Detroit property boom amid gloom

By Melissa Sim Us Correspondent

While many Americans have deserted the once bustling city of Detroit, Michigan, a small
but growing number of intrepid foreigners have decided to invest their money there.
Singaporean Patrick Lim, 60, the director of a marine engineering consultancy, says he
has spent US$210,000 (S$265,000) on four Detroit properties since 2012.
"I look at it as my long-term investment for my retirement income," says Mr Lim, who
bought the single family homes without seeing them in person.
Mr Lim and other local and foreign investors are snapping up cheap homes in the
struggling city, betting on a rebound.
The midwestern city, which was the hub of automotive production in the 1950s, filed for
bankruptcy last July and is facing a dwindling population - from almost two million in the
1950s to just about 700,000 in 2012.
But despite the city's decline, real estate agents in Detroit say business has been brisk in
the last few years with foreigners entering the market and making up about 40 to 80 per
cent of their client base. These investors, they say, come from across the globe including
Australia, Dubai, China and even Singapore.
Mr Albert Hakim, owner of property firm Re/Max Signature, who has eight agents in his
company, says they receive "4,000 to 5,000 e-mails and phone calls a month from
overseas investors and hedge funds".
Chief sales officer Ali Baydoun from another property firm, Metro Property Group, says a
little more than half the investors will visit Detroit to familiarise themselves with the
market, while the rest will buy without seeing the homes. "Every week, we have at least
one tour for foreign investors," he says.
Australians and Europeans were the first to invest, starting in 2010, he said, followed by
Asian investors in 2011 and 2012. He says he had about 10 Singaporean clients last
year.
The reason for the increased interest, says Mrs Darralyn Bowers, owner of Bowers
Realty, is "Detroit's image of being on the rebound".
"I think people see value," says Mrs Bowers, who sits on the committee of the Detroit
Association of Realtors.
As investment pours in, property prices have started to rise.
Prices for residential property in Detroit rose year-on-year by 23.4 per cent in March,
says Ms Alanna Harter, marketing manager of Clear Capital, a real estate valuation and
analytics company. In comparison, prices rose only 9.8 per cent at the national level.
"Even after Detroit's impressive yearly gains, the median price is only half of what it is at
the national level. Further, prices in Detroit are still down nearly 50 per cent from the
peak in 2006," says Clear Capital's vice-president of research and analytics, Dr Alex
Villacorta. Detroit's median home prices are US$87,500, compared to the national
median price of US$175,000.
While the low prices look attractive, agents do warn that there are always additional costs
including city inspection fees, and property taxes that add to the cost.
Mr Hakim adds that for cheaper properties, investors should also expect to spend money
on renovations: "Ninety-five per cent of these places need to be redone with electrical or
plumbing work."
Mr Baydoun says his company usually refurbishes homes in Detroit before selling the
units to investors. A renovated three- or four- bedroom home can command between
US$55,000 and US$65,000.
Compared to the rest of the US though, few Singapore investors dare venture into such
distressed markets, says Knight Frank executive director Tan Tee Khoon.
Midas Development Group, which has been marketing Detroit properties in Singapore
since 2011, says Singaporeans are a "conservative group of investors" who usually take
a "wait-and-see" attitude before making an investment.
So far, Ms Vivian Gan, the company's marketing manager, says they have about 200
investors who have spent between US$35,000 and US$60,000 on homes in Detroit.
As for rental yield, Mr Lim says, he has been getting "a steady cash flow every month",
and a net yield of 15 per cent per annum.
But industry experts warn that yields can differ in different parts of the city, and rent may
change when tenancies are re-negotiated. They also advise clients to be careful about
being drawn in by seemingly low property values in cities such as Detroit.
Says Knight Frank's Dr Tan: "In any overseas property purchase decision, it is vital to
look beyond an attractive price tag."
He adds that the cost for refurbishment and ownership risks such as encumbrances -
legal interests held by someone other than the owner - on properties would be key
factors of consideration.
"Prospective buyers would be prudent to perform the necessary due diligence first," he
says.