How Investing In Foreign Property Destroyed My Family Wealth
When Heartland Boy applied for a role at a real estate developer after graduation, the hiring manager asked during the interview, “you graduated with a degree in Business Management, why do you want to work in the property sector?”
Heartland Boy replied, “My experience with the real estate sector started when I was only very young, probably at 6 years old. I understand that many households in Singapore have had very good experiences with property investment. Their HDB values had doubled or tripled over the years as a result of Singapore’s economic growth. However, my father invested in foreign property and it destroyed my family wealth. This experience left an indelible mark in my childhood.”
“Tell me more about it,” said the hiring manager.
Investing In Foreign Property
It was sometime in 1994 when Heartland Boy’s father purchased 2 strata retail lots at Kemayan City Mall in the Tampoi area of Johor Bahru. It was strategically located; accessible via the North-South highway, less than 15km from Singapore, and highly visible due to its road frontage. At that time, it was touted as the single largest integrated development in Johor Bahru. Project-wise, it seemed to tick all the right boxes.
Heartland Boy’s father was full of optimism after paying the downpayment for his 2 strata lots. He said half in jest while looking at his children, “should any of you not excel in studies like me, your future is still secure because you can be a businessman selling goods in my shop.” Soon, regular jaunts down to Johor Bahru became a favourite weekend family activity. Heartland Boy’s father wanted to monitor the construction progress as well as have his cheap seafood. With every piling cast and brick laid, his optimism fuelled into greater confidence. Kemayan City Mall topped off in 1997 and the main contractor began fitting out the internal mechanical electrical and plumbing (MEP) systems. The finishing line was almost in sight until the Asian Financial Crisis struck in late 1997.
The Asian Financial Crisis
The developer went bankrupt. The main contractor stopped work because it was not paid. The security guard stopped work because he was not paid too. Thereafter, the building was looted for its valuable, brand new MEP systems by opportunists. It was a heartbreaking sight for the purchasers of the project. They had not much remedy as the selling entity was just a shell company of the developer. Yet, the banks continued to order the strata owners to pay their loans, Heartland Boy’s dad included. This also marked the start of a downward spiral for his family’s finances. To service the loans, Heartland Boy’s father sold his income-producing shophouse in Johor. Next, he downgraded the family’s HDB flat. To add salt to the wound, his business folded and he became unemployed. Yet, he continued to hold out hope that the project would be resuscitated. However, it did not come soon enough. After more than 10 years of throwing good money after bad money, he waved the white flag. He gave the 2 retail lots to his friend for free since his friend agreed to service the loans thereafter.
Many Pitfalls When Investing In Foreign Property
Looking at his father now, it is hard to imagine that behind this hawker was actually a family man who once harbored hopes of collecting passive income. That aspiration has long been buried owing to his failed investments in overseas property. Investing in foreign property is a sophisticated game for the overseas investor. Dangers and risks abound for the foreign investor who does not have the necessary local knowledge to review the development. Amongst the many perils in investing in foreign property, Heartland Boy observed 2 major missteps.
1. Developer’s Reputation
The Kemayan City Mall could not be completed because the developer went insolvent. Its balance sheet was not strong enough for it to weather through the Asian Financial Crisis. Therefore, reviewing a developer’s reputation is very important. A track record of successful and quality projects would be a good sign of the developer’s reputation.
This is the eyesore that Heartland Boy sees every day in Jakarta. Another project, right in the heart of CBD, bit the dust during the financial crisis. Heartland Boy needs no further reminder. Unfortunately, a developer’s reputation is often taken for granted in Singapore.
2. Currency Risk
Heartland Boy’s father invested in Kemayan City Mall in 1993. At that time, the currency was 1SGD : 1.6 MYR. After 24 years, the SGD/MYR currency pair is 3.16. This means that even if the property had been completed, it would have to double in capital value in local currency terms for the initial investment to break even. The strength of the Singapore Dollar means that the hurdle rate is inevitably raised for long-term investment in overseas countries.
Forest City By Country Garden
Almost 24 years later, Heartland Boy found himself in the showflat in Johor Bahru again.
Country Garden, a Chinese developer listed on the Hong Kong Stock Exchange, conceptualized the futuristic global metropolis, Forest City. Most importantly, it is a mega-township to be built entirely on reclaimed land. As Heartland Boy was looking at the sprawling project model in front of him, memories of his family’s scarred experience investing in foreign property came flooding back. It will be a pity to waste a good lesson.
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