Sunday, February 10, 2013

A Visit To #1 Loft at Geylang

Few days ago I passed by a condo showroom about 400M away from Mountbatten MRT. I was curious about the climate of sales in new launches and decided to pop in. 
As usual, the actual location of the development was not at the showflat but about 1km away at Geylang Lorong 24.

Nice bed that matches with decor
There were only 2 prospective buyers in that afternoon (including me) in the showroom. The agent was very warm, telling me it is a 5 minute walk to Mountbatten MRT and Aljuned MRT stations. He added Geylang Lorong 24 is left with 1-2 brothels which will be “phased out” when the rest of the apartments (at least another 3 boutique residential developments) are completed.
Decent bathroom
The showflat was tastefully done up, the selling points of this development are as follows:
The loft does allow privacy between 2 levels
- Cheap financing. The list price of a 1 bedroom unit is about 780k, or about $1392 PSF (560 sq ft build up area). Buyers need to pay 5% cash, 5% CPF. The developer will pay for you 78k upon completion and you can take up a 80% loan from UOB or Singapura Finance. This means I only need to pay $39k cash and $39k CPF, developer will pay remaining 78k cash for me!!! Effectively, I am obtaining a 90% loan! Innovative!
Staircase up the Master Bedroom
- Ability to convert 1 bedroom to 2 separate bedrooms. The showroom displayed a typical 1 bedroom layout. The master bedroom is on the 2nd floor with balcony, the living room comes with additional bathroom. The living room can be converted to a bedroom after adding a door, with a common kitchen with washer cum dryer. You can rent out to 2 singles!
- High investment yield. Assuming you rent out each “room” to 2 singles with near service apartment facilities, you probably can rent to them at $1600-$1700 each. After deducting utilities, maintenance, housekeeping, broadband, taxes and agent fees, you could possibly receive about $2,600 monthly.

Factor interest costs of 1.5% of loan ($624k) = $9360 per year
Return on initial investment= (2.6k x 12 months)-$9360 / ($72k + $18k Stamp duty + $3k Legal fees) = 23.5% per annum
Given the attractive investment yield, I decided to pay a site visit to Geylang Lorong 24. Some observations:
- There were at least 3 operational brothels. One of them was in between enbloc terrace houses. Hence, there is a likelihood your condo has a brothel beside it.
-  There were MANY PRCs men sitting on the pavement.

- There were at least 2 budget hotels in a side road at the end.
- The road along Geylang 24 is narrow, not suitable for drivers as you are likely to be stuck outside your house, inside your car when all the other developments are completed.
- #1 loft is definitely not suitable for families with children, but rather for individuals/ couples and prostitutes operating their own online vice.
- Aljuned MRT is a good 10 minute walk away, Mountbatten MRT is much further as you have to cross an overhead bridge, cut through pine close HDB, about 15 minutes walk away. This is accurate for my leisure walking speed.
I am impressed by the low capital outlay and financial innovation of the developer. The agent claimed that this project is by SC Global, but I couldn’t find any links between SC Global and #1 Loft. In fact, I have never heard of this developer.

The high yield comes with high risks. Interest rates may go up. Once it hits 3.5% and if you can only rent out at $2,000 a month, you will be running a loss after all expenses. You need to make the assumptions that it is always rentable and interest rates remain low to commit to this investment.
Majority of the 80 units are 1 bedders. 3 bedders come with 4 bathrooms so you can even convert the living room into another bedroom. What kind of tenants are the developers asking the buyers to target?
Notice you can build a door to split this living room to become a bedroom
Given current market, it is fairly difficult to achieve 7% consistent returns on investments. A 23.5% P.A investment seems extremely attractive, especially for a single like me who do not mind staying anywhere that is convenient. However, the PSF price seems so high that there is little room for capital appreciation. Unless the project is selling below $900 PSF, there is little margin of safety given the inertia of existing brothel houses and budget hotels.
Would you buy this project?
SBC wouldn’t.



3 comments:

Drizzt said...

wow high yield but i guess its because its highly leveraged thats why.

Sistarock said...

hi sgbluechip

i need ur advice im 35yrs old looking to buy a studio. do u have any good advice budget 650k.

HolidayGuru said...

SC global is a very famous high end property developer. It's even listed in the SGX...