He prefers older properties and sees timing, macro factors as just as important as location
While working in the mortgage department of an international bank here in 2007, Mr Eugene Huang was privy to the workings of the property market in Singapore which was getting hotter by the day.
Investors were snapping up new properties by the floor, sub-selling them or buying resale properties and flipping the options, he recalls.
Inspired, the then 26-year-old took the plunge, hoping to make a quick buck, but nearly got burned.
The three-bedroom, 1,119 sq ft apartment he bought in Tanjong Rhu for $1.23 million found zero interest from buyers during the two-week option period. Around the same time, news of the failure of Lehman Brothers did not ring any alarm bells for him, and he went ahead to exercise his option to buy the property with a hefty mortgage payment.
Soon after, global markets crashed, and within two years, the condominium's value tanked to almost half the purchase price. A similar-sized unit in the same development was sold for $740,000. He said he made a paper loss of $500,000 within two years.
This early experience was an eye-opener for Mr Huang, who vowed never to repeat the mistake of making impulsive investments.
Property markets, he realised, may seem like a conservative, long-term investment, but the calm on the surface does not always reflect the volatility inside, he said.
"It's not just about location, it's also about timing and keeping an eye on the macro economy," he said about property investments.
Mr Huang, 36, worked doubly hard at his job to pay his mortgage. Later, he left his job, together with his then colleague and now wife Landy Lan, 36, with the idea of a start-up which would power price comparisons for property investors.
Co-owned by the couple, Redbrick Mortgage Advisory seeks to be for property investments, what Trivago is for hotel bookings - finding customers the most competitive mortgage interest rates for their property investments.
MORE GRADUAL DEPRECIATION
I believe that the value of a brand-new building starts depreciating steeply once it is completed, compared with a more gradual depreciation curve an older building experiences. Land prices do not depreciate and I would rather have a larger proportion of my investment dollars going into the land than in a building.
'' MR EUGENE HUANG, on his property investment strategy.
Mr Huang now gives advice to property investors on what package to opt for while buying residential or commercial property, and how to mortgage their properties.
The firm now structures more than $1.5 billion in loans a year and counts nearly 1,500 recurring and new customers annually.
Q Describe your current property.
A My wife and I bought this property in 2013 so we could be near my parents who live in Yio Chu Kang. It is a small, cosy two-bedroom apartment in Chuan Park condominium in Lorong Chuan, which suits the needs of our family of two nicely.
The location is fantastic - just 30m from the MRT station, and minutes away from the Central Expressway by car. As a small apartment, it is also easy to clean and maintain. We have been here four years and may think of upgrading later. I believe in delayed gratification.
Q How big is it and how much did you pay for it?
A It is a 710 sq ft two-bedroom apartment. I paid around $850,000, which was the peak price for this property at the time.
Q What are the other properties in your portfolio?
A I own five other residential and retail properties, four locally and one in Malaysia.
I have a charming, one-bedroom apartment at Eastern Lagoon in Upper East Coast Road which I bought for $840,000. It sits on a large piece of freehold land and offers a lazy, laid-back lifestyle along the East Coast. I lived there for a while during my bachelor days, but it is now tenanted at 3 per cent yield.
A three-bedroom unit at Melville Park in Simei is one of the lowest-priced apartments I bought in the east, for around $850,000, with close proximity to Changi Business Park. It has very strong rental demand. The unit has never been vacant for over a week since it was purchased five years ago. It is currently tenanted at 4 per cent yield.
I started venturing into commercial properties in 2012 shortly after the additional buyer's stamp duty was introduced. I have two retail units at The Plaza in Beach Road. I chanced upon them in a property listing portal and snapped them up. One cost me $510,000 and the other was at $700,000. They have since appreciated more than 30 per cent.
I also purchased a Soho apartment in Kuala Lumpur in 2013 in Jalan Ampang for RM1 million (S$316,600). The Malaysian developer offered a very attractive financing scheme which required less than 5 per cent cash outlay. I was eager to educate myself on the Malaysian property market and jumped right into it. It is now tenanted at 3 per cent yield.
Q Describe your property investment strategy and market view.
A Singapore is a developed nation and the property market here is very different now from what it was in the past. We are not likely to see manifold appreciation on asset prices like what our parents and grandparents experienced.
But the Government is still spending on infrastructure and enhancing land usage, which will allow our investment properties to have continued growth.
Even then, I tend to favour older properties to new ones. I believe that the value of a brand-new building starts depreciating steeply once it is completed, compared with a more gradual depreciation curve an older building experiences. Land prices do not depreciate and I would rather have a larger proportion of my investment dollars going into the land than in a building.
That said, cash flow is very important. It is crucial for me that the property I invest in can generate a yield that is at least double my financing costs and has a strong rental demand. Each break between tenancies means I have to pay for my mortgage out of my own pocket. That is not desirable at all.
I am eyeing to buy a property in the prime districts as I feel that the price gap between suburban areas and the core central region has narrowed considerably, and there is immense value in some older developments within the central region.
Q Describe your financing strategy.
A I locked in my mortgage rates in early 2014 with a three-year fixed rate of 1.4 per cent. As a director at my Redbrick Mortgage Advisory, I have a good overview of all the latest offerings from 16 banks offering retail mortgages in Singapore.
The truth is, some banks do not revise their mortgage packages immediately following a hike in Sibor - there is almost always a laggard response and we take the opportunity to grab the lowest rates for ourselves and our clients.
Refinancing is a must for any property owner in Singapore. It not only allows me to lower my interest costs, it also positions me for that possible sale. It is important to plan ahead so I do not get slapped with a penalty when I redeem the loan within the lock-in period.
Reviewing my mortgage periodically means I get to take an additional equity loan for other investments if my property has appreciated.
Leverage is very important here as the rental yields are not spectacular. Appropriate use of leverage multiplies my return on investments. I also set aside at least 12 months of mortgage payments for each of my properties in case I can't rent them out - and place them in short-term alternative instruments.
Q What's your overall investing strategy?
A Real estate forms the bulk of my long-term investments. It's a great inflation hedge which will position me for a comfortable retirement.
I also park a large part of my funds in short-term, liquid alternative investments for recurring cash flow.
I will not consider insurance as part of my investment portfolio; I purchase them for protection against unforeseen circumstances.
My investment portfolio is 50 per cent in property, 20 per cent in alternatives, 10 per cent in stocks and 20 per cent in cash for now.
Q What have been your best and worst property investments
A My worst investment was the Tanjong Rhu condo. Luckily, I was able to rent it out, and in May 2011, it was sold for $1.3 million - clocking in a very slight profit from the rentals I collected.
My best investment was the one where I was paid not to buy a property. I liked a residential property in Upper East Coast Road which was selling for $100,000 cheaper than what I thought it could fetch. Fortunately, another buyer was equally interested in the property. We tried to dissuade each other from buying the unit, and the other buyer paid me a handsome amount to let go of my claim. I made $15,000 in four hours.
Q What is your dream home?
A One that is in the centre of my family's activities. It should be in close proximity to where we work, study and play. The key here is to spend less time commuting so we can spend more time together.
A version of this article appeared in the print edition of The Sunday Times on April 16, 2017, with the headline 'Old is gold for founder of investment start-up'. Print Edition | Subscribe
We have been experiencing some problems with subscriber log-ins and apologise for the inconvenience caused. Until we resolve the issues, subscribers need not log in to access ST Digital articles. But a log-in is still required for our PDFs.