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When is the right time to invest property?

When is the right time to invest property?


In the past few years, I’ve seen quite a huge number of buyers making similar mistakes when it comes to property purchase; be it those who are buying for own occupation or those who are buying for investment reasons. Sometimes the mistakes are so fundamental and the root cause of it are non other than being blinded by greed. I’ve also read numerous articles that are written by journalists who seemingly gives sound advices but are driven by corporate incentives and not buyers’ benefits. I must admit that when you truly understand what is ‘Investments”, you will see life differently. You will find the joy of seeing the real side of things.

The questions that are always in buyers’ minds are ‘Is it the right time to buy property?’, ‘Which property should I buy?’, ‘Is this the right price?’, ‘Is this a safe choice?’, ‘Should I wait for property price to drop further?’, etc, etc. These questions should not bother you for the rest of your life because what you are about to read here should equip you a lifetime when it comes to decision-making, especially for investments. It can be life-changing!

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BE READY TO COMMIT

Buying a property isn’t as easy process because it involves large amount of cash and tedious loan application in today’s TDSR (Total Debt Servicing Ratio) environment. Due to the implementation of TDSR, buyers should have In-Principal Approval (IPA) done before even beginning the hunt. You need to know how much you can afford and how much cash you can utilise immediately. Good opportunity waits for no one, so be ready to pounce for the ‘best’ buy out there today because comes next minute, it’s might be gone and you might not have an equivalent alternative.

DO NOT GET GREEDY

Greed is the archilles heel of investment. Once you get greedy, you run a very high risk of ending with regrets. So why didn’t you commit when you saw the property you like? This is sequel to the previous part and where things starts to get interesting. These are the common reasons for not buying a unit which you like:

  1. You did not commit because you think prices are dropping and you’ll enter when it is lower, giving you more upside gain.
  2. You did not commit because you think there’s an oversupply and rental prices are falling.
  3. You did not commit because you want developers to bear your ABSD (Additional Buyers’ Stamp Duty).
  4. You even think that ABSD or TDSR will be lifted soon because of the sever drop in property sales.

Guess what’s the reality. You are right! Prices are dropping for SOME developments but somehow not by the magnitude you are thinking of. It is not uncommon for developers to do markups on the listed price and factoring in a big discount factor to make it seem like prices have fallen by big magnitude just to satisfy buyers’ ego in bargaining. Sometimes the new final price is already discounted before buyers make an offer, but somehow buyers would only believe the drop has happened when they see it. In today’s information age, one could have looked up the transacted prices of earlier units before visiting the development. However, especially when it comes to developer sales, do factor in the earlier transacted units tends to be of lower floors without the level premium (In Singapore, the higher the floor, the more premiums in pricing). That means if you buy at the same price as the earlier transacted prices, the chance is you’ve already enjoyed a discount in terms of level premiums. In reality, buyers are asking for higher floor units at a price lower than the lower floors. Are they driven by greed? In fact, the most ironic part when you look deeper is that all these buyers feel prices will go up eventually. They are bidding their time for just 0.5% to 1% drop without realising the golden opportunity will expire without warning and next moment you are paying 5% to 10% more.

GOOD DECISIONS ARE OFTEN LONELY

I really love what Warren Buffet says,’Be fearful when others are greedy and be greedy when others are fearful‘. Either way, you need both courage and self-confidence. Almost everyone I’ve met knows that we buy when prices are low and sell when prices are high. However, almost everyone I’ve met, no matter how rich or highly-educated they are, buyers when prices are high and sell when prices are low. This is the difference between theory and practical. Theory does not involve emotion, but reality knocks on your emotions really hard. Ask yourself and recall if these are true:

When prices are soft or have dropped (time to buy):-

  • Many people cannot afford to buy or upgrade, most of the time due to not being able to take loan. In today’s context, it is caused by TDSR and ABSD. More cash has to be involved.
  • There are a lot of unsold units in the market. You feel like there’s an oversupply.
  • You see sales at a loss.
  • Very few people actually buy.
  • The news tells you prices will drop and property investments are not promising and your friends tell you not to buy.

When prices are stiff or is high (time to sell):-

  • Buying power are seemingly strong because banks are more liberal in giving loans.
  • Units on sale get snapped up in fast speed at record price.
  • Few people want to sell, thinking that keeping it longer increases the capital gains. For this, you have to know when to stop waiting.
  • The news tells you prices are low and property investments are very promising and your friends encourages you to buy before its too late.

Somehow you see certain herd mentality going on, but my indicator for danger is when I realise everyone around me are having the same thinking. To stay away from the herd, you will find yourself lonely because you are doing things differently. However, its when you are different that you start to make the right decisions. Therefore, it takes courage and self-confidence.

DO NOT BE GUIDED BY NUMBERS

This is really a fine line between the right way to use numbers and the wrong way. Many people these days are highly educated, but still very few understand it, especially in the area of Statistics. You should make decision or judgement by going to the ground and see what’s happening, thereafter cross-reference to the numbers to see if it support your theory. However in reality, many would use numbers to make judgements and decisions without understanding the ground. How can this be wise? Lets illustrate this point with an example comparing 2 properties are in the same area.

Property A:- 900 square feet 2-bedroom, $1.8 million, 100 metres to MRT station, 50 metres to shopping mall, rents for $4500 per month.

Property B: – 700 square feet 2-bedroom, $1.5 million, 200 metres to MRT, 150 metres to shopping mall, rents for $4400 per month.

A typical buyer will most likely choose Property B because of better affordability, and the seemingly higher rental yield that is 0.5% higher. They don’t mind the slightly higher per square foot price. These are again just the theory. What most people misses out are:

  1. What if Property A is a 500-unit development and Property B is a 1000-unit development? Facilities can be crowded for the latter.
  2. Property A is nearer to the amenities, which can be an everyday benefit.
  3. Property A has better finishing, larger room sizes, and living in it is more comfortable. This can lead to:
    • Property A tenant always renews the lease while Property B tenant always looks to upgrade when lease expires because their salary are higher after 2 years.
    • Property A’s time-on-market for rental is averagely 1 month and Property B time on market is minimally 3 months.
  4. When reselling in secondary market, Property A gains almost a $150 per square foot advantage due to the prices per square foot established by Property B.

Needless to say further, buyers need to understand that the most important things about making the right decisions aren’t about the numbers, but rather those things that can’t be explained by numbers, like how it feels living in it, how tenants/buyers perceive the property, the vacant period between rental and most importantly, the long term rarity of the unit layout/size/type. Numbers can’t tell which one is truly better than the other. Its the same in buying cars. Its the same in buying property. Its the same in judging people.