reasons to buy by sam gian

The logic in Real Estate Sales

REASONS TO BUY

Sam GianSam GianSam GianSam Gian

Worldview Development Consultant

All rights reserved © 2009 Title: "REASONS TO BUY" Author: Sam Gian Publisher: Worldview Development Consultant 3 Raffles Place #07-01 Bharat Building Singapore 048617 Tel: (65) 6348 9679 Fax: (65) 6665 5009

ISBN:

Copyright rights © 2009 by Worldview Development Consultant Worldview Development Consultant reserves the right to prosecute any infringements of its intellectual property rights over this book. Any person or persons found using the contents of this book without the written consent of

Worldview Development Consultant shall face legal consequences.

Table of ContentsTable of ContentsTable of ContentsTable of Contents

Foreword 1–6

Introduction 7–14

1 Do not start a FIGHT 15–42

2 REASONS Government Wants You to BUY 43–60

3 REASONS ‘Now’ is the Best Time to BUY 61–96

4 What Goes Down Must Come Up 97–116

5 REASONS to BUY Leasehold Condos 117–152

6 REASONS to BUY Landed Homes 153–166

7 REASONS to BUY Singapore Real Estate 167–174

8 Conclusion 175–180

This book is for my wife and my four lovely children.

They are the reasons for my contentment.

REASONS TO BUY FOREWORD

1

FOREWORD

Regardless of our current circumstance, every one of us

has a dream life. And in every dream life, there is a dream

house. Some people have many dream lives and dream

houses. My point is: the future always holds a lot of

promises.

In the real life, there will be some people who are capable

of creating their own opportunities. But the majority of

the people just try to take advantage of the opportunities

that present themselves from time to time. We certainly

did not create the current economic recession so that we

can own more than one dream house. But the

opportunities have presented themselves for many of us

to do so. This is the historic moment where we will be

witnessing the birth of the next generation of new

billionaires.

Logic comes from clear thinking. But in such a tense

economic environment, many people are incapable of

clear thinking and simple logic has succumbed to

negative emotions. People are affected by the bad news

being fed to them on a daily basis and they start to fear

for their own future so much that their logic has been

crippled. As such, the old sale pitch is insufficient to get


2

the prospective buyers to commit to a purchase. This is

the main reason of writing this book.

LOGIC IS ONLY A COVER – EMOTION IS THE KEY

I must state categorically at the onset of this book that

the principle driving force behind every home buying

decision is EMOTIONS, not logic.

[The reason why I devote the whole book to the discussion of logic and reasons to buy is because I feel that agents in general lack interesting talking points to bridge the wide perception gap between the customer’s world and the real world.]

Here is a list of the key emotions that are always

responsible for a successful sale.

(1) I love it.

(2) It’s my dream come true [I have always wanted to live in a landed property / condo / an executive maisonette / 5-room flat]. [In ten years time, we will be living in a bungalow] [we always wanted to live in Watten Estate]

(3) We want our house to be within 1km distant of [school name]

(4) I only want this particular estate / project / or block [because of personal preference]

(5) The flat cannot be further than Blk 693 [because I want to enjoy the additional $10,000 in the housing


3

grant]

(6) It’s near my parents’ place [so that we can save on daily expenses]

(7) My children love to swim and they can also invite their friends over.

(8) So that the children have their own rooms and privacy.

(9) The environment is better or more comfortable. [It’s not so crowded and noisy / rowdy / dirty]

(10) We want a safer environment for our children.

(11) It will appreciate in value [perception also comes under emotion because it is not a fact]

(12) The estate / project / block is more prestigious.

(13) We are going for the coveted address.

(14) I need more space / rooms / a balcony.

(15) All my children have grown up and moved out; I only need a smaller house now.

(16) My children are growing bigger. I need to upgrade to a bigger house.

(17) The location is good.

(18) It’s so cheap.

(19) It’s near Orchard Road.

(20) It’s near the MRT station.

(21) It’s very convenient.

(22) It’s freehold.

(23) It’s easy to rent out.

(24) I can flip it and make some money.

(25) It’s nearer to work; we will save on time and


4

transportation.

(26) I am familiar with the environment here.

I want to quickly deal with these KEY EMOTIONS

associated with buying a home from the onset of the

book as this topic is taught in every real estate agency’s

basic training. There is no additional mileage for me to

dwell in them at length in this book. But they are the

basic ingredient in every successful sales pitch.

Some of the key emotions look like logic, for example,

those that have got to do with children’s education, the

distance between the home and the school, and those

about investment and making money. However, they are

not logic because they are aspirations not based on

established facts; nor can they be calculated or proven

scientifically. Some of them can be called the apparent

logic while others are simply assumptions that have not

been seriously challenged before.

But they are still valid, relevant and valuable, even during

a recession.

REASONS TO BUY INTRODUCTION

7

INTRODUCTION

People always mistaken that real estate agents are good

talkers – because we are perceived to be ‘making a living’

out of ‘smooth talks’.

