Last night I had a very interesting meeting with the Founder (and his main marketing man) of one of the largest trading education groups in the region. Together with two very good mates, we held interesting discussions on business opportunities, trading and property investment.

During the discussion, I was asked about the state of the property market in Melbourne since I am constantly looking at that market. Without a single hesitation, I answered, ‘I don’t know’. The reality is it didn’t quite matter to me the state of the property market. As Singaporeans are pretty used to the huge ‘peaks and troughs’ of the Singapore property market, the state of the market becomes a critical topic for discussion. In Australia, yes prices do plunge, but statistically, prices don’t plunge 30%!

I recalled a statement made by Christopher Joye, Director of Rismark International in The Weekend Australian Review, 1-2 November 2008. He mentioned, “Sensationalist and unsubstantiated claims predicting large house price falls in Australia ignore the empirical facts that house prices are determined by both demand and supply”. In my opinion, there’s already a shortage of accommodation in Melbourne as witnessed by record levels of population growth, fueled mainly by immigration numbers, coupled with the crisis and drop in building approval rates, the only confirmed trend is rents are going to rise.

I looked at property investment from a ‘holding cost’ point of view. I do care if the price is right, by doing some comparables around the estate. But that’s as far as I go. I do not professed to be a statistical Guru, or a full time property market researcher because that’s not my job. It’s difficult to say how market has performed, because to me median prices are not the true indication of the state of the property market.

Put it this way, you acquired a property. At settlement, you secured financing and the valuer came back with value equal to or higher than the contract price (usually valuers will cheat by looking at the contract price so they rarely return a value higher than contract price). You financed it and it’s cashflow positive and you continue to replicate what you were doing without max-ing out on your borrowing capacity.

So, what happens if property prices drop?

Well, as long as you keep up with repayments, banks don’t really bother you. The critical thing is to have a tenant secured and that can be organized by a professional property manager.

It makes sense to me…and I sure it does to you as well…so how’s the market performing again, mate…? Have a great weekend ahead!

Since I posted an earlier article on 460 Victoria Street, there has been quite a bit of enquiries asking for more information about the development. From an investor’s perspective, the idea of acquiring a 1-bedder makes good sense. A check with various portals shows 1-bedders currrently asking for $340 per week within the vicinity. Assuming there’s no increase in rental within the next 24 months(which is highly unlikely as developers stopped building because of credit squeeze and record levels of migrants into Melbourne), the cashflow analysis is as such:

Property value: $320,000

Rental Income:   $17,680 (52 weeks)

Outgoings:
Interest on a $256,000 loan: $10,240 (Indicative fixed rate @4% per annum)
Indicative Body Corporate: $885.55
Council Rates:   $1,200
Water Rates:   $250 (estimated)
Contents Insurance:  $250

Cashflow:   $4,854.45 (+ve)

So if you are seeking to improve the cashflow of your property portfolio or expand your property portfolio, a 1-bedder in this development with low body corporate would suit. Needless to say, we have not taken into account non-cash deductions which will increase the tax credits for investors if you hold for the long term.

There are not a lot of 1-bedders left in this development, so drop me an email if you are interested.

In the October 2008 issue of the Australian Property Investor (API) magazine, the editor examined the reasons why investors chose to rent instead of having a mortgage over their heads for a place they would own. Personally I felt this is a very important issue, especially for non-resident Aussie property investors to understand. Under the Foreign Investment Review Board (FIRB), non-resident property investors can only buy new off-the-plan or previously unoccupied established residential homes. If resold, they can only resell their properties to Australians or permanent residents in Australia.

Lots of non-resident investors are confused whom they would be reselling to should they need to resell their investment properties in future. One group of people whom they can resell to is property investors who are seeking to increase their portfolio of investment properties. These investors, residing in Australia may be renting but are seeking to expand their portfolio with a good mix of investment properties.

Why would investors themselves rent why they could afford to possibly own a home themselves?

Well, renting gives them the flexibility to live in a suburb they may not be able to afford at this point of time. Rental for residential properties is about 4.5% to 5% but mortgage repayments prior to rate cut in Oct ‘08 are over 9% per annum. Renting needs no maintenance and hence renters need only move their furniture into the newly renovated home and start leading the lifestyle they desire from day one. Besides that, renting does not require a deposit, hence the money saved can be used to increase one’s property portfolio instead of owing a home that doesn’t gives any tax breaks. If a couple works from home, renting also allows them to gain significant tax breaks, allowing them to slice their rent and electricity bills in half and reduce their overall income tax bill. Hence renting does have its clear advantages.

