We wanted a diversified rental portfolio but hit the limit in Singapore
James and Michelle are strong believers in property ownership
Property ownership in a challenging setting
Like many Singaporeans, James & Michelle are strong believers in property ownership to create retirement wealth and a legacy for their children. They envision having multiple property rental incomes during their retirement and having the option of leaving these properties behind for their kid's generation. Having seen how prices have gone out of reach for many young working adults, they hoped their investment properties today could somehow provide their children a headstart into their future.
However, they were faced with a problem that many Singaporeans in their shoes would understand. He and Michelle each already owned a condo in their own names, one that their family is living in while the other being rented out. With the high property prices and additional buyer stamp duties, they found it difficult to further invest in Singapore's real estate market for a decent yield on an all-in-cost basis. Furthermore, the tightening of financing options / LVR on a second property in their names means a huge cash outlay with very limited borrowing. Despite their long-term goal was to achieve passive income through these properties to supplement their retirement funding, they find it challenging to achieve the desired results.
Will buying a landed the right move for them?
At the same time, the thought of selling both condos and using the proceeds to upgrade to a landed property often crosses their mind and is always up for discussion between them. Owning a landed property here is the pinnacle and aspiration for many and they hoped to achieve the same. However, the skyrocketing prices in the landed segment meant it was proving to be increasingly capital intensive and there were lots of uncertainty surrounding their cash outlays as a large portion is dependent on them being able to sell off their 2 condo at a desirable price.
Eventually, they decided to drop the idea altogether as it puts them in an uncomfortable territory. They reckon that to buy a landed of their chosen location, they will incur an overall much larger mortgage plus a huge top-up in cash outlay to go into just one landed property. They also considered that selling their 2 condos to buy a landed house of their desired choice will result in them losing an investment property (the other being their own stay if not sold) that is already producing rental income consistently. For them to rebuild the rental income streams that they desire, they must be prepared to sell the landed in the future and re-deploy the cash back into buying a home and rental properties - neither of which was a desirable option at the moment due to constantly rising market prices and dynamic changes to the cooling measures here.
The decision to explore outside
Exploring outside of Singapore gave them a chance to uncover hidden opportunities not known to them before
After careful consideration, they decided to keep the 2 condos and explore the overseas markets to diversify their long-term rental income. That's when they stumbled upon New Zealand - a country that had been on their vacation bucket list for years. Being new to overseas properties and specifically the New Zealand market meant that he had little prior knowledge and needed guidance from a reliable partner who has walked the journey. James got in touch with us and that started a series of meaningful discussions. After taking time to understand their situation and aspirations for the future, we design a plan with tailored criteria that will help us to spot the right investment opportunity for them. James was clear about what they were hoping to achieve through their property investments, and we worked side by side to ensure that their goals aligned with the opportunities in the New Zealand market. During our coffee sessions, he shared:
"We still have about 10-15 years before Michelle and I call it a day and ease into retirement, and our goal is to build a diversified rental portfolio that can give us consistent passive income to buy us the time and freedom we enjoy. We also have a portfolio of Reits and dividends-paying stocks to supplement, but physical properties will form the largest portion of our portfolio. While we are still working we want to take advantage of mortgage loans to expand our portfolio but Singapore is getting very difficult for us."
New Zealand locals and residents are driving the strong rental demand in the country
Learning and understanding the market
Through the sharing sessions we had, James and Michelle opened up to whole new perspectives on the New Zealand market. They were surprised to discover that the majority of property tenancies were to New Zealand locals and residents, which provided them with a sense of security and stability. Home-ownership across New Zealand is currently at around 60+%, leaving a high 30+% of the population relying on a rental property. They can be less sensitive to market fluctuations and global events, which made them feel more confident in getting consistent rental income streams. Unlike here in Singapore, where property tenancies are mostly for foreigners working in the country, which is highly dependent on the job market and the influx of foreign talents here. Furthermore, the housing crisis in New Zealand had led to a shortage of quality rental properties while rents are escalating due to the high demand for long-term rental homes. This provided James and Michelle with an ideal opportunity to build a rental portfolio that could provide them with stable long-term income streams.
However, they were initially concerned about the limited growth in property prices if many people in New Zealand are renting, who is left to buy properties and push the prices up?
There is still a largely untapped first home buyers demand that is coming into the market consistently
They found that homeownership has grown significantly over the decades in New Zealand by the number of households, but because the population grew at a faster rate, the homeownership % is still playing catch up. This is evidenced by the robust housing price performance over the last 30 years as its the Kiwis' dream to own their property. As the population grew, many people were renting while trying to save up to buy their own homes. Recent data from corelogic suggested more than 20% of the buying volume in the market was by first-time home buyers, with the rest being owner-occupiers (eg. upgraders) and investors. Together with their research, James and Michelle believed that there is plenty of room for homeownership rates to increase, and with an ongoing chronic supply crunch, this would help to drive house prices higher, resulting in valuation and capital gains for them in the long run.
Auckland is the most populous city in New Zealand
New Zealand market was a sweet spot to invest
With the strong rental demand and predictable capital growth, New Zealand presented a sweet spot for James & Michelle to invest. Moreover, they can borrow and leverage through a New Zealander bank, without affecting their TDSR here in Singapore. This allowed them to effectively scale their portfolio and reach their passive income goal faster and easier.
Eventually, they settled on investing in 2 properties in the Auckland region, as it presented to them as a dynamic economy with the strongest population growth numbers. While the properties have yet to turn in a true passive source of income, as the rental amount received is used to pay the mortgage and property-related expenses, James and Michelle do not fret as it is all part of the plan we have devised. They are focused on the long-term strategy of selling off one property eventually and using the proceeds to pay off the outstanding mortgage on the other property. This allows them to "use more debt to get out of our debt" and achieving the eventual rental income goals they envision faster and easier. When done correctly, this strategy allows you to achieve your desired passive income with lesser start-up capital required to build the asset base.
James and Michelle is on their way to attaining their long-term goal of diversifying their rental income and gaining a foothold in a market that offered strong rental demand and capital growth. Sometimes the best investments are the ones that require a leap of faith to start the exploration because you may well just discover a gem.
Should I Invest abroad, stay put or wait?
If you are reading this, you are probably wondering what your next best steps in your investment journey could be.
Perhaps you also find it challenging to expand your property portfolio here in Singapore? Will New Zealand market be a right fit for you and your family? Is this a good time to buy an overseas property, or should you wait and see?
Well, everyone’s situation is different. There is no one size fits all advice. What has worked for someone, may not necessarily work for you.
At Brickzwealth New Zealand, our aim is to bring clarity to your investment decisions with extensive on the ground experience for the overseas market.
Whether you are a first time property investor or a seasoned buyer with a portfolio, we are here to provide an honest and objective view to your investment journey.
We can help you by:
1) Providing Strategic property advice that best fit the outcome you desire
2) Identify & spot investment opportunities that align with your goals
Kick-start a conversation with us today. Invest differently. Inspire your future.
Ryan Quah
Founder
Brickzwealth New Zealand