That might be true in some cases, but not so in most

others. In truth, many of us, especially the rookies, don’t

know what to say to the customers most of the time - not

because the rookies don’t have the common sense, but

because the real estate brokerage business is complex,

and sometimes, even complicated. It takes some time (e.g.

12 to 18 months) for anyone, regardless of how smart

they are, just to acquire some basic understanding of the

products and the success factors in real estate brokerage.

There are three sets of factors that determine the success

of a deal, including:

� The Market – Demand and Supply

The Market is an outcome of demand and supply, and

which by itself is a very tricky proposition – who would

have correctly predicted the recession?


8

� The Real Estate

Real Estate is complex, to say the least. And it will easily

take a smarter rookie up to one year just to be able to

differentiate facts from assumptions about real estate.

And sometimes it takes more than a few years for real

estate agents with some ground experience to have a

really comprehensive understanding of the unique

physical, as well as financial characteristics of the

products that they are brokering.

� The Customers

People are highly complex, and difficult to understand

and predict; and some of them are seriously mistaken

about many things concerning real estate and badly

needed some basic reasoning.

Given the fact that 99.9% of real estate agents in

Singapore are ‘mid-career transferees’ from other

industries, most of us started our sales having to juggle

all the three sets of highly complex factors

simultaneously, while trying to put food on the table. And

when all the factors are mixed together, every minute of

an agent’s life has a potential surprise.

As such, we sometimes do not know ‘a more suitable way

of saying what we mean’ to our customers because every


9

other situation is different from what our previous life

experiences have prepared us for.

Hopefully, this book will be able to provide the foresight

and antidotes.

In order for the real estate agents to be able to engage

their customer’s opinions (whether the opinions are right

or wrong), and correct the misconceptions about real

estate and the agents – and in the process make more

money, they have to master the following knowledge:

� relevant knowledge about real estate as an

investment;

� relevant knowledge about the real estate brokerage

business;

� unique logic of real estate – e.g. the demand and

supply interplay and the market cycle – provided

you know the range of human emotions involved

with buying of real estate;

� known assumptions about real estate buying and

selling that need to be corrected.

REASONS TO BUY CHAPTER 1 – DON’T START A FIGHT

15

Chapter 1

DON’T START A FIGHT

The entire process of trying to convince someone of the

need to first have a housing plan and then soon

afterwards take action to own a house; to clarify his

doubts on real estate matters; or to change his attitude

towards real estate investment, from one of indifference

to interest, is called ‘argument’, or a process of

reasoning. It is not negotiation. Your prospects don’t

have to buy anything from you there and then.

What is vital is that the objective of reasoning is to

convince your prospects of the opportunities awaiting

them during these difficult times. And such

opportunities may not return anymore. At the end of

the day, if they don’t see it that way, we can agree to

disagree and meet again another day to talk about

something else. There will be no harm done.

I want to remind readers that it is very easy for a

conversation to slip into a fierce debate, which is not

yours or my intention. We don’t want a debate. Because

once there is a debate, you will sure lose the battle

because egos will enter the fray and your prospects will

never buy from you again. What I am trying to convey

in this book is that ‘an argument’ or ‘reasoning’ can be


16

put across in sincere, unhurried, and even light-hearted

manners.

REASONING IS NOT SELLING YET

When you are giving your prospects REASONS TO BUY,

you are trying to bring the prospects and yourself closer

to a level where you can propose a sale – but you are

not paddling anything right now. You are imparting

values.

This is because when ‘selling’ begins, it is another new

ball game altogether. There is an A-to-Z of real estate

sales on which I have written six other books.

As an agent, you will need to realise that before you

even start selling something, you need to win an

important argument, that is, to convince your prospects

of the reasons to start the buying process now.

REASONING IS NOT CLOSING

The act of reasoning is carried out to cause a positive

action of buying, hopefully sooner, rather than later.

But it must be subtle and the eventual outcome may

not benefit the person who puts forth the REASONS,

because he may lack the closing skills, and another


17

agent may reap the reward of another person’s labour

because his closing skills are better. That is the reason

why I say ‘reasoning’ is not part of real estate closing,

nor is it countering of objections.

PRIVILEGE TO REASON MUST BE EARNED

The reasoning process may begin in the early stages of

‘generating leads’ and ‘prospecting’. And it can be

reinforced during the later stages of follow-up actions,

negotiation, closing and repeat business and referral

sale. (Remember the nine critical skills?)

It can be a very long process – from a few minutes to a

few years. The bulk of the reasons and the specific set of

logics must be all geared up behind the mind of the

agents. In other words, a professional real estate agent

must always be ready to put forth a reason or two

convincingly during the sales process.

To achieve that, you need the right mix of facts, niceties,

and the willingness to be fun and entertaining, in order

to earn the privilege to reason with your prospect again.


18

REASONING NEED NOT BE FORCEFULLY DONE

Putting forth a winning argument does not mean that

you have to be forceful about it. It can be done very

subtly and with a soft touch.

