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 shops.” 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 by investing in property abroad. 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. As a foreigner buying property in Malaysia, Heartland Boy’s father should have done extra due diligence on the developer.
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 those who desire to buy overseas property from Singapore. Ironically, the weakness of the Malaysian Ringgit has often been cited as a compelling reason for foreign property investment in Malaysia.
As property is a big ticket item, it is very rare to be able to cough up the entire purchase in cold hard cash. This is where a mortgage loan is required from banks and financial institutions. Depending on the location of the foreign property, you may find that not all the full retail banks here are willing to lend you the money. Do shop around for competitive mortgage packages and when in doubt, its best to speak to a mortgage expert. A great place to start would be PropertyGuru’s free online tool, Smart Refi. Besides comparing all available packages in the market, mortgage experts stand ready to offer unbiased advice should you wish to.
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.
Update: Guess what, Kemayan City has been resurrected into a sprawling shopping centre called Paradigm Mall Johor Bahru.
In the current environment of monetary tightening, your property mortgage can begin to soar through the roof without your notice. Therefore, do find out how much you can save by utilising a free refinancing tool online. You will be amazed at how much you can save monthly from this simulation exercise.
Jared - SMOl says
A beautifully written post!
Superb writing skill 🙂
A cautionary tale that not all investment journeys end happily forever and ever… Not even when you had a goal and a plan…
Thanks for your kind words. I got quite emotional when penning this draft too because it drastically shaped my childhood.
Excellent article for learning on leverage, risk, return and market/economic cycles
For property investing whether local or foreign; it is still based on one/two/few big bets style of investing.
They are truly big bets with leverage. There is no room for learning, adjustment and failure.
This is what I still remember decades after that lecture.
Read? Hardly Anyone Lose Money In Property?
I suspect this finance professor himself may be got burnt 🙂
Hi Uncle Jacob,
Thanks for your compliments. You succinctly put out the lessons to be learnt from this episode. the rest of the audience will benefit! I also agree that there is little room for mistakes when it comes to property investment since they are essentially big levered bets!
Buying an overseas property is never on my radar no matter how cheap or whatever
I prefer to see it as and when I like as it is a big ticket item
Unintelligent Nerd says
Hi Heartland Boy,
Thanks for your sharing. It was an excellent read. Despite the hardships you and your family faced, you have grown all the more stronger and wiser from this episode!
Hi Unintelligent Nerd,
Thank you. Definitely stronger for the experience.
Finance Smiths says
This is an excellent post on the risks of foreign property investing. My parents bought a condominium near cyberjaya and putrajaya right before the Asian Financial Crisis of 1997. Although the project was completed before the crash, it took them 18 years before the property price recovered and rose sufficiently above the purchase price to break even after taking into account foreign currency losses and interest expenses. And the property couldn’t be rented out for several years.
I’m sorry to hear that the project your father bought into was not completed. Uncompleted projects in Malaysia are usually broken into and stripped of any valuable parts before being deserted if they don’t get picked up again. Anyway, it’s good to know you are doing well now and keep up the good work!
Thanks Finance Smiths!
Thanks for your words of encouragement and sharing your parents’ investment experience. I am glad your parents manage to recoup their investments!
uncle david says
Thank you Heartland Boy for sharing. I am glad your dad still struggled to put you thru University. Be grateful to your dad for that. Someone once advised me to buy only COMPLETED properties, but even that did not help. I now owned a room in uk 3star hotel but cannot exit the investment. I have also paid up 30% downpayment on 2 units of student dormitory in Manila and the project has delayed by 3yrs to 2019. Worse, the local agent has abandoned us. I wish you good luck. Pls always remember to put your family first and invest with spare cash that you can afford to lose. Cheers…uncle david
Hi Uncle David,
You are right. Only invest with spare cash that you can afford to lose. I think many investors often get sold about how attractive a project is but hardly think about their mode of exit to retrieve the initial capital!
very personal and touching post. thanks for sharing.
newspaper articles and forums like to share about pple making tonnes of money from ptty, both local and overseas. but these are the 1 in 10. the other 9 in 10, probably incurred losses or heavy debts. its not as easy as it sounds.
i think its all about weighing the risk vs benefits. and most importantly, only use the money you can lose.
if one expects to DP only 10% and loan 90%, tats asking for trouble.
personally, i am vested in an overseas ptty myself. but i didnt leverage. its only with my spare cash. its 75% paid up , and i have set aside the rest. if anything unforeseen happens, i know its taken care of.
every investment carries inherent risk, even more for overseas ptty.
Hi Foolish Chameleon,
Thank you for your kind words. Everybody like to talk about their success stories, but not their failures. Which country did you invest in?
I can truly empathize with you. It was in 1993, only a year earlier when your dad bought the Malaysian property, that I bought a residential property in Australia. In those days there were not many foreign properties on sale here. I was a pioneer in investing property overseas. In those years, I too was heavily invested in Malaysian stock market through the CLOB system. Needless to say I got badly burnt, clobbered in fact a few years later. After the CLOB event, I keep Malaysia out of my radar.
Was the investment in Australia successful?
Good lessons. Btw, did you get the job then?
Kind of, but in a different department!
Well written powerful story telling to articulate the key property investment risks.
