Avoid making these 7 common property investment mistake

Posted by Lynette Tan on January 4, 2018


After waiting for years for Singapore’s property market to bottom out, property investors are starting to see some traces of a revival in 2017. A slew of enbloc sales, developers paying record sums for government land sales and an uptick in the private property price index recently seems to have whet investor appetite.

In 2018, we will see the largest supply of private homes coming onboard, with supply gradually dwindling in the following years. This has led property investors to begin looking out for value purchases.  


Source: URA

While property investment seems to be pretty fool-proof in land-scarce Singapore, it no doubt, carries as much risk as other investments and due diligence is advised.  For first-time property investors, you may want to factor in the 7 common mistakes listed below for a smooth ride towards wealth accumulation.


1. Not treating property investment logically

There are many different strategies towards property investing, but one of the most common includes buying a second property as investment property and earning rental income out of it.

Sounds easy right? Except that some people get emotionally-attached to their property, and start choosing one based on their own personal likes and dislikes and not its appeal to potential tenants.

When buying a property for rental income, the most important factors to consider it whether you will be able to rent it out at the required amount to make the investment viable. As such, you’ll need to research the location, check out the competing properties around and work out the financials to see if it is worth your money.


2. Getting poor financing

 When it comes to property investment, the best case scenario is when your tenant can pay a rent that covers your monthly mortgage. This, however, may not happen all the time, especially when the rental market is in a lull. That’s when getting good financing is especially important.


Instead of going to a bank that you are familiar with, it’s best to approach a mortgage broker that understands your needs and gives you the most competitive package. Similar to how the amount of fees you pay for your mutual funds can mean a difference between profit and loss, the same goes for property financing.


3. Signing the OTP before getting loan approval(TDSR)

When you decide on the property you want to buy, the first step is to sign the Option to Purchase (OTP). This is a non-refundable deposit that is usually 1% of the property’s purchase price. Once the OTP is signed, you have three weeks to exercise the Option and make the rest of the payment, which is usually between 5 to 10% of the purchase price. If you don’t buy the house within three weeks, 25% of the booking fee will be forfeited.

This means you need to have Approval in Principle (AIP) from a bank before you sign the OTP. The AIP is a bank’s promise to grant you the home loan you need, taking into consideration the eligibility criteria. If you are new to this, a mortgage broker will be able to advise you on the eligibility criteria and calculate the TDSR requirements for you.


4. Selling too soon

It may be tempting to sell the house when the market isn’t doing well. On the flip side, some maybe too keen to take profit too early. Property market goes in cycle, and with all the hassle and cost involved, it is best to have a target sale price in mind instead of selling on a whim.


5. Not cutting loss

On the other hand, the property market is never a sure-win bet. You only need to read the multiple losses by owners of properties in Sentosa Cove to understand that. Like all investments, you should have a cut off point where you tell yourself it’s time to sell. With an investment that involves so much money, waiting too long can even risk putting you in the bankruptcy seat.


6. Not doing due diligence

While we dare say Singapore properties are somewhat safer to invest due to the strict regulations on developers, we can’t say the same for other countries. In recent years, it has been extremely common for overseas developers to set up roadshows offering “bargain” prices of overseas properties.

Other than the possibility of not having any completed property at all, you may not be familiar with the financing facilities overseas, as well as the background of the developers. You only have to go take a look at neighbouring Iskandar to see the number of developments that should have been launched 3 years back to still be under construction. Financing for Australia properties are stricter in recent years, and it resulted in many buyers having trouble finding mortgage loans.

There’s no doubt you could chance upon a value buy, but if you are not willing to go through the trouble of checking through every single detail, it’s probably a better idea to keep your property investment here


7. Only focusing on residential property

Do you know that owning a commercial property may be easier than a residential property here? What’s more, properties like office spaces, retail spaces and even medical suites can potentially give you higher yields compared to residential properties. Additionally,  commercial properties aren’t subjected to Additional Buyer’s Stamp Duty (ABSD) as well.

Making smart investments often requires one to look beyond the obvious in order to find value purchases. Open up your options and who knows, you may find your golden goose.



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Topics: Invest

Written by Lynette Tan

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