Your Property Agent Says: Should investors look beyond residential real estate in light of the cooling measures?

The latest round of cooling measures caught many homebuyers by surprise. Although the move did not affect the majority of prospective homeowners, it has prompted some buyers to widen their investment horizons.

Hansen Ng’s buyers, for example, have been asking him to look for commercial and/or industrial units, as well as overseas residential properties. In Cambodia, freehold units start at US$60,000 ($82,000), says the Senior Associate Director of OrangeTee.

“For investors who have been waiting to buy a second property before and (are now) affected by this ruling, at least half have asked if they should shift their attention to commercial/industrial instead,” says Ng.

Commercial/industrial properties are a different ball game, and some investors are hesitant about dabbling in asset classes that they are not familiar with. But at the same time, they are keeping their options open, Ng adds.

According to Hiroshi Oh, Senior Marketing Director of Huttons Asia Pte Ltd, commercial/industrial properties are appealing because there is no Additional Buyer’s Stamp Duty (ABSD).

“There is a Seller’s Stamp Duty (SSD) for industrial units, but that is never the reason for investors not to consider,” says Oh, who adds that foreign properties also look attractive as their entry prices are low.

For Darryl Tan, who heads Knight Frank’s Realty Insight Team, the adage ‘Don’t put all your eggs in one basket’ rings true.

“A balanced portfolio spanning multiple property types and countries adds some colour to your portfolio, and helps you develop a well-rounded growth and understanding of global real estate markets,” he says.

If you are thinking of venturing beyond local residential properties, or balancing out your portfolio with non-residential properties, foreign residential properties or Real Estate Investment Trusts (REITs), here are some pointers.

These are courtesy of OrangeTee’s Ng, Huttons’ Oh and Knight Frank’s Tan.

1) Commercial/Industrial Real Estate

Commercial/industrial properties are appealing because there is no Additional Buyer’s Stamp Duty (ABSD).

Pros:

There is no Additional Buyer’s Stamp Duty (ABSD).
There is less hassle with rentals as commercial units generally do not require as much maintenance as residential units.

Cons:

There is the possibility of a low take-up rate as it is not every day that businesses are being set up or expanded.
Units may take a longer time to rent out.

2) Foreign Residential Real Estate

In countries like Myanmar, you can get a two-bedroom, inner-city luxury apartment for the amount of ABSD you would pay for an equivalent property in Singapore. Image source: ETC

Pros:

Low entry price/often more affordable than Singapore properties. You can get a two-bedroom, inner-city luxury apartment in Myanmar for the amount of ABSD you would pay for an equivalent property in Singapore.
Are often subject to less taxes and inhibitive measures. Many foreign countries still levy some form of taxes on foreign investors, but they are less than Singapore’s ABSD.
More developed markets have very structured solutions for investors, i.e. sourcing and managing tenants, collecting rentals and assistance with paying taxes.
The proliferation of technology and availability of information adds to the ease and accessibility of acquiring and maintaining foreign properties.

Cons:

In less developed markets, data (e.g. transacted prices) may not be as easily available or transparent as in Singapore.
In some situations, foreigners are restricted to purchasing less desirable units, while the more desirable units (e.g. with better facing or more conventional layouts) are reserved for locals.
Less visibility of your investments may mean a slower reaction to market conditions.
Sometimes subjected to natural calamities, political instability and other unforeseen factors.

3) REITs

Property investors can own a piece of income-generating real estate through REITs.

Pros:

Designed for investors looking to ride the growth wave of a certain aspect of real estate, while still maintaining liquidity, unlike a traditional real estate investment.
Risks spread over a basket of properties, and/or different countries.
There is ease of entry and exit and can also be bought in smaller ‘bites’.

Cons:

May lack focus and control. These portfolios are essentially put together by fund managers who could be as correct or wrong about a market as you. Your profits will also see a margin taken off for the fund manager.