View Poll Results: Will Rivergate hit 1k psf ?

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    60 32.43%
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    41 22.16%
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    39 21.08%
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    45 24.32%
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Thread: Will Rivergate hit 1k psf and below?

  1. #41
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    Quote Originally Posted by DW
    And yes, I tend to agree with you to some extent, though it does saddens me quite a bit; since I am interested to get a unit there.

    Any other views ?? Do share some views on what might be the possible drivers to motivate a price plunge scenario - something I would very much like to see/ happen.
    think if the world economy does not take another plunge, it should be pretty much range bound with a downward bias. now may not be the time to jump in too since even if the plunge does not happen, a price surge is unlikely to happen too. when elephants trample in the market, we can only stand aside and hope to get some crumbs.

  2. #42
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    I am not an expert in property but have been monitoring the market as I am getting a unit for my own stay.

    In my humble opinion, it is a matter of supply and demand. I feel that there is an oversupply in the Singapore property market. Latest data released by URA confirms that a large number of units remain unsold. A flip through the Sat newspapers shows a large number of new and resale units available and many more for rental. Some owners have even resorted to 'renting' out their units on daily basis, making them no difference from a hotel or motel (depending on location and condition). Investors can buy but who are they going to rent to?

    Just the River Valley area has many new and resale units floating in the market - Rivergate (TOPped); The Inspira (TOP in 2009), One Jervois (TOP in 2009), Trebica (TOP in 2009), Trillium, Lattitude, Nathan Residences, The Mercury, Martin Place, 8 Rodyk, The Wharf ..... In a few years' time, the River Valley area will be flooded with new condos.

  3. #43
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    Quote Originally Posted by DW
    One big assumption I am holding here is that these existing owners will be (A1) able to get loans for their apartments - thus they can chose not to sell if they do not want to;
    (A2) in cases where banks cannot finance them based on the originally planned LTV, and request a top-up on the same, we also assume that they are able to do so.

    I know the above is a bold assumption but based on my personal feel (I do not have the stats to back it up), (A3) I think there are a substantial number of cash rich owners in RG and thus if they have to top up (and subject to their view being held as they chose not to and they can afford to), chances are (A4) they can afford to do so.

    Before I go further, I also want to qualify that I have a vested interest to get a unit at RG and do hope prices will fall.

    Let’s assume this is the (A5) worse case scenario for these existing owners – 3rd phase purchaser (@1500psf and above)*:

    [B]Assumptions[/B]:-
    (A6)1507sf bought @ 1500psf = SGD2.26mio.
    (A7) Loan amount (80%) = SGD1.8mio; tenor = 35 years. All-in rate for mortgage = (A8) 1.5%(SIBOR) + 1.0% (margin) = 2.5%
    Mortgage payment monthly = SGD6.5K
    (A9) Maintenance ~ SGD350 per month (I heard from agents. We assumed it at face value)
    Monthly financial commitment of owner = 6850/1507 = 4.5psf per month

    [B]Rent Option – At a rental which will not cover monthly obligations[/B]
    Rent out: Assuming mortgage and maintenance for the unit is 4.5psf per month (psfpm) - this works out to be about SGD6800 mortgage per month.Next, we assume rental for a 1507sf unit is 3psfpm (this works out to be SGD4500 rent per mth for the unit).

    Total negative cashflow of the owner is (4.5-3)*12 = 18psf per year.
    After two years, owner lose 36psf, on a standardised basis (i.e. psf).

    This said, the above standardised loss (i.e. 36psf after 2 years), keeps the owner to retain ownership of the property after 2 years and thus he is still exposed to price risk of market two years later. If he takes the rental route, and after 36psf negative cashflow on his investment (assumes he is not staying), when he renews the rental contract, he would be continue to be exposed to further rental losses or sale loss (i.e. market risk).

    What are your views? If you are an owner, would rather to take a negative cashflow for 2 years (cumulatively, 36psf for 2 years) or would you bit the bullet and take a loss immediately (potentially selling at below 1500-36 = 1464psf, given where the transacted pricing is at now ~1200psf based on URA numbers).

