PropertySoul is an experienced Singapore property blogger, author, investor, columnist and educator. Her often hard-hitting content has drawn increasing numbers of followers, not only from the city-state but from around the world.
In her latest column, which is republished by kind permission, she takes a look at six common ‘gimmicks’ that real estate agents often use when selling overseas property.
She wrote: I watched a recent Hong Kong tv programme about buying property in Penang, Malaysia. It was a big surprise to see real estate in Penang being positioned as investment properties.
To Hong Kong people, Penang is a beach holiday destination in Southeast Asia similar to resorts like Phuket or Bali. Foreigners go there to buy their holiday or retirement homes.
How could marketers convince buyers that holiday homes are investment properties, no different from high-end condos in capital cities?
Let’s try to summarise the six common gimmicks that marketing agents deployed to sell real estate property projects overseas.
Gimmick number 1: Be overly upbeat about economic performance and outlook
During an interview the spokesperson from a property agency in Penang speaks highly of Malaysia’s economy.
“Malaysia is a young and vibrant country, with a high population of young people and high annual growth in GDP …”
It gives the impression that Malaysia is the top Southeast Asian country in terms of investment potential. Throughout the 30-minute documentary, there is not the slightest hint of Malaysia’s national debt or currency depreciation.
“Besides, there is no other country like Malaysia that gives so much support of China’s One Belt One Road policy.”
The irony is: The new Malaysian government has always been skeptical of Chinese investment. Mahathir’s first talk with China was to convince them to withhold their two biggest infrastructure projects in Malaysia.
“Above all, Georgetown has been listed as an UNESCO World Heritage Site since 2008. That’s why tourists all over the world are flocking to Penang and overseas investors are buying up properties here.”
What has UNESCO status to do with properties? Are property investors buying at the 1,092 UNESCO world heritage sites?
UNESCO has the mission to protect the world’s cultural heritage sites, but not to protect the sites’ property prices.
When Singapore’s Prime Minister suggested to nominate Singapore’s hawker culture for UNESCO listing at this year’s National Day Rally, I had to Google for the judging criteria of UNESCO again.
Gimmick number 2: Exaggerate market growth and potential return
The spokesperson claimed that, from 2009 to 2015, property prices in Penang have risen by 75 percent. Current rental returns are between 5 and 6 percent.
Do you see the catch here? The base year is the financial crisis of 2009 and the year 2015 was the peak of the market.
What happen afterwards? The local property market has slowed substantially due to market oversupply and political uncertainty. There were only a handful of new projects launched in 2017. The high-end condo market has seen price correction.
Bad news is intentionally filtered with focus on the impressive 75 percent growth. But what the property agency failed to take note is that Hong Kong property prices have gone up by more than 300 percent between 2009 and 2018, with no signs of slowing down and without the negative factors of currency depreciation.
The spokesperson mentioned that Penang is a preferred location for foreign companies to set up their offices in Asia.
The investPenang scheme offers incentives, consultancies and partnership opportunities for these companies.
It is true that there are many multinational companies setting up factories in the Bayan Lepas Free Industrial Zone in the northern part of Penang. However, the good old days of the IT industry in the 1990s have long gone.
To lower labour costs and streamline operations, big companies including Samsung, Seagate, Western Digital, Suzuki Motor and British American Tobacco have shut down their plants and moved out of Penang in the last two to three years.
Gimmick number 3: Capitalise on future infrastructure or development plans
Since last year, a hot topic in the Hong Kong media has been the Guangdong-Hong Kong-Macau Greater Bay Area – China’s ambitious plan to develop a 56,500 sq km economic cluster that covers 11 cities.
But so far, the only development completed in the cluster are the large residential projects built by property developers. The overpriced units are sold to eager buyers tapping on the future potential of the new economic region.
Does that sound familiar? Think Jurong Lake District in Singapore and Iskandar Malaysia.
The Hong Kong people bought off-plan homes in the Greater Bay Area. The Singaporeans snapped up Iskandar properties. The Chinese were sold on the Forest City project.
But these future growth areas are only under planning. There are no major industries, employment opportunities or new residents near Forest City yet.
How is it possible for marketing agents to sell so many residential units in an empty place? What extent of imagination does one needs to project 700,000 residents living in Forest City by 2050 when the condo blocks are practically empty?
Apart from economic zones, there are also international events such as World Expos, Olympic Games and World Cups that bring the host cities into international limelight. These global events are often being capitalised by developers and marketing agents to sell foreign properties to overseas buyers.
Tranio.com did a study on how the real estate market performs in 10 summer and winter Olympic host cities over the past 20 years. The results show that the Olympics provide only an average boost of 1 percent to the local property market for three years.