For example, when a contact of yours expresses his

scepticism about the government housing grant, you

may respond by saying: ‘that will be a great help for

young families, especially those whose earning

potential is good because they will achieve financial

freedom sooner. How fast can a newly-wed couple save

$80,000?’ And then you allow the other guy to say

whatever he wishes to say.

Your statement will sink in eventually because

nowadays it is hard to find someone with $80,000

savings lying around.

I think that is enough to convince any non-believers;

because you have already established yourself as

someone who is sensible and has some insights into the

value of money.


19

HOW TO REASON WITH SOMEONE NICELY

You need to find the right touch when you are

reasoning with someone. Too quiet, your argument may

not register; but too loud, the listeners may repel.

Worse, they may start to circulate their negative view

about you among your other friends.

Too much of the same thing, you become a nag. Too

little of it, you seem like you lack conviction.

Here are some of the ‘thou should not’ in the art of

reasoning.

� Do not OVERDO it

While you don’t want to underwhelm, neither do you

want to hit your prospects or listeners with tons of

reasons and render them speechless.

You just need to strike the right chord and earn the

privilege to speak with the same person again in the

near future.

� Do not always try to WIN

The last thing you want when you are trying to generate

business leads is to win an argument but lose the … … …

REASONS TO BUY CHAPTER 2 –REASONS GOVERNMENT WANTS YOU TO BUY

43

Chapter 2

REASONS GOVERNMENT WANTS YOU TO BUY

In the latest Budget 2009, the Singapore government has

raised the state subsidies for first time flat owners by

another $10,000. In the meantime, the income cap for

such subsidises has also been raised from the earlier

$4,000 monthly household income to $5,000 monthly

household income – in so doing, benefiting more

households in the current economic downturn.

As of now, more than 60% of the households in

Singapore will qualify to enjoy the additional funds when

they purchase either a brand new flat from the Housing

Board, or from the open market. If the recession worsens,

more households will qualify.

Why does the government want to give away money to

ordinary citizens to buy a flat? Are there any good

reasons for the Singapore government to do that?

Let’s look at how a property can help ordinary people

build their nest eggs.


44

Dialogue [2]

WHY IT IS IMPORTANT TO OWN A PROPERTY?

REASON TO BUY: PROPERTY CREATE WEALTH FOR ITS OWNER

Agent:

Mr Customer, do you know why the

Singapore government is giving away so

much money to ordinary Singaporean

families to help them to own their own

home?

Customer: Because there is an oversupply of HDB flats?

Agent:

No it is not true. Nowadays, the Housing

Board will not build any flat units if there is no

demand for them. This is called the ‘Built-to-

Order’ scheme. There is no oversupply of

government flats.

Customer: Then what are the real reasons? The General Election is coming?

Agent:

The election part I don’t know. But the real

reason to give away $80,000 to eligible

households to buy their own flats is to ensure

that those families will be able to build up

their wealth over the years and become self-


45

reliant and financially independent.

Customer: What is ‘financially independent’?

Agent:

When a person is financially independent, he

or she has enough money to look after the

daily expenses and does not need to borrow

from others. Sometimes, a financially

independent person may appear to be quite

rich.

Customer: How does owning a flat help a person to be rich?

Agent:

First of all, there will be a forced savings every

month. This is where the flat owners will be

forced to set aside certain amount of money

every month to repay the housing loan that

they take when buying the house.

The government housing grant of maximum

$80,000 is meant to help Singaporean families

reduce the down-payment so that they do

not have to borrow a lot of money. With the

help of the housing grant, the families will be

able to complete the monthly loan

repayments in fewer years.


46

Customer: But once you pay out the money it is no more yours. How does this make a person rich?

Agent:

Unlike other investments like stocks and

shares, the monthly instalments a property

owner pays will accumulate over years. The

money will not disappear altogether.

The money will grow and one day will

become a huge amount because the value of

the property will appreciate in the future and

that will ensure that the value of the money

the household pays every month will also

appreciate.

In this way, the property owner gains wealth

through debt reductions. This is better than

putting money in the banks.

Customer: But that is going to take years to accumulate.

Agent:

True, it is going to take at least five to 10

years to be able to see the accumulation of

wealth. But the good news is that even if you

were to sell the property at the same price,

you have already earned the subsidy.


47

Even if the family were to sell the flat later on

for the same price, they will get back every

cent that they have put into the flat through

the monthly instalments. This is what we call

‘capital build-up’ – which is really a form of

‘wealth creation’, though the process is slow.

Moreover, the family may be able to make

some profits if they sell the flat in a better

economy. If the family is able to achieve that,

it is called making a ‘capital gain’. People get

rich through capital gain when they sell

something like what businesses do.

Customer: What about something that can be gained immediately?

Agent:

For public flats, the owners cannot rent them

out immediately; but if certain conditions are

met, the flat owners can monetise their flat

quite easily by sub-letting the flat with the

Housing Board’s approval.

The rent that the flat owners collect every

month is called passive income, because they

don’t have to actively work for the money.