    I appreciate the above is based on quite a number of assumptions (A1-A9). But would be grateful if you can share a little more of your views and rationale for the proposed behaviour which you may purport.

    *This is a repeat post from another thread and I am hoping to get more views from the various expert forummers on the same.
    There are property owners (individuals-institutional) who dont have a morgage. When the world economy has reached the bottom, a place of stability, they will look to divest their property and sell it regardless of price. Simply because it is not in their interest to hold property as other invesments will offer greater gains, before property do. These people will sell at market price, when ever they need to cash out.

    Then you have the morgage owners. The irony in this cycle is that even the so-called Rich are highly leveraged. This is what is what is amusing to me. So you can have people who are extremely asset rich (many properties) but will be in the same position as a struggling HDB owner who can barely make his morgage payments for his own home. They simply will lack the funds to service negative equity properties. So they will have to sell one or a few properties to cover the payments of the other properties and hope for better times.

    The real interesting part in this equation is once interest rates will go up. They will not stay at 2.5% for ever. Imagine when interest rate goes upto 4.5% and they have to pay 8500 to service their installments as opposed to 6500$. This is when we will really see firesales!

    The other part is that you presume tenants will be continuous (which I doubt the next 2 years) and rent being stable, and you dont factor in other costs of property ownership.

    Additonal costs:
    [I]property Tax 10% of Annual Value for units which are rented out
    Annual Value = monthly rent x 12
    if rent = 4500 per month (annual = 54000)
    than property tax = 5400 per annum

    Rental income is also taxed! Depending on your tax braket! For me it would be 20%! You can deduct some of the costs, like maitance fee etc, insurance etc.. So to make it easy lets say you end up with 80% of your rental income being taxed as income, after deducting expenses.
    80% of 54000 (annual rent) = 43200

    If you have to pay 20% income tax on rent, that means you pay:
    8640 income tax on the rent.

    If you pay 10% it would be 4320.

    [U]Obviously it would depend what tax brackét you are in.
    So you loose between 1-2 months rent on taxes.[/U]

    Your Net monthly rental income after Tax obligation (@10%) = 4140 which = 2.76psfpm
    Net monthly income @20% tax obligation = 3780 = 2.5psfpm

    Total negative cashflow after 1 year @10 Tax obligation=(4.5-2.76)*12=20.88psf

    Now if you think about it the 20.88psf is capital lost which should have been put to work to get interest (lets say 4%)
    after 2 years compound interest, your real loss is 21.7152 + 22.583808 =44.3

    So 1500 (size of unit) times 44= 66,000$ over 2 years that the owner losses by serving his morgage. This is without factoring what the price of property will be in 2 years (depreciation more likely), where the rental income has dropped down too, and increase in morage interest rates.
    [/I]

    Rental will continue to go down, I just dont see enough high income jobs being created the next 2-3 years in Singapore to suck up all the current rental units (and upcoming) which ask for 5000$ or more. In order to rent a unit of 5000$ you need a household income that is above 150K per annum. Who ever spends more on rent with that income is a fool I do see though that there is plenty of demand between 2000-4500$. That would explain the popularity of Amber road. So besides building too much, it also seems that in Singapore they built beyond the market demand, with too much focus on luxury. I am an interested buyer for rental yield, but it could be a long time before I get active in Singapore. Cést la Vie.

  4. #44
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    Thanks Kalumder. Your post has been helpful.
    I appreciate such post, setting out clearly your view and the underlying rationale/assumptions substantiating the same.

    Quote Originally Posted by kalumder
    There are property owners (individuals-institutional) who dont have a morgage. When the world economy has reached the bottom, a place of stability, they will look to divest their property and sell it regardless of price. Simply because it is not in their interest to hold property as other invesments will offer greater gains, before property do. These people will sell at market price, when ever they need to cash out.

    Then you have the morgage owners. The irony in this cycle is that even the so-called Rich are highly leveraged. This is what is what is amusing to me. So you can have people who are extremely asset rich (many properties) but will be in the same position as a struggling HDB owner who can barely make his morgage payments for his own home. They simply will lack the funds to service negative equity properties. So they will have to sell one or a few properties to cover the payments of the other properties and hope for better times.

