The reality of property investments

Many people are paying too much for their property, either for own occupation or for rental. They are told by the property agents that the yield is better than interest on bank deposits and that prices will continue to increase further, due to economic growth.

The property agent wishes to talk up the property market, so that more people will invest in properties and they can earn their attractive commission, which can amount to a few thousand dollars.

Investors should realize the facts of property investments:

a) The gross yield on rental may look attractive, say 3% to 4%, but you have to deduct maintenance charges (for condos), repair cost, agent's commission (to rent out the property) and vacancies. The net yield is likely to be less than 2%.

b) The profit made from property is likely to be exaggerated. Many people ignore the cost of investing in property, e.g. stamp duty, lawyer's fees, agent's commission, in computing their profit.

c) Many owners heard that their neighbors were able to sell their property at an attractive price. However, when the put their property in the market, they may have to wait a long time to find a buyer. Some properties are unsold for many years, unless the owner is willing to cut the asking price drastically.

d) Owners are attractive by the high price psf for new properties in the vicinity. They forget that there is a gap of up to 20% between the price psf of old and new properties in the locality. Their property is not likely to achieve the high price psf of new properties.

Do consider these points carefully, and make your research, before you pay a high price to invest in a property.

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