REASONS TO BUY CHAPTER 3 – REASONS ‘NOW’ IS THE BEST TIME TO BUY

61

Chapter 3

REASONS ‘NOW’ IS THE BEST TIME TO BUY?

We are right now in the worst economic recession

Singapore ever faces in the past 44 years.

There is no point trying to deny the fact. Nor should we

ignore the market condition and continue to sell, Sell,

SELL. You don’t want to be a hard seller either. We

cannot fool ourselves for long. After a while, the hard

sellers will run out of all business leads because

everybody will be avoiding them. That may be the

worse strategy to cope with a recession.

But rather than brooding all day, we might as well try to

find new opportunities and identify new business ideas

and growth areas in this difficult times. Being able to

take adversity is a prerequisite for success.

In the interim, life must go on. There are many people

out there still needing a roof above their heads. There

are still prospective buyers out there hunting for their

dream homes. Except that, given the more subdued

buying sentiments, the prospective buyers are not

going to make hasty decisions at the slight prod of the

agents (you can see why hard selling is not the best policy). The prospective buyers will be looking for good


62

reasons to buy now – after all, they firmly believe, the

longer they wait, the further the prices will fall.

Such mentality among buyers can further depress home

prices if we do not have the skills to win the greatest

argument of our life, that is, there are good REASONS TO

BUY because real estate is complex proposition. It has

many unique characteristics and advantages with which

no other investments can compare, such as its

heterogeneity, immobility, and its inherent ability to

create wealth for many people over many generations.

This is why ‘timing’ is crucial in every real estate

purchase.

This chapter offers some useful ways to reason with

customers and persuade them to buy sooner rather than

later.


63

Dialogue [6]

WHY SHOULD I BUY NOW? I WANT TO WAIT FOR THE PRICES TO

DROP SOME MORE.

REASON TO BUY: CAN’T GUARANTEE YOU THAT YOU WILL

FIND ANOTHER HOUSE YOU LIKE SO MUCH

Customer: Tell me Sam, since you just said that prices are falling, why should I buy now?

Agent:

First thing first, sir. Before I answer this

question, may I know whether you like the

house?

Customer: Yes I do but I think the price a little historic. I seriously don’t mind waiting for a while to get it at lower price. After all, there are going to be so many other choices available.

Agent:

This may not be a very wise move especially

when you like the house. I cannot guarantee

you that you will find another unit which you

like so much.

Moreover, your logic about property prices

might not be very accurate. Historically, we

can see that for a sound economy such as

Singapore’s, the capital appreciation of real


64

estate follows a certain healthy pattern, that

is, the ‘new low’ will not be lower than the

‘previous low’ and the ‘new high’ will always

be higher than the ‘previous high’.

This is especially so for a city state with

limited living space and a vibrant economy.

Customer: But I thought there will be much more supply coming on stream from next year onwards? Don’t you think more supply will bring down the prices?

Agent:

In theory I will have to say yes. But sir, do you

seriously think that all houses are the same?

For that matter, do you like each and every

property that you have seen so far? I bet the

answer is no.

Therefore, in theory, higher supply causes the

price to go lower when the demand remains

constant; but in reality the higher supply of

new homes may not occur in more desirable

locations, such as here.


65

Dialogue [7]

HOW LOW CAN HOME PRICES GO?

REASON TO BUY: NOBODY WILL SELL CHEAP WHEN THEY

ARE ENJOYING SUCH A HIGH RENTAL YIELD

Customer: Tell me Sam, how low do you think the property prices will drop to?

Agent:

This is always a tough question to answer. But a

quick answer will be as low as a high rental

yield of five percent with a sitting tenant.

Customer: What do you mean by this?

Agent:

Assuming you are the owner of a 2-bedroom

Jurong East condo unit which is being rented

out at a monthly rent of $3,000 or over $3.80

psf. Let say I offer you $500,000 to buy over

your unit with the tenancy, would you sell to

me?

Customer: No, why should I sell at such a low price? Besides, most of my neighbours are asking for prices between $560,000 and $650,000?

REASONS TO BUY CHAPTER 4 – WHAT GOES DOWN MUST COME UP

97

Chapter 4

WHAT GOES DOWN MUST COME UP

It is the universal truth that when property prices had

gone too high, they will come down; and when the prices

had done down too low, they will come back up! Such

dynamics form the very basis of the real estate cycle.

In this chapter, I would like to discuss the real estate cycle,

hence the title ‘What goes down must come up’.

� The Natural Order of Ups and Downs

Over the past decade, we have witnessed the Asian

Currency Crisis, followed by the Dot.com bust and the

September 11 attacks – one shortly after another. All

three crises induced the Singapore property market to

plunge. However, each time it rebounds with a

vengeance and becomes better than before the crises.

� Why should this crisis be any different

If we liken this crisis to the Australian forest fire that

raged on for two weeks in early February 2009, claiming

hundreds of human lives and millions of dollars worth of

natural as well as man-made resources, the fire will die


98

down, the forest will grow back, and the people will come

out of refuge and return to rebuild their community.