I have witnessed many successful property investors who have in excess of $5million or more in their portfolio but are currently renting. My business partner, Steve is one of them. He rents a 3-bedroom unit in the Docklands along Lorimer Street in Melbourne. For many Asian investors who have acquired properties in Australia this is something they cannot come to terms with. However the reality is that this is the way and it is a common phenomenon Downunder and with concerns of recession looming, more would choose to rent instead of having a mortgage that they would have to pay themselves. So for non-resident investors, hope this is some useful information to you…

It’s no secret that countercyclical acquisition is the right way to profit massively especially for instruments where you are betting on capital appreciation. However, the element of fear lingers on the minds of investors and you may end up not doing anything. What you may have missed are hordes of opportunities to profit from the current situation.

Last week, a mate of mine was thinking of property acquisition in Australia. We spoke some 5 months ago and he wasn’t really ready then. However, this time, he is ‘armed’ and ready to take advantage of the current situation. He asked a very good question and I am sure many of you may have the same question in your mind.

What happens if I acquire properties now and the value dips?

It’s a valid question. If you have been a regular reader of my blog posts, you would have known that I am not a property trader. I don’t encourage anyone to trade/speculate properties in Australia for capital appreciation. The tax system is not in your favour in the short term. Rather my focus has always been structuring the finance in such a way that maximized cashflow for your entire property portfolio.

The risk with any property portfolio is the ‘HOLDING COSTS’. It’s defined as the amount of money that is required for you to continue to hold on to your entire portfolio. Just focus on the cashflow/holding costs and you’ll be fine. There are enough instruments/options for you to leverage on. Regardless of conditions in the market, as long as you keep up your mortgage/interest repayments, you should not be unduly worried.

So focus on the cashflow in your property, instead of focusing ‘what happens if value dips…’Nobody can predict where the market is going at the moment. I am not bold/silly enough to do that. All that I can say is if you keep your portfolio, the values will be better off than what they are today in 10, 20 or more years’ time…

Drop me a line or two with your comments, EMAIL me…have a great working week ahead!

Over the weekend, there are at least 7-8 property firms advertising for property launches in Singapore. Well, you can’t blame these property firms for thinking there’s a good opportunity here in Singapore. After all, the positives are still there as far as Singaporeans are concerned. Most are hurt in the stock market, and history showed that whenever ‘doom and gloom’ sentiments are prevalent, there are still opportunistic investors who are armed and ready to take advantage of present conditions to enter the market. However, if I am seeking to invest in Australia, I will be ‘dramatically confused’ if I want to base my decision to invest based on projects advertised.

After putting all conditions in place, I have a near-to-perfect plan for anyone wanting to start acquiring properties now. In PPG (PPG International & PPG Asia), we used the Wealth Builder System to determine the ‘BC’ of a client before recommending the next course of action. Nobody else does that in the market. If you are a serious investor, you must get to know this. The easiest way is to EMAIL me to get in touch with me. Be prepared to leave your contact details as well.

Assuming your BC is determined, you can now go ’shopping’.

I see the following happening:

1. Interest rate will fall to at 4% or 3.5% by the first half of 2009.

2. The rise in interest rate later on will signal the reversal of the economy.

I quote Warren Buffet’s saying, ‘Be fearful when others are greedy and be greedy when others are fearful’. No doubts about it, people are fearful about investing now. The most sinful thing is to do NOTHING, because that means your wealth has got no opportunity to grow. Of course, if you have not much wealth, it is quite understandable that you do nothing right now. Otherwise, you may be over-analyzing and you may be ‘beaten’ by the market before you do anything.

Every advertisement says the AUD has dropped 30% against the SGD and it’s on par with SGD now. If you have buy something now, it’s cheaper. Technically it’s true. Even the AUD depreciates against the SGD further, in my personal opinion, the AUD will still appreciate against SGD in the long run. The indicators are simple: Oil price cannot remain at this level, interest rate cannot keep dropping, and commodity prices cannot remain stagnant. Once the world’s biggest consumerism recovers, demand comes back again, the economy will recover. However, I am not bold enough to predict when.

