Commercial property in Singapore, is it worth it?

Question

I did a small calculation on a 920k property

- 20% downpayment (184k)

- 80% loan (3.1k) a month

- monthly rent (3.5k) for 30 years at 3%

- cash flow, after deducting taxes and everything, it will be -$603

- hence, I will be bleeding every month.

However, I realised that Even if I bleed $603 every month, by the end of 30 years, I would have bled a total of 217k. Add that to my 184k (downpayment) and I have spent a total of 401k on this property. However, when I sell this property, I will be selling it at around 1.1million (inflation) and I will be gaining more money (699k) overall. Hence, does this make a good investment?

Luke Hadden · Answer

@Samuel Chua, It's good to see some more from Singapore on these posts.

In my opinion, negative cash flow is not a good investment. There are plenty of ways to buy positive cash flow. However, there may be a situation where you have another asset with positive cash flow that offsets this negative. Are you referring to a sales price at 1.1m due to appreciation or inflation? Appreciation is almost certain in Singapore due to the lack of space available and continuous government funded value add projects. However, oversupply, economic shifts, or unknown factors could drag that timeline to reach your appreciation expectations out way further than imagined.

My day job is in the APAC commercial real estate world. All indicators are pointing to a tough road ahead for our industry.Singapore's GDP is expected to slow from 3.1 to 1.9 in 2019.

The HK Jockey Club betting dropped $1.6B HKD in Q2 (largest falling off in over a decade). People are spending less.

Macau's GDP will shrink 0.3% as opposed to the growth of 3.2%. Chinese tourism is starting to shrink.

Marina Bay Sands had a fall of 20% in profit at the end of last year.

If you haven't yet, take a look at the CBRE & JLL property outlook papers for 2019. JLL's most recent one came out last week. It's bleak.

Let's meet up sometime and talk more. I'm very interested to learn what you know.

Thank you,

Luke

Samuel Chua · Answer

Would you like to share more about it?

Luke Hadden · Answer

@Samuel Chua

I don’t. Been toying with the idea of a villa in Lombok.

Samuel Chua · Answer

Thank you, kind sir, for replying to my forum post. I fear that I do not have much knowledge of investing in Singapore and am more familiar with the US market because prices in Singapore are too high. However, I recently came across the 920k property as mentioned above a few days back which made me think about it. I agree with you on the part where you said everything I have calculated could be delayed and because of that, I will be losing a lot of money instead in the process because of negative cash flow. I really appreciate the research you have shared there but I believe Singapore will not become a good place for rental properties anytime soon. May I ask if you have any business properties here in Singapore?