For cities like Rio de Janeiro and Vancouver, since there was already excessive supply before the Games, overbuilding and overpricing in anticipation of a booming property market only undermined property prices in the city.
Developers and buyers have jumped on the bandwagon of the Tokyo 2020 Olympics in the last few years but local analysts have already warned of the possibility of a post-Olympic crash after the event.
Gimmick number 4: Emphasise affordability and value for money
How affordable are overseas properties?
For the price of a decent unit in Danga Bay you can only buy a three-room HDB flat in Singapore.
For the going price of units at Forest City, you are buying at a quarter of what Beijing properties are selling, with full facilities and clean air.
For the amount you pay for that 2,500 sq ft luxurious beachfront apartment in Penang, you can’t even afford a 250 sq ft old flat in the suburbs of Hong Kong.
Marketers just have to play with the magic numbers of the selling price and floor area. The big contrasts of can and cannot, have and don’t, have immediately become appealing to the buyers. The answer is obvious.
But are we doing apple-to-apple comparisons here or are we just settling for less?
What about stages of economic development, standards of living, political stability in the country, building control regulations, landlord-tenant rights, etc.?
The Penang property tv programme promoted the city as a sports lovers’ paradise with sunny weather and beautiful beaches.
I still remember on a trip to Penang in 2010, the taxi driver complained about how uncontrolled reclamation for property development had caused serious sea pollution in the island. There were countless abandoned, half-completed condominium projects along the coastline.
Last month, Hong Kong media found that a project in Guangzhou Foshan is built using bricks so light in weight that walls will definitely collapse in time. The property agent at the sales gallery told the reporter that 40 percent buyers of the Greater Bay Area project are from Hong Kong.
Gimmick number 5: Upgrade automatically to align with admirable locations
Do you know that Malaysia’s Forest City was advertised aggressively throughout China as an affordable project just “next to Singapore”, not a development in Malaysia, Johor Bahru or Iskandar?
What does that mean?
If you tell people you are staying in Forest City, you are living next door to Singapore.
China celebrities Jet Li and Gong Li are Singaporeans. Vicki Zhao is a Singapore permanent resident. Chinese buyers can now live the good life of Singaporeans in an affordable way.
How many people in China know the difference between Singapore and Johor Bahru? Salespeople at the sales gallery said Forest City is just 1.1 kms from the border. There are plans to build a high-speed rail station at its doorstep to go direct to Singapore.
The Chinese buyers were taking comfortable coaches to the Forest City sales gallery. They were not stuck in the traffic jams at the Singapore-JB customs point for hours.
The secret is that it has nothing to do with the actual distance or traveling time. It is all about the familiarity of a name. As soon as a prestigious location or landmark is mentioned, buyers will be convinced that the project is situated in a prime location.
That is why any Iskandar development is located next to Singapore. Any Kuala Lumpur luxurious condominium is near to KLCC. Any Singapore high-end project marketed overseas is adjacent to Orchard Road. Because theoretically, you can reach Orchard Road from anywhere in Singapore in a 30-minute ride.
Gimmick number 6: Simplify taxation, ownership and citizenship for foreigners
The spokesperson says in the tv programme: “There is only 30 percent Property Gains Taxes for properties sold within five years, and 5 percent hereafter. There is no other tax besides this.”
For Singaporeans buying Malaysia properties, you just have to pay Property Gains Tax. There is no Additional Buyer Stamp Duty or Seller Stamp Duty.
The trick is to emphasise a lower overhead to buy overseas and solve the problems of buyer restrictions and higher purchase costs compared with buying at home.
According to the Hurun Chinese Luxury Consumer Survey 2018, 37 percent of the 224 Chinese High-Net-Worth-Individual respondents are considering leaving the country. Among them, 12 percent have already emigrated or are applying to do so.
As I said in my last blog post “Forest City proves buying an overseas home is to buy a cat in a sack”. Country Garden is not just selling the Chinese buyer a 5-star home in Iskandar. It is selling them the dream to be an international citizen by helping them to apply for permanent residency though Malaysia My Second Home Programme.
At a time when more Hong Kong people are becoming disillusioned and leaving for more livable countries like Taiwan, it makes the Malaysia My Second Home Programme very attractive.
It is not wrong to promote the unique selling position of an overseas property project, but why can’t the developers and marketing agents objectively present the full picture and cover all the pros and cons?
If the overseas projects are such a good buy, why are they afraid to show the true facts and actual figures, to let buyers see both sides of the coin and make their own purchase decision?