If you buy something that settles next year (2009) to take advantage of low interest rates in AUD, your holding costs will be significantly reduced, cashflow improved dramatically. Remember the biggest risks pertaining to property is HOLDING COSTS! It’s not the value of the property! If you manage holding costs well, you will be able to grow your property portfolio systematically.

Once the interest rate starts rising, this is where you can convert to a fixed rate. With a fixed interest rate, you are assured of virtually the same holding costs/cashflow in your property. And to put the icing on the cake, if you have another property that is financed in another currency e.g. SGD, you can now hedge your risk. There are just so many permutations to build up your property portfolio. I guess it’s due to my engineering background. I love manipulating the permutations to help my investors build their portfolio. It’s problem solving to the highest level…

If you need any independent advice, do EMAIL me immediately.

Recently there’s a new development which I thought ought to be mentioned as given the price points and location, it is good value for money and may suit you if you are venturing into Aussie property investment for the first time and looking for something that will settle within the next 12 months.

Craigieburn is a suburb situated 24km north of Melbourne CBD. Central Park Terraces is located within a delfin lend lease masterplanned community under the Melbourne 2030 Urban Growth Boundaries. If you are familiar with Delfin, you would know they are one of the best in the field of planning for a community. Of course when there’s Delfin, there’s a lake. As far as Central Park Terraces are concerned, there is a fantastic lake and only a cluster of townhouses are facing the lake and these are to be completed by April 2009. Imagine your tenant inspecting your homes, I couldn’t see why they would reject signing a year lease or more to secure their tenancy.

A check with real estate agents and on the internet showed homes in the area asking for $310-340 per week, so it is quite safe to say these townhouses will be rented out between $320-$330 per week when they are completed next year. Only 10 left up for grabs, and no surprises for guessing who bought up so far - Australians….because they knew where the value lies.

If you want more information about how these can fit into your investment portfolio, please email me at info@pagreal.com

Over the last two weeks, I have got calls from investors who asked if there were any projects worth investing in. Here’s something that I think would suit an investor who are looking at the following:

1. Portfolio builders looking at settlement time of about 24 months
2. You have average to good BC and looking to expand your portfolio
3. A great deal - prices quoted in this development are as if they are completed today! (drop me a line or two if you don’t believe!)

Situated on the southern side of Victoria Street and surrounded by famous Victorian reserves, this development consist of 4 four storey buildings of which only 2 are released at the stage. All units have sensible floor plans and are bigger than normal specs of 1 and 2 bedders that are seen in the market.

In my opinion, it’s a development where prices are spot on (at today’s completed prices) and the combination of good usage of space and sensible layout make it even more attractive for investors and own-occupiers alike.

For more information, you may drop me an email.

If your Australian property is due for settlement anytime now, I suggest you set aside more funds for any extra equity. This post couldn’t have come at a more appropriate time. Valuers in regional areas have valued properties so conservatively that investors are forced to inject more equity because the values just didn’t stack up to purchase price. One of my good mate in Gold Coast has stayed away from these areas because the values just won’t hold. Now having said that, I don’t necessarily agree with what the valuers have done. Anyone who does developments would know the level of replacement cost and how the purchase price. Unfortunately that’s not how the valuers see it.

Banks have panel of valuers, internally and externally. I suspect banks have issued a ‘warning’ sign to these valuers about being too overly liberal over values of new properties. Some of the cases I have seen are outrageously ridiculous.

Last two weeks, I was completely pissed with a long time friend cum investor. In my own capacity, I have done whatever I could to help him out and he has the audacity to point his fingers at the credit crunch at me. I was so pissed that I raised my voice. I am fiercely competitive and I don’t deal with mediocre investors who don’t understand what’s going on in the market place. He maintained his own opinions but unfortunately the market has changed and he reacted too slowly. In short, he did himself in. It will the last time I deal with jackass like him. Call me an arrogant guy and I admit I am. I have done nothing against my conscience. I am not in the business to please people. Those who value who I do, thank you very much! Those who don’t, please piss off…I mean it! Get the hell out of my life. I don’t have to deal with people who hang on to their ideals, oblivious of what’s going on in the world…

I should stop all these nonsensical thoughts because it’s not going to help the cause at all. I am passionate about property investing and I am even more passionate about my investors. Like my forex guru and great pal, Koon Lip believes, we are the BEST in our business. I want to thank all of you who has given me support, emotionally and professionally. I couldn’t have gone this far without you…

Beat the market because if you don’t, the market will beat you!

