Right time to buy private properties now?
I just bought my first Executive Condominium (EC) last month. On looking back, it was truly an enlightening experience because I have learned a lot on the housing regulations and CPF-related ruling. Prior to this, my wife and I had visited many projects for the past 2 years and we were fairly clear on what we are getting. But what we didn’t expect was the whole slew of housing regulations that not many Singaporeans are aware of. In the next few articles, I will touch on regulatory matters relating to private properties. In this article, I will instead share my views on whether it is the right time to buy private property now.
According to data from URA, for the whole of 2015, prices for private residential properties fell by 3.7%, compared with 4.0% decline in 2014. Credit to the Singapore government, the Property Price Index witnessed a soft landing since 2013. Despite various cooling measures firmly entrenched, the property market did not crash but nonetheless, prices have declined from the stratospheric levels seen in the last few years.
Source: URA
One important trend to note for 2015 was the record vacancy rate of 8.0% since 2011. This trend is expected to continue given the huge supply glut of private residential properties for the next three years. To put things into perspective, 26,467 units (including ECs) will be completed this year alone, followed by 17,234 units in 2017 and 16,223 units in 2018. Considering the fact that the whole of 2015, developers sold 7,440 units, compared with 7,316 units in 2014, this pipeline supply is overwhelming. As there are only so many upgraders and property investors, and with so many projects to be completed this year, the market is really at a tipping point.
Source: URA
For the developers, it is unlikely that they will lower the selling prices of their projects substantially because they had bid for the land parcels at certain level. Thus, when the building and labour costs are factored in, there is a consideration for break-even price, which has been increasing in recent years because of tight government foreign labour policies and rising raw material costs. To make things worse, developers are also subject to the Qualifying Certificate (QC) ruling, which mandates developers to complete their projects within 5 years and to sell all the units within two years from Temporary Occupation Permit (TOP).
The QC is a very onerous new scheme which prevents developers from hoarding unsold properties. Developers risk losing their banker’s guarantee for unsold units and the extension charges are not cheap either. Industry players estimated that developers may be facing at least $226 million in extension charges this year and $1.3 billion in 2017. Henceforth, to meet this requirement, developers have to “price to sell” their projects. Otherwise, things will only get worse for them.
Based on my estimation, prices for private residential properties are set to soften by at least 5% this year. In my point of view, it is really a buyer’s market now. Property hunters should take their time and choose their desired properties wisely. I am not sure whether this window of opportunity will last how long because when it comes to government policies, it is always a wild guess. You never know when the government will be pressured to bow to the “Big Towkays” and remove some of the cooling measures.
There are of course many market rumours that Singapore government may be lifting some of the cooling measures in this year. Whether these rumours will materialize is a big question mark but at the end of the day, they are still speculations. One thing that is for sure is that Singapore government is known for being pro-enterprise. So if the industry is suffering while the government continues to collect huge amount of taxes, business sentiments will definitely be toxic.
As a wealth builder, it doesn’t matter whether my analysis is right or wrong because the matter of fact is that nobody in this world can predict accurately the future direction of any market. Of more importance is whether you have the right mentality and financial power to purchase that dream home of yours. To make money from any kind of investments, there are of course risks involved. Ask yourself if you or your spouse is at risk of being retrenched from your job? Do you need that amount of cash to pay for the down-payment in the near future? How are you going to manage the mortgage instalments?
At the end of the day, not many Singaporeans can afford to buy a $1.2 million private property. However, this dream is really attainable for a married couple with tertiary qualifications and have been working for minimum of 10 years. Their combined disposable incomes can potentially change that dream into achievable goal. So get ready because it is now or never.
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Magically yours,
SG Wealth Builder