Very useful to educate others through this channel.
Glad to know your family is well and fine too.
Thank you! Yes, I sincerely hope other investors need not go through the harrowing experience that my family went through! Thanks for your thoughts!
Yes, the Australian property is still with me today. All these years it is rented out to local Australians. Yes, overseas property has forex risk. Between the time we purchased the property to today, the SGD/ AUD has swing from 0.9 to 1.38. When it is in my favour, I will remit back to SGD, otherwise I leave it there as saving interest rates are much better than in Spore.
Once in a while, I go over to different cities for holiday and draw from my bank account. This is my way of diversification.
Well done. I am really glad you had a positive experience with your overseas investment!
For the 2 major missteps that you put out, I personally don’t quite agree with your first missteps analysis: developer reputation.
Kemayan is quite a well known developer back then. Balance sheet problem is not unique to only this developer, many malaysian developers back then was heavily leveraged, including the well known renong group (later bought over by malaysian gov and become UEM) that completed the north south highway.
Developer reputation will only be a concern, when no matter what climate, good or bad, they cannot finish their project, either abandon. or delay on the completion date.
I will rather classify such misstep as: inability to read macroeconomic. My mom got joint venture with her friend to buy a Kemayan city shoplot back in 1996, a year before its completion date…. fortunately her joint venture partner able to read the economy climate back then and sold the uncompleted unit to another colleague before everything unravel to chaos.
OK lah, maybe you can still argue as “buying with developer with strong balance sheet”…. and that will be correct. But 1997 is really a disaster for whole malaysia property market, the only buyers that are fortunate, are those who buy aftermath.
As for current Johor ppty market, you maybe right about the oversupply issue that they are facing, your memory already taught you a great lesson. What you haven’t learnt is, when is the buying time, drop how much you will then be willing to buy?
Or your fear already deeply ingrained with you until no matter what happen to overseas property market, “no” will be the simple answer.
My advise will be rather simple: set your foot well in Singapore first, only then start to think about overseas property market for diversification. Johor Bahru property market, is not easy, esp for retail shop, their hotspot changes from time to time, and the old one falter away.
Thanks for shedding further light on the developer of Kemayan city mall. And so sorry to hear about your mother’s plight as well.
Thanks for your advice. I definitely think my next property purchase would still be in Singapore.
Kemayan city was a fortunate incident, my mom get out just in time. Maybe you can share your property purchase next time with us, wish you good luck.
Well,… yr dad still managed to help you thru university, whatever amount of efforts he put in. He did his best,… this is important and needs to be appreciated. Different people look at things in different ways. The way I look at things is : for normal investors like us, it is still better to avoid countries with lower governance standards than Singapore, no matter how attractive the investments look in those countries.
Governance is there to protect us, leverage on it in our investment life. Don’t go to countries with no protection.
Yes, I agree with you. I appreciate what my parents have done for the family.
Cassandra Ho says
Sorry to hear that. Hope you are strong enough, earn back double or even triple for what your family has loss!
Thanks, this happened during my childhood years. As you have seen, I am now a parent myself and so i guess my family survived this episode!
James Bryan says
Thanks for sharing your story with us. This experience have helped you grow wiser for taking good decisions in future. Your dad is such a great guy who didn’t lose hope during these circumstances.
Thanks for your sharing..trust that everything is well for you and family now
You are welcome. Oh well, we survived the episode but it is a good lesson for a very young heartland boy back then!
Gin Gin says
Dear Heartland Boy, your sharings really touched my heart, a wound in my heart. I was convinced by a property agent in the 1990s, to leverage on the exchange rate of 1 SGD to 1.75 Ringgit and the optimistic future developments of the KL property. The rest of what happened to me was very similar to what your father encountered. It was a nightmare. Fortunately blessed by God, I survived and did not commit suicide due to the financial crisis. Today, what surprised me was, even the ending of your story also converged with mine… I found myself and my son in a show room of….. Paradigm Mall in JB! I was in a cross junction, as the scary memories of the past emerged in my mind while the property agent was trying to convince us. I asked myself, whether I have really learnt my lesson, or have I forgotten the pain I had gone through. This property is quite cheap to Singaporeans but unaffordable to the locals. For the same price as the condominium in Paradigm Mall, one could easily buy two landed property in the vicinity or three condominiums. I felt that it is very much over-priced. One could suffer a huge loss upon selling at market rate even after a few years. The over-supply of new condominiums and hundreds of thousands of unsold units in the prime areas in JB is a big worrying factor for a foreigner like me. Then, the huge stamp duty and levy upon buying as a foreigner and the huge tax upon selling. A further drop in Ringgit is my another big fear. The scary images of my past experience surfaced again and haunting me days and nights. I was debating and conflicting within my inner self. Then, now, suddenly I chanced upon your article. It really touched my heart and seems to have given me light and some kind of guidance. It would be a pity if I have not learnt my lesson. Indeed. Thank you so much, so much, Heartland Boy.
Hi Gin Gin,
Thanks for your kind words. What an unexpected outcome as I certainly did not expect my article to point you to your own conclusion. I am glad to know that you have emerged wiser and stronger from this crisis. From the reasons that you have outlined above, seems like you are better versed in the johor real estate scene now! Wish you all the best.