Buying Luxury Property Will Kill Most Singaporean and Asian Investors

To many dear Singaporeans who flock to exhibitions with their cheque books, I suggest you check with iProperty and search for properties for rent around the area which you are about to buy. You'll find that in Iskandar, non-gated homes are renting for RM1,300 to RM1,800. Only locals will rent. They sell for RM250k so the yield of 7.2% is ok for investors. For condos, the existing ones in Gelang Patah are asking RM1,300 - 1,500. Nusa Perdana is asking for RM250k, so the yield is also around 7%.

For gated landed, asking rent is around RM3 - 3.5k. Asking price for sale is around RM1 - 2m. Rent is around 2.6%! Not even enough to pay for interest! For condos, Ujana is asking for RM3k to rent and RM850k to sell. That's only 4.2% yield.

I feel that many many Singaporeans and non-Malaysians will be burnt when the flood of properties start to TOP between 2015 - 2017. There will be oversupply. Yields will fall and we could see a correction in prices. Singaporeans, Japanese and western expats will move to Iskandar for sure. But I don't foresee them moving to Iskandar in droves. It'll be more like 10k - 20k per annum, boosting demand for homes by between 4k - 5k. If I add another 10k - 20k of Malaysians who work in Jurong and Woodlands deciding to live in Iskandar, I'll add another 5 - 10k. That adds 2 - 2.5k of demand. Total, we have 6k - 7.5k of new demand. Iskandar will see over 15k of completions per year during that period.

Everytime an off-plan property approaches TOP, rental will be bad at the start because 100 to 400 units compete for tenants. Many will be empty for sure!

I've also checked the rental situation in London. If you look for the properties that drop their asking prices the most, they are mostly luxury apartments asking for GBP400 per week and above for 1 bed and 600 per week for 2 beds. These luxury properties are selling at GBP350k - 450k for 1 bed room and 550k - 700k for 2 bedrooms. That's around 5.2% for 1 bedroom and 5.0% for 2 bedrooms. Many of these luxury flats dropped their asking rents to 350 and 500 pw for 1 and 2 bedrooms respectively.

The ones that get rented out first are those below 300 pw for 1 bedroom, which is where I operate and because my entry price is low, I can still achieve 5.6%.If there is a recession, people living in luxury apartments will downgrade to a mid tier market. If economy is doing well, people from the working class will upgrade to a mid tier market. Either way, I won't do too badly!

My point is, always buy something that locals buy. If you buy stupidly, based on nonsense that agents tell you, you'll be in for a fall. Agents will sell you the beautiful apartment with an upmarket feel. But the UK is facing a recession now. Housing budgets are being cut. People are now more price sensitive.