Hello readers. Hope you are happy with the news that we are heading into Phase 2 on 19 June 2020 just in time for us to celebrate Father's day this year.
After my last few articles that address how we can turn Covid-19 crisis into opportunity and my last article about Singapore property outlook amid the recession, many clients and friends have being seeking my advice if this is the right time to buy property or should they continue to wait.
As such, I hope this article help to answer some of the frequently asked question by home buyers or investors.
When is the right time to buy?
Even though we are moving toward phase 2 of circuit breaker and many of the country has started to lift their measure to open the market, fear and uncertainty is definitely still in the air.
Fear and uncertainty is due to lack of knowledge
Many potential home buyers can sense it and since property is a big ticket item, no doubt they are worry that they will make mistake in purchasing the property at the wrong time.
Very often, many savvy home buyer and investor attempt to predict when the price is increasing or decreasing. However, no one can predict accurately on the lowest point to enter the market.
As such, the best time to buy a property is definitely when you can afford it.
As shown in this chart above, recovery is generally fast and certain after each crisis.
Covid -19 is considered as an unprecedented event, no one can predict how the graph is going to look like further.
Nevertheless, like all our countries, Singapore government will continue to come up with further interventions to cushion the decline of property prices during the deep recession
3 Checkers for Home Buyer
The following 3 checkers are commonly used by home buyer and investor during purchase.
1) Affordability
You cannot eat the piece of cake if you cannot afford to buy it. As such, affordability check is the most important checker that all home buyers and investors need to do.
If you have been following through my articles, you would have realized that I have been emphasizing a lot about getting your financial in check.
Thus, in all meeting I set with my client, the first thing I would do is to help them with their financial analysis to ensure their financial standing allow them to buy a property.
2) Mortgage Interest
Other than sourcing for good buy unit, home buyer and investor should seize the opportunity of the low interest rate environment.
Securing a low mortgage interest rate also equate to lower borrowing cost and lower the overall purchase of the property.
3) Price Tag
Just like buying any other product, we look at the price tag. But more than the price tag, we should look at the value of the product.
If you are convinced with the value of the product and the price has been reduced in the form of discount, isn't it the best time you should take action?
As much as I wish for the better of my client that the price would drop more, the price did not slipped drastically.
Amid Covid-19, according to the data from Urban Redevelopment Authority (URA), the overall price index of private properties has drop 1% quarter – on quarter in the first quarter of 2020.
Our several past cooling measures over the years such as TDSR (Total Debts Services Ratio) and Mortgage Servicing Ratio (MSR) have ensure property owner continue to have holding power to tight through the crisis.
Furthermore, Singapore government has introduced series of policies and legislation that specifically interceded to forestall the plunge in property prices.
Nevertheless, there are still some good discounts provided by developer in hope to keep the positive buying sentiment during this circuit breaker.
Will Developer Cut Price Further?
Just like we all wish that the developer could cut sales price and has negative profit.
However, this is not possible.
Before the launch, the developer will have to strive an agreement with the financial institute on the average sales price of the project covering all the cost of land and construction before they are being granted a loan.
In fact, amid Covid-19, it has further increase the cost construction due to the testing requirement.
Our Minister Lawrence Wong has announced that "all of us" which means all home buyer will need to be prepare to pay higher cost
Therefore, Should I wait?
I hope by now, I have share enough to inform that you should take action to seize all the good deal and avoid paying higher prices when developer start to raise the price.
You may be sharing your concern that under the certain recession atmosphere, you are worry that you may lose your job.
Thus I would take the opportunity to share the concept of margin of safety.
Margin Of Safety
For people who invest in stock will be more familiar with this concept.
This concept emphasis on buying property that is below the intrinsic value.
Thus, instead of trying to find the right time to enter the market, the focus should be looking for good deal.
What Constitutes a Good Deal?
Well, by the way, good deal is definitely determined by being able to buy the property below valuation price.
I shall take Kopar at Newton at District 9 as a case study.
This project is one of the project that is badly affected by the "circuit breaker" regulation.
This project was still in their phase of preview but was force to launch abruptly due to the "shut down".
Nevertheless, it has not stop this project from being one of the top selling projects during the entire circuit breaker.
Personally, i believe the reason why Kopar at Newton has been selling well is because it has been strategically priced that has minimum downside risk for the buyer
As shown in the above picture, Kopar at Newton in this case has been competitively priced with good risk premium factor in for investor.
The entry price of Kopar at Newton is as low as $2108psf during the launch. This price is far lower than other projects launch price in the core central region (CCR).
In comparison with other projects in District 9, the latest average transaction for Kopar at Newton is $2,281psf whereas the Haus on Handy and Cairnhill Nine are transacting at $2650 and $2,866psf respectively.
Likewise for all the discount provided by developer, this form the margin of safety.
Nevertheless, the percentage of margin of safety value defer from different individual. This is because it is determined by individual risk tolerance.
Personal View on Margin of Safety
Real estate is one of the highest leveraged investment in the market.
We may be able to source of a good deal, but at the end of the day is whether we are able to service the loan.
As such, the margin of safety lies more importantly with the ability to service the loan.
Even if buy a house at wrong price, but you could easily afford the payments, you have the holding power to wait for the property to appreciate.
With that in mind, I would generally advice my client to ensure they have a large margin of safety in the monthly income and a minimum of 6 months of their income as saving that is kept for raining days or for any unforeseeable circumstance.
Likewise, being a savvy investor in Singapore, it is equally important to understand how to fully utilize the fund in our CPF.
As such, should your fund allows, I will also encourage my client not to fully drain off their CPF for the purchase of their flat.
You may want to read more about my article about CPF accrued interest for more information.
In Summary
Comparable to stock and share, it is impossible to time perfectly when is the bottom of real estate market.
Instead of wasting your energy on timing the market, energy should be better spend in sourcing for properties that is below the intrinsic value.
Regardless of whichever market sentiment, the margin of safety is always to have the capability to service the loan with ease.
A healthy margin of safety ensure you have strong holding power to tight through any downturn.
Hope you find this article useful.
Feel free to share this article with others who can likewise be benefited with the property insight.
Do you need more clarification
I do provide a Free consultation for individual who wishes to make changes to their property portfolio but not sure how to go about it.
Click Whatapp to get in contact with me for a 1 time free 30min Property Wealth Planning (PWP) consultation.
A PWP consultation includes the following:
· A detailed financial affordability assessment
· A clear and customized investment road map for your real estate investment journey.
Maine Soh has been in Singapore Real Estate Consultant and Property Wealth Planner since 2009 when she is still studying in NUS.
Upon graduation from NUS, she became very attached to this industry.
She has not only built a pool of clientele portfolio, but also built a pool of friends whom she felt a sense of responsibility to take care of their leases or sales of their properties.
To date, her greatest fulfillment is still the capability of assisting her clients and friends to source the right property that they call home and achieving the best offer that bring smiles on their faces.
She valued all the relationship that came into her life. Thus, it is common for her to go extra mile for her client whenever required.
Most of her clients trusted her as she is not only well versed with all the marketing strategy and tools, she hold them through the complex process of the transaction ensuring they make informed decision and prevented them from making avoidable mistake.
Thus, her success is evident from consistent referrals from my clients and friends.
