Residential property has become a highly politicised area. All over Asia, from Singapore to Hong Kong, to Shanghai and Beijing, to Kuala Lumpur and Johor Bahru, governments implement anti speculative measures to curb prices running out of reach of aspiring home owners. Stamp duties were raised in Singapore, lending ratios reduced in all countries, capital gains tax implemented on non resident owners in UK and Malaysia.
The residential market affects all residents and banks who provide mortgages. For good reasons, governments step in whenever price to income ratios move 16 - 18x, to ensure political stability.
http://www.theguardian.com/money/blog/2014/jan/04/renting-scandal-ignored-politicians
http://www.theguardian.com/money/2014/jan/04/buy-to-let-landlord-evicts-housing-benefit-tenants
If you own many residential properties, you are often vilified by the press. Click on the hyperlinks above. Landlords are accused of depriving aspiring home owners of their cherished first home. Yet few understand that without investors, property developers may not build as many when profit margins are low. The biggest beneficiary of booming property prices are land owners, who are either the government, companies or individuals. They should be the ones vilified for profiteering from the housing boom, forcing developers to pass on the high cost of land to end buyers.
Steps That Governments Can Do To Make Housing Affordable and Allow Capital Appreciation for Home Owners
There are many things governments can do to keep homes affordable to first time buyers, get as many people on the property ladder and yet allow the existing home owners to increase their wealth through home ownership.
1. Governments worldwide need to learn from Singapore's public housing program. The Housing Development Board (HDB) provides affordable homes to first time buyers, often at half the price of a resale HDB. Every citizen is allowed to buy one directly from the government, often at between USD200 - 500k for a 800 - 1200sf apartment depending on location. about 78 - 80% of residents in Singapore live in HDB.
2. Once a young couple owns a new HDB, they will have to hold it for a minimum occupancy period of 5 years before selling it in the open market. For example, if one bought it five years ago for USD350k, it would be worth around USD500k by the time they decided to sell it. This profit allows the young family to either upgrade to a private apartment or to buy another resale HDB at a better location or for a bigger size.
3. Do not encourage residents to rent the flats instead. Home ownership forces owners to work harder, because they will have "skin in the game". Home owners tend to invest more to beautify their homes to improve the value. They will also work harder to pay off their mortgages in the hope that one day they can sell their homes at a profit. Home owners will fight harder to defend their nation, their way of life and their economic stakes.
4. Leave the private residential sector for the free market to decide.
5. Do NOT implement rent controls. In New York City, rent controlled buildings are often in very poor conditions as owners resist repairing lifts and common areas to keep their yields up. Very few investors like to buy rent controlled buildings so developers don't like to build them. This pushes up the rent for the private sector because rent controlled apartments hardly become available. Rent controls are one of the worst ideas around. Governments should instead focus on increasing supply of new properties.
Pros and Cons of Commercial Properties
Recently, a landlord of a shophouse in Ann Siang Hill doubled the rent on a tenant, a restaurant. Here are the reasons why you should invest in commercial units:
1. Tenants hardly disturb you due to small things like leaky taps etc. Their businesses depend on continuous operation and they usually keep the place in good condition.
2. There is no need to do home improvements. Commercial tenants will invest in interior decors.
3. No diplomatic clauses. Tenant pays the rent for the entire tenor.
4. Rent can be increased without causing a commotion by the press / social justice fighters.
Cons of owning a commercial property:
1. the value of your unit depends on the quality of the tenant and the rent that they pay. If you rent it to a Seven Eleven, your rent will be paid on time every month. If you rent it to a business that is unstable, e.g. a poorly run spa, you could have a high turnover.
2. A change of development in the surrounding area could ruin your investment. If the shop has a lot of foot traffic because of a bus stop or a popular mall nearby, and these two factors are changed suddenly, the rent and value could plummet.
3. You often need to pay a hefty goods and services tax but this could be circumvented by forming a GST collection company in Singapore.