    The real interesting part in this equation is once interest rates will go up. They will not stay at 2.5% for ever. Imagine when interest rate goes upto 4.5% and they have to pay 8500 to service their installments as opposed to 6500$. This is when we will really see firesales!

    The other part is that you presume tenants will be continuous (which I doubt the next 2 years) and rent being stable, and you dont factor in other costs of property ownership.

    Additonal costs:
    [I]property Tax 10% of Annual Value for units which are rented out[/I]
    [I]Annual Value = monthly rent x 12[/I]
    [I]if rent = 4500 per month (annual = 54000) [/I]
    [I]than property tax = 5400 per annum[/I]

    [I]Rental income is also taxed! Depending on your tax braket! For me it would be 20%! You can deduct some of the costs, like maitance fee etc, insurance etc.. So to make it easy lets say you end up with 80% of your rental income being taxed as income, after deducting expenses. [/I]
    [I]80% of 54000 (annual rent) = 43200[/I]

    [I]If you have to pay 20% income tax on rent, that means you pay: [/I]
    [I]8640 income tax on the rent. [/I]

    [I]If you pay 10% it would be 4320. [/I]

    [I][U]Obviously it would depend what tax brackét you are in. [/U][/I]
    [U][I]So you loose between 1-2 months rent on taxes.[/I][/U]

    [I]Your Net monthly rental income after Tax obligation (@10%) = 4140 which = 2.76psfpm[/I]
    [I]Net monthly income @20% tax obligation = 3780 = 2.5psfpm[/I]

    [I]Total negative cashflow after 1 year @10 Tax obligation=(4.5-2.76)*12=20.88psf[/I]

    [I]Now if you think about it the 20.88psf is capital lost which should have been put to work to get interest (lets say 4%)[/I]
    [I]after 2 years compound interest, your real loss is 21.7152 + 22.583808 =44.3[/I]

    [I]So 1500 (size of unit) times 44= 66,000$ over 2 years that the owner losses by serving his morgage. This is without factoring what the price of property will be in 2 years (depreciation more likely), where the rental income has dropped down too, and increase in morage interest rates.[/I]


    Rental will continue to go down, I just dont see enough high income jobs being created the next 2-3 years in Singapore to suck up all the current rental units (and upcoming) which ask for 5000$ or more. In order to rent a unit of 5000$ you need a household income that is above 150K per annum. Who ever spends more on rent with that income is a fool I do see though that there is plenty of demand between 2000-4500$. That would explain the popularity of Amber road. So besides building too much, it also seems that in Singapore they built beyond the market demand, with too much focus on luxury. I am an interested buyer for rental yield, but it could be a long time before I get active in Singapore. Cést la Vie.

  5. #45
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    quick add for DW,

    lets say you bought property at 2.2 million as in your example the rental is 4500, but the morgage is 6800 with low interest rate. It means you pay an additional 2300 a month to service your morgage.

    If you where to sell the unit at 1.8 million, lets say the bank will let you service the 400,000 difference as a loan at 4% at 35 years, than it means you pay only 1800 a month to serve the loan. Which might be better for you financially in the short-term because you have no other options and need cut down on monthly spending. The longer you wait, the more likely your condo will depreciate, rent will fall, and interest rate will crush the morgage payments. It really depends on the holding power of the individual.

  6. #46
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    Quote Originally Posted by kalumder
    quick add for DW,

    lets say you bought property at 2.2 million as in your example the rental is 4500, but the morgage is 6800 with low interest rate. It means you pay an additional 2300 a month to service your morgage.

    If you where to sell the unit at 1.8 million, lets say the bank will let you service the 400,000 difference as a loan at 4% at 35 years, than it means you pay only 1800 a month to serve the loan. Which might be better for you financially in the short-term because you have no other options and need cut down on monthly spending. The longer you wait, the more likely your condo will depreciate, rent will fall, and interest rate will crush the morgage payments. It really depends on the holding power of the individual.
    Hi Kalumder,
    Thanks for your post. I have a couple of clarifications which I find it rather mind boggling for my simplistic mind on property. Here goes...

