In Yr 2000, during the depths of the Asian currency crisis, a semi-detached owner was trying to sell her own property in Faber Estate for about $2M. After struggling for 6 months, she eventually succeeded to unload it. This was her story to me.
Her family bought an apartment in the 70s, traded up to a terrace house and later to a semi-d in the 80s.
In 2000, the family eventually acquired a bungalow in the same Faber vicinity, for about $3.3M, with a land area of approx. 9000 sq ft.
Then they unloaded the 5000 sq ft semi-d for $1.9 odd million to finance the bungalow purchase.
The bungalow is now worth about $13M approx.
In just 13 yrs, the bungalow acquisition made the family $10M richer.
Don’t we all want to emulate smart decisions like that?
The formula
The secret was to trade up to a bigger house at each economic down turn. It is a one on one asset upgrade for the family.
The trick is to leverage up. The bigger your leverage, the bigger your net gain in absolute terms.
A downturn with severe property price drops allow for more leverage.
Given the financial means and the ability to get bank financing, which wasn’t all too difficult in those days, you will be good to go. Banks only require that you have a stable and sustainable income to finance the housing loan, in other words, a decent job with a decent salary.
Property investing is all about leveraging and timing. How much you make or rather how much more you make will depend on your entry timing. But you will make. Busts and booms come and go. After the rain, the sun will shine. Upgrading at each downturn is really a very smart move. Make hay while the sun shine.
To illustrate:
Time line: Yr 2000
A 40% depreciation of a $5M property A = $2M fall in value. Property A is now worth $3M
A 40% depreciation of a $3M property B = $1.2M fall in value. Property B is now worth $1.8M
Sell property B to buy property A
To cross over to buy a $3M home from a $1.8M home is not all that difficult to leverage in a down turn, provided you have:
1. A stable job with corresponding income to finance the mortgage payments.
2. Own assets to allow for that leveraging capability.
Put in that 20% downpayment, and take out a 80% loan, and then bingo, just sit it out, while you enjoy your newly purchased home.
How did that $3 odd million house turn into $10 odd million profit for the family in the Singapore perspective?
A few factors are in play here.
- Economic recovery and growth after the Asian currency crisis and the Sars saga.
- Policies that encourage and promote foreign investments into the country.
- Political stability and good governance.
- An inflated population. Rising population growth will generate inflated demand for resources, housing, food, transportation, essentials, and jobs if the economic conditions are right.
- Inflating the money supply, as in quantitative easing. Asset appreciation follows economic growth and asset inflation follows inflated money supply.