Since cooling measures were introduced in Singapore’s Property Market, both the transacted volume and property prices have dropped significantly, most visibly in the private residential segment. Based on URA’s residential price index, private home prices continued to slide for the eight consecutive quarter, falling by 1.3% quarter-on-quarter in 3Q 2015 (URA 3Q2015), bringing the overall decline to >6% since 3Q2013. HDB resale index showed a decline by 0.3% quarter-on-quarter in 3Q2015 (HDB 3Q2015) for the ninth consecutive quarter.
Cooling measures included adjustments to regulations governing Loan-To-Value Ratio, Total Servicing Debt Ratio (Banks) and Mortgage Servicing Ratio (HDB), measures which discouraged investors since more cash/CPF became required for the initial downpayment.
Furthermore, Additional Buyer’s Stamp Duty pushed savvy investors into commercial and industrial property segments to minimise cost. Seller’s stamp duty further curbed investors from speculating with property; All these factors contributed to the landslide in the residential price index with many potential buyers adopting a cautious ‘wait-and-see-if-the-price-drops-more’ approach.
But, this scenario is not unique to property. Even experienced Stock Brokers will tell you that it’s impossible to predict when the market will bottom out. By the time it does, prices would have started going up by the time you’re ready to make a purchase.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett
Why Now it’s a Good Time to Residential Property
Here are 10 good reasons why potential new buyers should not hesitate and pick up a few good bargains.
1. Stable Economy and Natural Disaster-Free Singapore
Singapore is well-known for with its stable GDP growth and economically friendly policies which continuously attract foreign investment. Its geographical location virtually ensures that Singapore is shielded from natural disasters which might destroy property. Thus, the long term view from most financial experts is that Singapore’s property market will continue to grow and stay attractive to investors worldwide.
2. Population White Paper
While it is true that current market sentiments reflect weak demand relative to a higher supply of residential property, it is important to remember that supply is still very much below current targets required by the recent Population White Paper which anticipates a total population increase to 6.9 million by 2030. That means one can expect to be competing with an additional 1.1 million people all looking to call Singapore home. By the time the influx arrives, it becomes a sellers market.
3. High Bargaining Power
The government has often stated that the cooling measures are temporary. With elections over, the State’s media have already begun calling for a lift or relaxation in cooling measures. Once that happens, investors will naturally return and increase demand for property. Property prices will naturally rise once more. The problem is, when this is announced, it’s really too late for anyone who hasn’t already purchased property. Current market situation allows potential buyers to have more bargaining power. In this buyer’s market, you can really pick and choose. But for how long more?
4. Cooling Measures are Transient
The incremental number of cooling measures applied by the government through recent years have stabilised the property market, reducing previous fears that it was a bubble waiting to burst. Given the strong mandate from the recent elections, it’s highly likely they will begin to boost the property market (a pillar of the economy) and begin to systematically roll back on the measures implemented. And the signs are there that this has already begun.
In August 2015, the government raised the monthly household income ceiling from $12 000 to $14 000, allowing a bigger pool of eligible buyers to purchase executive condominiums. Those who have been waiting for the prices of executive condominiums to ‘drop more’ must be really disappointed now.
It takes time for the property prices to drop. This also means that time is running out. The older you get, the smaller the loan amount, the shorter the loan period and higher the monthly payment and upfront cash required. This is especially so for potential buyers looking at upgrading, thus we recommended a ‘sell-low-buy-low’ rather than ‘sell-high-buy-high’ approach. Psychologically, it might feel good to ‘sell-high-buy-high’ but in actual fact, this will incur more debt than ‘sell-low-buy-low’.
6. There’s a Limit to the Drop in Property Prices
If you keep thinking that property prices are going to fall lower, you might have to reconsider. There is a natural limit to the price drop mainly because majority of Singaporeans already own a property. No government will allow such big portion of the voting public to fall into the bracket of negative equity. It would be political disaster. Neither will the government allows the developers (of which Temasek Holdings, Capitaland are so closely linked to the government) to make a loss and bring down the economy and create more social issues?
7. No one knows when Property Prices will Bottom
Anyone who tells you they know when it will hit bottom is lying. By the time happens, you will lose your bargaining power, your discount and your choice of prime property picks. We hope you can still stick with your 2nd best choice. Buy property when the prices are falling, not when they begin climbing up.
8. High Land Price Bids and Limited Land Supply
The amount of vacant land in Singapore is limited, especially in mature estates. If you are thinking of getting new property in mature district, it would be wise to buy now before the prices go up.
On top of this, the bidding price of land is getting higher with more new players such as foreign developers, boutique local developers and construction-related firms, all seeking a slice of the real estate pie, not to mention your traditional developers seeking to restock their land banks. The number of bids for each site tender is up from an average of 7 last year to 9 this year. Renowned traditional developers such as City Developments, Far East Organization, UOL, Capitaland, Keppel Land, Fraser Centrepoint have yet to win any site this year. In short, higher bided land price by developer equates to higher selling price for each units built by the developer (so they don’t make losses on their bids).
People buy property on sentiment. Each property is unique. Once you have a preference for a particular piece of property, you should buy it. Is not easy to come by something you like and it is in the market. If someone issued the cheque before you do, you are going to regret it as you can never get at the exact same property you were eyeing.
10. Traditional (and stalwart) investment tool
Real estate investment has been a very strong, stable, traditional investment tool in Singapore. This is mainly due to the limited use of CPF before retirement age. With the ability of using CPF to purchase property both in the non-private and private sectors, together with the strong track record of Singapore economy, Singaporeans shouldn’t have second thoughts making property as their lifetime investment and as a potential legacy for their offspring.
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