This article was first published by Aspire.
While most Singaporeans are fretting over the bear market in Singapore’s real estate market, Mr Wee Cho Yaw, chairman emeritus of UOB, took a contrarian approach. Through his family’s private real estate arm Kheng Leong, Mr Wee bought 45 units at The Nassim. For those of you who are unfamiliar with The Nassim, it is located in one of the prime locations in Singapore’s real estate market.
The deal involved Capitaland selling a 100 percent stake in Nassim Hill Realty Pte Ltd, which owns the remaining 45 unsold units at The Nassim to Wee family’s Kheng Leong Coy Pte Ltd for $412 million. This translates to a rate of $2,300 per square foot.
The other 10 units were previously sold to individual investors including Mr Sigid Wonowidjojo and his relative, whose family controls Indonesian cigarette maker Gudang Garam.
Here are three investment lessons that we can pick up from Mr Wee’s latest property investment if we delve deeper into the reasons behind his decision.
1. Contrarian Thinking: Buy When Others Are Fearful
Grim may be the most appropriate word to describe the property market outlook in Singapore. The long slump in Singapore’s retail, residential and office property markets shows no signs of ending anytime soon.
The introduction of cooling measures (Additional Buyers’ Stamp Duty and Total Debt Servicing Ratio) was aimed at preventing the local property market from overheating. But it did more than that. It dampened residential demand. Prices have slid more than 11 percent since they peaked in 2013’s third quarter.
While most investors would adopt a wait-and-see approach and wait for a better outlook for the property market before making any residential investment decision, Mr Wee took the contrarian approach.
He pounced on the opportunity to buy when many others are fearful. By investing at a time when most investors are fearful, he avoided having to compete with other buyers. Moreover, he is able to invest at a much lower price than their intrinsic value.
Investors Takeaway: While a wait-and-see approach is the safest approach, sometimes it takes contrarian thinking to give us better return on investments by spotting opportunities that others have yet to spot.
2. Property Investment Is About The Location (& Price)
There are two key factors in identifying good property investment: Location and Price. These two factors basically determine the value that one’s property investment can fetch in the future.
The Nassim is a freehold condominium located in District 10 in the Core Central Region (CCR) in Singapore. It is strategically located in the proximity of shopping malls in the Orchard region. Apart from shopping malls, it is also within minutes of prestigious schools like Nanyang Primary and River Valley Primary. To put simply, it is an upmarket condominium located in one of the most valuable land areas in Singapore.
Mr Wee managed to buy The Nassim at a rate of $2,300 per square foot. This was almost 18 percent lower than the average selling price of the other 10 units of $2,800 per square foot. By buying at the right price, it gives Mr Wee’s investment ample room for appreciation.
Investors Takeaway: An investor should always ensure that the intrinsic value of their desired investment is ideal. Once ensuring its intrinsic value, enter the investment at the ideal price.
3. Finding The Right Buying Opportunity
The reason why Mr Wee was able to buy at a significant discount was thanks to the Qualifying Certificate (QC) penalty. Under the Residential Property Act, developers issued with a QC upon buying private residential land must finish building the project within five years of acquiring the site and sell all units within two years of obtaining a temporary occupation permit (TOP).
If the developer fails to finish selling within two years, they have to pay extension charges prorated to the proportion of unsold units. The Nassim would have had to pay extension charges by August this year on unsold units, since it received its TOP in August 2015.
By taking advantage of the QC penalties, Mr Wee managed to get a bulk discount of almost 18 percent. By buying at the right opportunity, Mr Wee managed to “make” $500 per square foot without lifting a finger because intrinsically these properties were still worth $2,800 per square foot.
Investors Takeaway: Identifying the right buying opportunity is equally, if not more, important as determining the intrinsic value of an investment.
Fun fact: Mr Wee paid almost $74 million less since he bought the units at a discount of almost 18 percent.
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