.

joyceteo@sph.com.sg


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