Invest at your own risk

Source : Today - 12 Feb 2009

Bargain-hunting now comes with probability that prices could fall further

PRIME properties in key cities such as London and New York have long been out of the price reach of most Singaporeans.

However, the slide in prices and currencies caused by the global financial crisis has made such markets much more affordable for those who dare.

Particularly attractive to potential Singapore investors are the United Kingdom, United States and Australia, whose currencies have fallen heavily against the Singapore dollar.

In the UK for example, the sterling has fallen by one-third over the past year. Add price falls to that, and a Singapore investor may be able to snap up a London property for effectively half of what they would have paid a year ago in Singapore dollar terms. The Australian dollar has fallen by a similar margin.

However, bargain-hunting at this time comes with the risk that prices could fall further. “There’s no impulse buying and people are now concerned with preserving cash,” said Mr Donald Han, managing director of consultancy Cushman and Wakefield.

“However if they have excess cash, they would then be ‘bottom fishing’ for cheap, value assets.”

Mr Han said most high net worth individuals in Singapore had not invested much in these markets for the past two years.

While investors may now be looking for steeper discounts or distressed assets, Mr Han suggested they wait for the second half of the year before making any decisions as the crisis is still in full swing and has not, by most accounts, bottomed out. Property experts Today spoke to pointed out that buying a foreign property in the current market carries with it particular high risk and investors need to have deep pockets and strong holding power of at least five years.

Investors should therefore consider carefully before committing to a purchase.

“For foreign properties, not being in the country physically mean that you are not always aware of market trends,” Chesterton Suntec International’s research director Colin Tan.

“You need reliable and trusted agents to help you. This will increase commission costs and higher agency fees,” said Mr Tan. “This will lower your eventual yield.”

Cushman and Wakefield’s international investment arm has seen such individuals walk in recently asking for advice on buying foreign property.

However, most are still studying the market carefully and biding their time.

Like purchasing a property in Singapore, the location is an important consideration. Investors are advised to make a physical trip to view properties before buying.

The type of investment is also important.

“Don’t choose anything that is too exotic like a big hotel with 20 rooms overlooking a lake in the middle of no where for example,” said Knight Frank’s director of research and consultancy, Nicholas Mak. “Buy something that you can make an easier exit from.”

Analysts point out that investors should also consider if there are taxes on property gains, trends in foreign exchange rates and inflation. After all, if a foreign currency has depreciated this much by now, it could drop even further or bounce back.

“Pay for a valuation before you commit to anything as that may actually affect your buying price,” advised founder of mortgage consultancy portal www.housingloansg.com, Mr Dennis Ng.