It has been more then a month since the latest cooling measure kicked in on 5th July 2018.
I can still remember the night before – when everyone was rushing to the showflats to immediately make their purchases.
For myself personally, I was trying to help my owner to close on a resale unit. The buyer would have needed to pay an additional 5% more ABSD the following day.
I even offered the agent representing the buyer a higher commission to help push the buyer in order to close the sale.
I knew the owner had an urgency to sell – so if it wasn’t sold by 5th July, the owner will need to wait for quite awhile to find another buyer.
Why is that? It is because I know the market will be a bit slower after that night.
I am sure you would have read the news about how buyers were queuing up outside of showflats in order to quickly complete their transaction before midnight.
But for the majority of my buyers, I reminded them to cool their emotions and not be swayed by the crowds.
While many people were rushing to buy that night, I was telling my clients to go home and have a good rest. There was no reason to feel the pressure to rush in. Why?
Because I was confident prices will be to our advantage the following day.
No need to “CHIONG” when such cooling measures are implemented
Being an agent for the past 10 years, this 5th July cooling measures was definitely not the first I ever encountered. These measures has been something that is repeated whenever prices start to heat up beyond a certain point.
The clue was already given the day before on 4th July. MAS has already indicated the need for caution for Singapore’s euphoric property market.
The Impact of this 5th July Cooling Measures
With immediate effect, the ABSD rates was raised by 5 percentage points.
If you think about it, whatever land price and list price the developer wants to buy and sell was based on the old cooling measures.
So now with the additional 5% more duty fees – what do you think the developer will do?
If you don’t have to pay this – will this be a good news for you? I think so.
At the end of the day… the developer will definitely have to sell. Hence for them, they will have to make the deal more attractive for the buyers that need to pay ABSD.
What will they need to do to the price? I think most likely developers will have to adjust down their prices.
The next immediate impact: Additional 5% Downpayment
This is something I don’t like but we have to bear with it. This change will affect our reserve funds when it come to our financial planning.
Usually if you don’t even have this additional 5% in funds, it means that you are too financially stretched to make the purchase.
But I think it a good move to make borrowers become even more prudent and careful in their financial calculations.
Additional 5% Tax for Developers
Another cooling measure applied is the 5% more tax for developers. I feel this will create a big impact to the market.
This is on top of the additional 5% ABSD that the government imposed to everyone. This means developers will be taxed 10% more.
With the impact of 5% ABSD more to everyone – that is likely to slow down the sales of properties.
At the same time, developers will also need to pay 10% more to acquire land.
The immediate impact?
En-bloc activities will definitely slow down. Hence those who are looking to buy old condos will have to more careful especially if they plan to exit the property via collective sales.
I have seen cases of people saddled with old condos and have to do monthly cash tops – even when the unit was rented out.
For these older condos, the prices are likely to remain low until the next en-bloc fever comes again.
But at today’s current prices, you are easily buying at 10-20% more premium then what it used to be.
This is very risky because if the en-bloc activities really slows down, the prices of these older properties will slowly come down too after awhile.
And you will have been the one that bought at higher prices compared to others in the whole development.
You will be at a disadvantage – since everyone else in the development can sell at a price lower than you… anytime they want.
So what should be our next steps?
Before writing this, I was monitoring how the market was reacting in the immediate aftermath.
Let’s take a look at the resale market.
Recently I made many offers to various units in the resale market to get the best deal for my client who was looking for a place for his own stay.
Perhaps my negotiation skills was not good enough – but I noticed most of the sellers were still looking at extremely high selling prices or asking for record high prices.
This could be attributed to the new land prices that were giving these owners the higher price expectation. They were confident of asking such high prices from buyers.
This is not wrong.
But from the buyers’ point of view – especially after various cooling measures – shouldn’t it be slightly cheaper now?
Especially for an item that is older and slightly used. Shouldn’t there be at least a discounted price?
That is how I felt.
Let’s put the situation in another way.
After the cooling measures – and you have 1 unit to sell – how would you feel?
Will you be in a rush to sell? Likely you are staying in the unit without a plan on what to do next after selling.
Now if you are a seasoned investor and you have 3-5 units to sell, will you be pressured to sell?
With the knowledge that after you sell off – you will need to pay 12-15% ABSD to buy again.
Will you feel the pressure to sell?
Finally, if you are a developer with 1000 to 4000 units to sell? With the knowledge that if you don’t complete selling on time – you will be taxed big time again on your balance units?
Will you be pressured to sell?
In this case – which group of people do you want to do business with during the GREAT SINGAPORE SALE?
Take note: there is a different strategy to handle a 1000 unit developer versus a 4000 unit developer.
Its similar to a big brand like Louis Vuitton (LV) versus a start up brand at Far East Plaza…
These are the angles you have to look at – in order to get the best deal from the market.
Finally, you will also have to understand what are the challenges the developers are facing.
These factors play a big role in deciding what to buy as well.
Big Brand Developer versus New Startup
Let’s explore these 4 developments near Queenstown MRT.
Development #1: New Launch – Stirling Residences
Stirling Residences has a great location – near Queenstown MRT. The layout of the units are also very nice.
However, do bear in mind that NOT ALL units are worth considering.
Some of these units are overpriced to subsidize the less desirable units.
Development #2: Queens Condo (TOP in 2002)
Queens condo is a 16 year old development. The balance lease is 79 years. This means that almost 20% of the 99 years lease has been used.
How much are they selling today?
Queens Condo: Selling at $12XX PSF
Development #3: Commonwealth Towers (TOP in 2019)
Commonwealth Towers: Selling at $17XX PSF
Development #4: Queens Peak (TOP in 2020)
Queens Peak: Selling at $19XX PSF
Imagine if you are the developer of Stirling Residences.
You saw the the transaction prices before you bought the land in May 2017.
How much will you plan to sell at? $1600 psf? When you bought the land at $1050 psf?
How much will you launch Stirling Residences if you see Queens Peak is selling at $19xx psf?
$1600 psf?
So if we can get Stirling Residences at this kind of price – will this be a good deal?
That’s not all. Let’s look at Queens condo price again – it is about $1300 psf.
If we use $1600 psf as a guideline and we take away a 20% discount which is for the usage of 20 years for Queens condo.
($1600 x 0.8) – that is about $1280 psf.
This is almost the same price.
So is this a good deal?
Do not forget – you will be getting everything brand new while Queens condo older unit might easily need $50k renovation to stay in comfortably.
Conclusion
So what’s the takeaway from every cooling measure implemented? Essentially, opportunities will always abound during such times.
Prices might even revert back to prices last seen a few years ago. Overall – it seems interest might have slowed down as the “euphoria” dies down.
This is when you can begin to uncover good deals not previously seen.
If you are keen to explore your potential options and wish to enter the property market – I invite you to contact me for a discussion.
For more details, you can read here regarding what my financial assessment will cover.
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