    Assuming you managed to find a buyer for the house at 1.8mio, attempting to take a 400K loss (in the form of top up?). In your example, I am assuming that the owner is not able to fund the 400K loss on his own and thus will have to take up a bank loan to fund his "top up" losses.

    This is the part which I am rather confused.

    If the case is may be suggested above, the assumption would then be the 400K loan would be an unsecured lending by the bank (I am assuming all other properties of the owner would be already secured under its respective mortgage loans, and any business of the owner he has would be separately secured otherwise). Unsecured lending in an amount of 400K is a rather large amount and I am not sure if such financing is actually for an individual who has to resort of unsecured financing so as to reduce his expenses. The credit assessment of the individual requesting for such a unsecured loan to fund a property loss which he can pay up - in my layman view, appears to be not very palatable to banks.

    In the above, I am assuming the owner is lending entirely on his personal balance without recourse or consideration of his other available assets or business.

    If I may then further presume, following my above simple postulation, that such unsecured 400K financing would be difficult to procure, then would it mean that, owners who are cash strapped (i.e. trying to reduce their monthly expenses) are not likely to be able to take that exit route ?

    There is probably something fundamental which I am missing completely or not understanding - will be helpful if you can assist clarify my misunderstanding, as the case may be.

    Thanks.

  7. #47
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    Quote Originally Posted by DW
    Hi Kalumder,
    Thanks for your post. I have a couple of clarifications which I find it rather mind boggling for my simplistic mind on property. Here goes...

    Assuming you managed to find a buyer for the house at 1.8mio, attempting to take a 400K loss (in the form of top up?). In your example, I am assuming that the owner is not able to fund the 400K loss on his own and thus will have to take up a bank loan to fund his "top up" losses.

    This is the part which I am rather confused.

    If the case is may be suggested above, the assumption would then be the 400K loan would be an unsecured lending by the bank (I am assuming all other properties of the owner would be already secured under its respective mortgage loans, and any business of the owner he has would be separately secured otherwise). Unsecured lending in an amount of 400K is a rather large amount and I am not sure if such financing is actually for an individual who has to resort of unsecured financing so as to reduce his expenses. The credit assessment of the individual requesting for such a unsecured loan to fund a property loss which he can pay up - in my layman view, appears to be not very palatable to banks.

    In the above, I am assuming the owner is lending entirely on his personal balance without recourse or consideration of his other available assets or business.

    If I may then further presume, following my above simple postulation, that such unsecured 400K financing would be difficult to procure, then would it mean that, owners who are cash strapped (i.e. trying to reduce their monthly expenses) are not likely to be able to take that exit route ?

    There is probably something fundamental which I am missing completely or not understanding - will be helpful if you can assist clarify my misunderstanding, as the case may be.

    Thanks.
    Sorry, I made an error, and was not thinking clearly in using the previous example.

    Lets presume Rivergate sells now at 1000psf. You cannot meet your morgage payments. So you offload the property at 1,500,000. That means you have to account for 300,000 differnce to the loan (which was 1.8 million, lets ignore fees and taxes for the moment). 300K would cost you only 1,300 a month for 35 years at 4%, nearly half of what your previous expenses was. Unfortunately you loose your 20% down payment on the 2.6 million buying price, and the 300K plus interest over 35 years. Capital destruction at its finest. The only reason to do this is if you are struggling with paying the 2300 difference to your morgage.

    If you are in this position, than the bank is screwed either way and already has to account for excess risk. So from their point of view it is about minimzing risk and exposure. The longer they wait, the more likely property prices will plunge and rental will decrease or remain low. Nobody knows what will happen in 5 years or more, nobody has a real clue when property will start to recover. This time it is different. This is a world wide recession. It is clear to all parties now, that the situation is worse than feared 3 months ago. If someone already has problems meeting the difference to the morgage, what will happen when rents drop further or interest rate increases? From the banks point of view the 1300 a month burden will be easier for their client to handle, than 2500 as long as they are young and have a steady income. They dont really care about his situation in 35 years time! The banks dont want to give out unsecured loans, but at the end they might think it is better for them. Think about all the over-priced units coming onto the market within the next 2-3 years and the low rentals they will get compared to their purchase price. So it is very likely the bank will force more top-ups in the future. For people who cannot meet them, they will be forced to sell. Than 2 things happen, they repay the remainder of the loan off in a secured or unsecured loan, or should they become unemployed and unable, they can go through bankruptcy proceedures. If you are cash strapped you will be at the mercy of the banks decision.