I am sure the people there are going to look at the

positive side and start rebuilding their lives sooner rather

than later. By the natural ecological order, the forest

ground will now be more fertile and new trees will grow

back. The people will become more united in the

rebuilding process and a new community will emerge –

stronger, tougher and more prepared to cope with future

setback.

The following imaginary dialogue between an agent and I

is intended for readers to understand that the cyclical

order of the property market, and regardless of the

market situation, there will be buying activities, except

that the buying strategy may be somewhat different.

Dialogue [17]

WHAT SHOULD I SAY TO CONVINCE THE SELLERS THAT I AM

WORKING VERY HARD?

Agent: Sam, the market is so bad now. What should I be

saying to my customers?

SAM

GIAN

First of all, anyone who wants to excel in this

real estate brokerage business must not forget


99

to tell their customers that ‘real estate market moves in cyclical patterns’.

We are now in a ‘down cycle’, but it does not

mean that we will not move into the ‘up cycle’

soon. What comes down must go up again.

Since you say that the market is ‘slow’ now, I

presume you will have more time to speak with

your customers for a longer time.

Agent: True, I have more time now to speak with them,

but I am afraid to call them because they will chase me

for buyers.

SAM

GIAN

Okay, they will chase you results because they

are hard pressed themselves given the

uncertainties now. Maybe you can tell them how

you have been trying to convince buyers to

come forward. Have you shown the REASONS TO

BUY to your customers?

Agent: Show me how to do it.

SAM

GIAN

One can build wealth in any real estate market,

fast or slow. For example, during a market bull-

run where property value appreciates overnight,

speculators would move in quickly, grab a few


100

properties, mostly at high prices, and re-sell

them quickly for even higher prices.

This is what we call capital gain – the oldest way

to get rich. But not everybody succeed because

such a buying strategy is highly speculative,

involves high risks and requires a lot of guts.

The timing must be right, and when it is

executed correctly, the deals can produce

obscene profits. This is what we call the ‘high

risk high return’ strategy.

This strategy is often used during the market

boom phase 1 – which means the market is

experiencing high sales volume and soaring

prices every day.

Agent: But the bull run is over. That is why I am having

problems trying to get buyers to come forward.

SAM

GIAN

It is true that the market condition is different;

but it is not true that no buyers are forthcoming,

except that they are adopting a different buying

strategy now. Let me explain.

In a lull market, investors who are risk averse

would come in and slowly pick and choose the

1 There will be a discussion on the ‘real estate cycle’ at the Annexe of this chapter.


101

right properties with much greater care than the

speculators. The risk averse investors do not

rush themselves and they hate to be rushed,

especially by real estate agents. They do not

offer high prices for any property and will never

overpay for property. They will negotiate for the

lowest price and the most favourable terms, so

that they can ‘buy low and sell high’.

This is a safer buying strategy which today’s

buyers are adopting.

Agent: What is the difference between the two buying

strategies?

SAM

GIAN

The principle behind the ‘buy low sell high’

strategy is still capital gain – the surest way to

be wealthy at the end of the day. But it takes

longer time, sometimes 20 to 30 years.

REASONS TO BUY CHAPTER 5 – REASONS TO BUY LEASEHOLD CONDOS

117

Chapter 5

REASONS TO BUY LEASEHOLD CONDOS

In Singapore many people will tell you that it is better to

own a freehold property.

This is an old real estate assumption that needs to be

corrected. The reason they give is because 99-year

leasehold properties are less valuable because when the

lease period runs out, you will have to return the property

to the government.

Theoretically, the argument is correct. The lessees of 99-

year leasehold properties must return the land to the

freeholders at the expiry of the lease. But, the end game

of every real estate investment, whether the tenure is

freehold or leasehold, is ultimately collective sale.

No investors will still hold on to the property when it is

already 50 years old. The project would have been

collective sold by the 40th year.

Moreover, the leasehold period can be topped up to the

full 99-year tenure after some years. In 2007, we saw

leasehold properties being collectively sold for multi-

million dollars. In fact, the largest en bloc deal was Farrer

Court, a leasehold estate which was sold for $1.3388

billion.


118

In this Chapter, I will explain in details why 99-year

leasehold condos are as good as freehold ones, if not

better.

There will be two detailed case studies to prove, once

and for all, that if your investment objective is to make

money, why do you care whether the investment vehicle

is freehold or leasehold. At the end of the day, everybody

will go for collective sale.

Dialogue [20]

LEASEHOLD PROPERTIES GIVE YOU AS MUCH CAPITAL GAINS AS

FREEHOLD PROPERTIES

REASON TO BUY: CAPITAL GAINS ARE ALL THE SAME OVER A

PERIOD OF TIME

Customer: I am actually waiting for the launch of the FREEHOLD project nearby.

Agent:

Do you intend to buy it for investment or own

use?

Customer: I will decide later.

Agent:

How important is ‘capital gain’ in your buying

decision?