Last week, I met up with a referral, Mr. Lim from an existing client. He was very pleased with my approach, helping investors with a personalized and tailored plan for their property investment objectives. I adopted a kick-ass approach, no one and I meant it, no one except me is using this approach, in Asia.

To put it bluntly, 62% of my existing clients know at the point when they started investing, why they are investing and when they are going to acquire their 2nd, 3rd or 4th investment properties. I have used the Wealth Builder System my underground property guru taught me. It’s a no-nonsense system and the truth is it works for many of the investors here and in Australia.

I have to turn away 2 prospects because it grew to a point where I didn’t want to deal with investors who are not financially inclined. It’s hard to make them understand what they are doing and it has taken a toll on my energy. My philosophy is pretty simple: If you don’t know what you are doing, please don’t do it. If you do it under the influence of a third party who makes a commission out of doing a deal and you don’t know what you are in for, let me tell you this: you are in for a rude shock!

I am certainly not in the running for any popularity contest. Like what my good friend Yoke Fooi says,”KS listens to the good and BAD things about him and he takes good advice and implements them in the next action plan”. I will tell nothing but the blatant truth to investors. It may not be soothing to your ears, but screw it!

Very few people understands what I do is good, if not the best for them. I am glad Mr. Lim said this, “your approach is what I am looking for”. If there are more people like Mr. Lim who appreciates my kick-ass approach, life will be great!

With the federal cash rate at an all time high in 12 years in Australia, investors are questioning if this is an ideal time to enter the property market.

The Reserve Bank of Australia meets on the 1st Wednesday of every month to determine if they should raise or lower the federal cash rate based on inflationary figures as well as the performance of the economy. To keep inflation in check, the RBA will tend to increase interest rate by no more than a quarter percent each time. Banks will follow suit to increase the mortgage lending rates to investors or homeowners that are on standard variable rates. The norm is for bank to increase lending rates in tandem with the increase in interest rates by RBA.

For investors who are looking at entering the market, the high interest rate might not necessarily be a deterrent. The rationale is simple, with exceptionally high inflation due to high oil prices throughout the world, raw material prices have increased. The costs of construction have risen significantly due to those increases in their individual components. It means that the cost of building would have risen as well. The fundamental for real estate is that prices of real estate very seldom go below replacement costs.

What exactly is replacement cost?

It is the cost of land component and the building component combined e.g. if the land costs $400 per sq ft and the building is $350 per sq ft, the basic costs excluding financing and all other costs is $750 per sq ft for the piece of real estate (in this case, an apartment is calculated this way), a selling price of $800 per sq ft can rarely go wrong.

In the current market facing high inflationary pressures, most off-the-plan projects would have the buffer for increase in costs built-in in the prices. It means that if a property is sold to you at $450,000 today for a project that will be completed in 2 years’ time, it means that it is really worth $450,000 in 2 years’ time taking the rise in the built in. It is perfectly all right when you are on the right side of the cycle, meaning on the up trend property cycle. However, things might go pear-shaped if the property market took a turn for the worse come settlement when valuers do a valuation for your property in 2 years’ time.

Things will be different if you are buying a completed property or a property that is under construction with a few more months to settlement. The logic is simple.

When everyone shuns the property market because of high interest rates, they resort to renting. Rental yields in most residential units are 4.5%-5% per annum as compared to current mortgage lending rates of 9.35% (at the point of writing this article), therefore renting is a more viable option than buying a place to stay. The demand for rental properties drove the vacancy rates to an all time low. That doesn’t mean nobody’s buying! It means that people are buying as investment properties but not really for them to live in.

If you can get into the market today, you stand to enjoy high rental yields today. Most of the projects are off the plans and will only be completed in 2010 or 2011, getting into the market today ensures you are not competing with those rental properties when they settle in 2-3 years’ time.

The issue of high inflation will not impact you that much because you have secured a rental property at today’s price and in 2-3 years’ time, should things stay status quo, you can expect your property to rise in value because everything else would have risen. The price that you pay can never be replicated, at least that is the rationale for buying a completed property today.

Ask any seasoned property investors who have accumulated quite a sizeable property portfolio and it is no surprise they are rooting strongly for completed stocks instead of off-the-plan ones.

However, the financial circumstances of individuals are vastly different. The best option is to determine your goals and objectives first before embarking on the journey to financial abundance through property investment.