  8. #48
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    Quote Originally Posted by kalumder
    Sorry, I made an error, and was not thinking clearly in using the previous example.

    Lets presume Rivergate sells now at 1000psf. You cannot meet your morgage payments. So you offload the property at 1,500,000. That means you have to account for 300,000 differnce to the loan (which was 1.8 million, lets ignore fees and taxes for the moment). 300K would cost you only 1,300 a month for 35 years at 4%, nearly half of what your previous expenses was. Unfortunately you loose your 20% down payment on the 2.6 million buying price, and the 300K plus interest over 35 years. Capital destruction at its finest. The only reason to do this is if you are struggling with paying the 2300 difference to your morgage.

    If you are in this position, than the bank is screwed either way and already has to account for excess risk. So from their point of view it is about minimzing risk and exposure. The longer they wait, the more likely property prices will plunge and rental will decrease or remain low. Nobody knows what will happen in 5 years or more, nobody has a real clue when property will start to recover. This time it is different. This is a world wide recession. It is clear to all parties now, that the situation is worse than feared 3 months ago. If someone already has problems meeting the difference to the morgage, what will happen when rents drop further or interest rate increases? From the banks point of view the 1300 a month burden will be easier for their client to handle, than 2500 as long as they are young and have a steady income. They dont really care about his situation in 35 years time! The banks dont want to give out unsecured loans, but at the end they might think it is better for them. Think about all the over-priced units coming onto the market within the next 2-3 years and the low rentals they will get compared to their purchase price. So it is very likely the bank will force more top-ups in the future. For people who cannot meet them, they will be forced to sell. Than 2 things happen, they repay the remainder of the loan off in a secured or unsecured loan, or should they become unemployed and unable, they can go through bankruptcy proceedures. If you are cash strapped you will be at the mercy of the banks decision.
    Hi kalumder, thank you for sharing so much insight. So far have u know of anyone who is in the situation u mentioned and the bank granted him a secured/unsecured loan of 300k to pay off the difference?

    If the banks are doing it now, wouldn't they be creating a form of subprime crisis in Singapore

  9. #49
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    Quote Originally Posted by kalumder
    Sorry, I made an error, and was not thinking clearly in using the previous example.

    Lets presume Rivergate sells now at 1000psf. You cannot meet your morgage payments. So you offload the property at 1,500,000. That means you have to account for 300,000 differnce to the loan (which was 1.8 million, lets ignore fees and taxes for the moment). 300K would cost you only 1,300 a month for 35 years at 4%, nearly half of what your previous expenses was. Unfortunately you loose your 20% down payment on the 2.6 million buying price, and the 300K plus interest over 35 years. Capital destruction at its finest. The only reason to do this is if you are struggling with paying the 2300 difference to your morgage.

    If you are in this position, than the bank is screwed either way and already has to account for excess risk. So from their point of view it is about minimzing risk and exposure. The longer they wait, the more likely property prices will plunge and rental will decrease or remain low. Nobody knows what will happen in 5 years or more, nobody has a real clue when property will start to recover. This time it is different. This is a world wide recession. It is clear to all parties now, that the situation is worse than feared 3 months ago. If someone already has problems meeting the difference to the morgage, what will happen when rents drop further or interest rate increases? From the banks point of view the 1300 a month burden will be easier for their client to handle, than 2500 as long as they are young and have a steady income. They dont really care about his situation in 35 years time! The banks dont want to give out unsecured loans, but at the end they might think it is better for them. Think about all the over-priced units coming onto the market within the next 2-3 years and the low rentals they will get compared to their purchase price. So it is very likely the bank will force more top-ups in the future. For people who cannot meet them, they will be forced to sell. Than 2 things happen, they repay the remainder of the loan off in a secured or unsecured loan, or should they become unemployed and unable, they can go through bankruptcy proceedures. If you are cash strapped you will be at the mercy of the banks decision.
    [SIZE=3][COLOR=#000000][FONT=Calibri]Thanks for the clarification. I think I can agree with you on how the end-state would be like, but do have slightly different opinion on how that will pan out.[/FONT][/COLOR][/SIZE]
    [SIZE=3][COLOR=#000000][FONT=Calibri]So, for those who only want to have an idea of what my view of the end state is, it will be same as what Kalumder post as is – you can stop reading. [/FONT][/COLOR][/SIZE]
    [SIZE=3][COLOR=#000000][FONT=Calibri]For those want to know why I think the “process” to get there will be different… here goes…[/FONT][/COLOR][/SIZE]