119

Customer: Of course, everybody hopes to make money from real estate investments.

Agent:

And how long do you expect the investment

will take to realise 100% gain in your capital

value?

Customer: I expect three to five years after the economy is back on the roll.

Agent:

Good, at least you are not expecting to flip it

in 3 days and make a 100% gain.

Customer: I am not a speculator.

Agent:

I can see that. Would a 100% gain in less than

10 years be a good result for you?

Customer: The shorter the better.

Agent:

I have with me some statistics of 99-year

leasehold properties that were launched

during the previous post-recession periods,

such as 1999 and 2002. [Show statistics]

Look at the 100% gain they have achieved

even after the 2007 bull run. I wouldn’t want


120

to show you their transaction prices in 2007

because that would amount to

misrepresentation.

Water Place Sale Prices

Lowest Highest Median

2002 544,390 1,309,740 821,360 2008 1,225,000 2,154,180 1,560,000 Emerald Park Sale Prices


1999 130,000 870,000 605,000 2008 710,000 1,275,000 865,000 Bayshore Park Sale Prices


1999 173,469.38 1,550,000 550,000 2008 220,000 2,600,000 810,000

Customer: But I still prefer a freehold project.

Agent:

What are the reasons?

Customer: The value of freehold projects is still better.

Agent:

In fact, I have already proven that 99-year

leasehold condos, like the freehold ones, can

also offer very good capital appreciation in

the medium-term of five to 10 years; and

provide the capital gains that you are looking

for.


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Moreover, Leasehold Condos are cheaper to

acquire; hence offers lower financial risks.

Dialogue [21]

IS IT WORTH THE RISK TO INVEST IN 99-YEAR LEASEHOLD

CONDO?

REASON TO BUY: RENTAL YIELD FROM LEASEHOLD PROJECTS

ARE BETTER BECAUSE OF THE LOWER SALE PRICES

The answer is a resounding ‘Yes’ as rental yield is still

attractive at gross yield of over 4% per year.

I have done a case study on the rental yield of 99-year

leasehold properties and the findings are favourable.

I took three examples from the recently completed 99-

year leasehold condos, and three examples from an old

condo and work out the investment yield.

The basic assumption in the workings of the investment

yield is that the property is ‘80% leverage at an interest

factor of $436 for every $100,000 borrowed’.

REASONS TO BUY CHAPTER 6 – REASONS TO BUY LANDED HOMES

153

Chapter 6

REASONS TO BUY LANDED HOMES

The number of landed property transactions has come

down considerably from the final quarter of 2007, after

the US subprime mortgage crisis first reared its head. The

brief sanity in the property market in general has been

replaced by a pervasive sense of apprehension, in stark

contrast to the buoyant mood in the first half of 2007.

The landed property market hit its peak in May 2007, with

a very impressive sale figure of 778 a month – about four

times the size of the resale flat transaction of 190 flats in

the largest HDB estate in Singapore.

But, the buying frenzy lasted only three months and

transactions per month trickled down to 191 units by the

December 2007.

Dialogue [26]

IS THIS A GOOD TIME TO BUY LANDED PROPERTY?

REASON TO BUY: QUANTITY IS FINITE OVER THE NEXT FEW

YEARS

Customer: Is this a good time to invest in landed


154

property in Singapore?

Agent:

My answer to this question is always a

resounding YES because ‘God does not make

this thing anymore’.

Customer: It’s true. But what about the specific market

timing. Will I get a better deal at a cheaper price if I

wait for a little while longer?

Agent:

I think as far as landed homes are concerned,

the specific factors connect to location are

very important. For example, the residential

district the house is in, such as District 10, 11,

15, 16, 19, 20 etc.

The next factor will be the plot size, plot

shape and orientation. For land, the plot size

is the bigger the better. The shape must be

regular, without any sharp angles. A north-

south orientation is preferable. But if it is

semi-detached and bigger, you don’t really

have any leeway because the house will be

exposed to hot sun in more ways than one.

Customer: So, you are saying the factors of location,

size, shape and orientation is more important than

price itself.


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Agent: Yes, I don’t think you want a cheap house on

a tiny triangular plot far away in a remote

corner near a rubbish disposal plant. Where

are the comfort, prestige, pride and joy

factors?

Customer: Yes, I totally agree with you. But I will be

very happy if I am able to own my dream house

cheaper?

Agent:

Yes, I understand your feeling perfectly. My

view is that there are no compelling reasons

for landed home prices to go below the 2006

price level. The current prices for landed

homes across the country are sustainable,

though the number of transactions may come

down a shade lower due to the uncertainties

in the near term.

Dialogue [27]

WHAT IS THE PROSPECT OF LANDED HOME PRICES?

REASON TO BUY: LANDED HOME PRICES LESS LIKELY TO FALL

DUE TO LACK OF SPECULATION

Customer: Am I being unrealistic to expect the same

price trend in the high-end and mid-market condo


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segments in 2008 in the landed property segment?