    [SIZE=3][COLOR=#000000][FONT=Calibri]I agree with you, in principle, that banks restructuring teams typically work on certain stop-loss policy (“[B]S/L policy[/B]”). If LTV ratio is breached and, assume further if they get round to request a top up from a defaulted (and continuing) owner and not able to achieve the same, chances are, they will close out their position, to the extent it is absolutely necessary. My view is that banks will only enforce such restructuring unless absolutely necessary. I appreciate some may not share the same view. [/FONT][/COLOR][/SIZE]

    [SIZE=3][COLOR=#000000][FONT=Calibri]They can do this by way of enforcing the security (legal mortgage over the house) over the defaulted owner’s property. Most loan agreements’ foundation is premise on the borrower being the absolute and principal obligor and its obligation shall not be extinguish or diminished in any way, notwithstanding, the foreclosure of the mortgage as the case may warrant to do so. In other words, the Borrower obligation towards the total loan will remain until it is fully repaid. If the proceeds of the sale is insufficient to cover the loan outstanding, the borrower remains liable for the outstanding loan unpaid by such sale proceeds.[/FONT][/COLOR][/SIZE]

    [SIZE=3][COLOR=#000000][FONT=Calibri]This is where my view differs from kalumder. I think it will generally very difficult for banks to extend unsecured lines to persons of such profile. Banks will find it hard to extend credit to persons whom are requesting such lines to pay for such other obligations which he was not able to fulfil as a result of prior enforcement. Some call it “throwing good money after bad ?”. Quite certain this is not a palatable proposition for credit committees. Rather, I think the following will happen instead.[/FONT][/COLOR][/SIZE]

    [SIZE=3][COLOR=#000000][FONT=Calibri]In such instance, if the owner have other forms of properties or valuables, the banks would typically be able to enforce against them as well. This would typically be done together in their court filings for (i) foreclosure on the mortgage, (ii) extinguishing the equity of redemption of the mortgage (if mortgage not already in a deed form), and (iii) enforcement against borrower’s personal effects if mortgage was not already over his personal chattels. If all possible sources of redemption has been exhausted, depending on the amount, the bank may file for bankruptcy against the individual. [/FONT][/COLOR][/SIZE]

    [SIZE=3][COLOR=#000000][FONT=Calibri]The individual continues to be liable for such outstandings due under the home loan. Bankruptcy is a little complex would certainly be beyond the scope of our discussion here. But the net effect is the same- individual remains obligated to repay the balance of the unpaid loan if the sale proceeds of the house is insufficient to repay all monies due under the home loan. But my view is that borrower is not likely to be able to obtain unsecured lines for this purpose – it will be done as an outstanding obligation towards the bank post enforcement. Banks can try to recover outstanding amounts under the loan agreement, by way of bankruptcy filing (i.e. the second possibility as mentioned by kalumder in his/her last paragraph) and/or judicial sale of any valuables of the borrower.[/FONT][/COLOR][/SIZE]

  10. #50
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    Received msg from agent friend saying that they have lobang for RG. Could get at 1k psf. Good deal? or continue to wait?

    1k psf seems like a very good deal to me... but there's alot of downward pressure on the property price + tenancy problem for RG (over +300 listing for rental at propertyguru).

    Advise pls...

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