Agent:

I am afraid I have to say that you will be

considered unrealistic to expect the prices of

landed homes to fall drastically.

Customer: On what basis do you say that?

Agent:

Landed homes are different cattle of fish, so

to speak.

They have the scarce resources, i.e. land, to

underpin their value. The profile of landed

property owners is also different from condos

and apartments.

Customer: How different?

Agent:

First of all, there are fewer speculators to

begin with.

Landed homes generally cost higher prices

and require higher upfront cash payment in

the purchase. As such, they are less

vulnerable to speculative buying, though

there were a number of isolated cases of

‘flipping’ of bungalows being spotted last

year.


157

In fact, according to the news reports, foreign

investors had contributed significantly to the

speculative bubble in 2007. Fortunately,

foreigners, including permanent residents and

foreigners not residing in Singapore, have to

obtain special approval to own a landed

property for their own use.

They can only own one landed property and

are not allowed to rent out the property

under any circumstances.

Due to the stability in buying behaviours,

there should not be much fluctuation (e.g. fire

sales from speculators using the Deferred

Payment Scheme to book their condo units)

in landed home prices from this point on.

Customer: What other factors to underpin landed

home prices?

REASONS TO BUY CHAPTER 7 – REASONS TO BUY SINGAPORE REAL ESTATE

167

Chapter 7

REASONS TO BUY SINGAPORE REAL ESTATE – WHEN YOU

CAN BUY US

Slumping United States real estate prices are proving to

be irresistible to many overseas investors, such as the

newly rich from mainland China, who are planning to

snap up cheap US real estate in a big way like the

Japanese did in the 1980s.

There is a growing number of Chinese who are joining

tours organised especially for investors who want to take

advantage of slumping US real estate prices in large cities

like New York and Los Angeles.

Though the super-rich Chinese have been buying

property in the US for some years, such property tours

are only recent phenomena. So far, more than 100

Chinese buyers have joined such tours since late 2008.

It is very easy for the Chinese to justify the risks of taking

the plunge now as property prices in the US are still

melting. Some are purely looking at the knock-down

prices of US real estate, while others are having longer

term plans, such as migrating to the US or sending their

children to colleges there.


168

China had the world's fifth-largest population of

millionaires in 2008 with 391,000 high net-worth

individuals. And high-level incomes in China continue to

rise despite the apparent economic slowdown.

This has prompted many to ask: ‘Would Singapore real

estate be ignored once the United States are on the road

of recovery?’ In other words, why does anybody want to

buy Singapore real estate when they can buy US?

Dialogue [30]

WHY BUY SINGAPORE REAL ESTATE – WHEN YOU CAN BUY U.S?

REASON TO BUY: SINGAPORE REMAINS A CLEAN, GREEN,

AND SAFE CITY – IDEAL TO RAISE FAMILIES

Customer: Will foreign investor who used to invest in

Singapore real estate turn to the United States since

the real estate prices there are now at rock bottom?

Agent:

In theory, real estate prices in the US are

really at rock bottom. But price is not the only

decider in real estate investment. There are

many other practical considerations.

Customer: What are the considerations?


169

Agent: The investors must have a clear buying

strategy which includes the specific

neighbourhood to buy into, the costs of fixing

the run-down property, the recurring costs,

managing the property, and other legal costs.

It is not as easy as picking up the phone and

ordering a piece of real estate.

Customer: But how is the investment potential

compared to Singapore’s?

Agent:

The US is a vast country and not every city will

enjoy an equal chance of smooth recovery.

Public administration services, public health

environment in the cities, poor transportation

system, and high crime rate are the major

stumbling blocks for overseas investors to

buy in bulk. As a consequence to the financial

tsunami, the public administration services in

many US cities are virtually bankrupt.

I don’t think it is a good idea to buy any US

real estate at this moment.

Customer: What is your reservation?


170

Agent: Many of the two over millions vacant houses

for sale are in serious disrepairs. My concern

is the high costs of maintaining such

properties in a country now plagued by

insolvent local governments.

Moreover, there are still a lot of uncertainties

in the recovery process.

Customer: What about Singapore real estate? Do you

think the foreign investors will return to invest in

Singapore?

Agent:

Yes, they will return to Singapore. Like I said

earlier, price is not the only consideration.

Whether the investors feel good or not when

they arrive in Singapore is a critical factor.

Singapore is renowned for its Clean and

Green image and the very efficient public

administration. The entire city is still spanking

new.

Many foreigners are pleasantly surprised to

see many trees lining all the city streets in

Singapore.

Customer: How does a green image help our real


171

estate?

Agent:

I was only talking about the first impression.

I think the main considerations for foreign

investors to come back to Singapore are our

STABILITY and SAFETY.

Their uppermost concern will be whether they

are able to unlock profit easily and safely. And

in this respect, no other countries in the world

are as predictable as Singapore.

Singapore’s public administration efficiency is

world renowned. I think given only one

choice, many investors will pick Singapore

over any other countries.

REASONS TO BUY CONCLUSION

175

CONCLUSION

At the end of the day, pure logic does not compel

customers to buy. Emotions do.

Logic is the bridesmaid. It functions as an excuse to cover

up customers’ emotions. This is because somehow

people perceive that a ‘decision from the head’ is better than ‘a choice from the heart’; and they believe that others will respect them more if they are perceived to be

using their head, not their heart.

But real estate salespersons must not be fooled into

believing that the human brain will one day evolve into a

logical thinking machine. No, emotions will continue to

rule till the end of time.

As far as real estate brokerage is concerned, without

emotions, no marketing strategies will work.

People don’t buy house just because they need a shelter

to protect themselves from the elements; but also

because they need a property to match their social status

and individual personality. And ‘status’ and ‘personality’

are hugely emotional.


176

Why would a family of four members need to live in a

5,000 sq ft house? Because it brings self-esteem, pride,

satisfaction, joy to the family. These are all human

emotions. But when they are choosing the house, they

will try very hard to find some logical reasons to justify

the buying decision, such as the traffic condition, the

distance between work place and home, the investment

yield, etc.

All of us are driven by emotions every single minute of

the day – the colours that we choose (a choice is

emotional) for our curtains, our cars and our apparels are

all emotional outcome. What we drink and eat and are

predominantly choices that are an emotional outcome as

well.

When it comes to buying a house for our loved ones

(emotion), the entire process is very emotional.

Since buying a house is very emotional, naturally our

customers will seek the grandest logical reasons to justify

the choice.


177

MORE LOGICAL REASONS NEEDED TO BOOST SALES DURING

RECESSION

In a recession when the buyers are uncertain (emotion) of

their financial future, choice becomes tougher because

they need more logical reasons to reassure (emotion)

themselves that they are not taking unreasonable risks

(the assessment of which is ruled by emotions as well).

I believe the buyers become apprehensive (emotion)

because of the confusing (emotion) environment and

they need someone close by to encourage (emotion)

them and revalidate (emotion) their choice of a house.

Once the emotional demand is satisfied, the customers

now need a set of larger logical reasons to justify the

largest emotional moment in life, i.e. making the

purchase.

TWEAK THE EMOTIONAL PITCH TO INCLUDE MORE LOGIC

It is my proposition in this book that while the current set

of real estate agents has already mastered the art of

emotional selling, they have not been successful in

tweaking the emotional sales pitch to include more

logical reasons to suit the current economic climate.


178

In a recession, you can’t really fault the buyers for

wanting more benefits, such as lower prices, better terms,

more gifts, more concessions (e.g. free maintenance fees

for 3 years), lucky draws etc to compensate for their

courage. They feel that there should be reciprocity, in the

sense that ‘if I support you during bad times and you should give me more goodies. So, unconsciously they expect higher intensity in the feel good factors – more

savings, more joys, more safety, more features, more

assurances, more pampering, and more logical reasons.

BRING MORE TO BEAR DURING BAD TIMES

But did the prospective buyers receive more such feel-

good factors in 2008? No, the same old service package,

the same old service attitude, and the same old sales

pitch that were designed for a booming market were still

being thrust upon the customers in such a different

market situation.

There were no new surprises or fresh perspectives in the

sales pitch. There were no preparations whatsoever to

deal with a wider range of buying emotions that now

include the need for reassurance, attentiveness, and very

importantly, more logical explanations to back up buyers’

buying impulse. While the salespersons’ skills stagnated

on the one hand, the fear factors in the real world


179

intensified, on the other. The end result is the worst sales

performance in a decade.

A NEW SELLING PROPOSITION – GIVE THE CUSTOMERS MORE

REASONS TO BUY

From now on, the new selling proposition should include

intensifying the entire range of buying emotions and

backing it up with more logical reasoning.

That means, the salespersons must continue to tap into

the buyer’s emotions that motivate them, including

emotions such as ‘pride of ownership’, ‘confidence’, ‘self-

esteem’, ‘prestige’, ‘joy’, ‘a new found status’,

‘improvement’, ‘happiness’ ‘self-image’, ‘victory’ and in

the meantime, back up such emotions with solid reasons

to buy.


180

We cannot pretend that the current recession did not take place. We will lose our credibility, or worse, be considered by our prospects as ‘losing touch’ with the market reality, if we ever say that there is no recession. Quite the contrary, we have to deal with the current topic of recession and provide some fresh perspectives and optimism, such as channelling their attention to the opportunities that present themselves, rather than harping on the setbacks. In this context, it is correct to dress well and speak confidently. But regardless of the market condition, it is wrong to pretend to be a person ‘who you are not’. Do not pretend to be wealthier than you really are. It is okay if your customers thought that you had $20 million in your savings account. But it will be silly if you try to create a false impression that you ‘have already made it in real estate sales’, if you still need the paycheques. The real estate brokerage business requires some honest enterprise and labour. The work involves a lot of down-to-earth hard works and personal sacrifices of family time and personal hobbies. It is no instant ticket to richness.

reasons to buy by sam gian

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