After being subjected to so many rounds of cooling measures – the Singapore property market has come to a new stage.

The goverment has been releasing plenty of signals which we should take heed of.

Most people are no longer able to buy a property for the sole purpose of investment.

If they really wish to do property invesment today – this means they must consider a very long-term horizon.

Otherwise – they will not be very smart investors.

I am writing this based on the fact that most investors will need a place to stay. The investment purchases refers to a 2nd property and beyond.

The majority of property buyers out there are looking for a residential home.

So we need to cater to the majority of our FUTURE BUYERS when we are on the lookout for a property purchase.

Purchasing a property that caters the minority (like property investors) will not be the best idea and will only make it harder if you plan to sell in the future.

In other words – let’s plan for the exit strategy even before we enter the property market.

12% ABSD Is Usually Not Worth It

If you are planning to own a 2nd property – you will need to pay 12% ABSD. This is really not a small sum.

As an agent who is purely paid based on transactions and commission earned – yes, I am saying this.

I will say if you are paying 12% taxes – then I rather you don’t buy first.

This is because whatever you are planning to buy today that is for investment – you will be looking at it from the investment angle.

So most likely you will consider an “investment-type” of property. The most typical example will be a 1-bedder unit.

And if it is a 1-bedroom unit – this also means that most likely your future buyers will be be an investor who wants to buy and invest.

Of course – there exists buyers who plan to stay there. But such buyers will be a small minority.

If we are doing investments – we need to make decisions based on the majority and likelihood of who the buyers are.

Yes – we make the exit plan even before we enter into the purchase.

Why 1-Bedroom Units Are Not Usually The Best Investment Choice

Some investors of 1-bedder units have this belief that other property investors will purchase their units from them.

If they truly are investors – why do they need to buy the 1-bedder unit and allow you to make $100K first from appreciation gains?

They can easily go directly to the developers and make the $100K gains on their own.

Investors are usually not in a rush to collect the keys – unless they need rental badly to cover the installments first. But this is usually not the case.

With the current global pandemic – the movement of people across borders will be more restrictive.

So what would be a better property choice in this current situation?

What should we buy?

Consider Who Might Be Future Buyers of Your Property

Let’s consider instead who might be willing to take the property off your hands in the future.

Over the last few years – I been encouraging more of my investor clients to buy a “consumable property”.

What do I mean by that? I am referring to properties that has at least 2-bedrooms and above.

The best choices will be 3 and 4 bedroom units.

Another key factor is also the location.

These properties should be located at places where:

• people “need to stay”
• people “have to stay”
• people will actually look forward to moving over to stay

Why do I say so?

With ABSD involved – buyers who are purchasing a 2nd property has to pay an additional 12% ABSD.

It is not only that.

If they have an existing loan with their current place – they need to pay ANOTHER 55% down payment as they can only take 45% loan.

(Unless their current property is fully paid)

At the same time, they also need to pay the normal stamp duty of 3% to 4%.

So let’s add up to see how much this family needs to pay to upgrade to a brand new condo by buying from developer:

12% +55%+3% or 4%= 70% or 71%

Which means to buy a unit at $1 million – they need around $700k down payment. (Cash and CPF)

Now let’s go back to logic again.

If you really have $700k – will you only buy a $1-million property? Very unlikely right?

What this means is:

It is not easy for the majority of people to buy a brand new unit from developer during launch and wait for the unit to be ready while staying inside your HDB.

Let’s think again.

Does this means lesser and lesser people buying from the developer? Will developers continue to sell at high prices or low prices?

From the perspective of the developer: It should be a low price.

But from the buyer’s perspective – I am sure it will be a high price.

To the buyer – even 5 years ago when you bought a 4-room or 5-room unit HDB unit at $400K – it was also considered expensive.

But today it is worth $6XXK. LOL.

Alternative Choice From Buying From Developers

So let’s work backwards.

Buying directly from developers will incur so many additional taxes.

What other choices do we have if we don’t buy from developers?

And with ABSD around – do we still upgrade?

I believe so. Upgrading is part of our vocabulary and embedded in our minds.

It is just a norm when you hear people are upgrading.

Since young – we see people changing from:

• 3-room to 4-room HDB
• 4-room to 5-room HDB
• 5-room HDB to condo
• Condo to landed property

So people will still upgrade their homes.

But instead of buying from developers, they can buy from the resale market.

And in particular – they like to buy from the newly TOP resale market.

These developments just hit TOP and just collected keys. Brand new. Very attractive.

So to buyers – this means they can save a lot on renovation and move in to brand new house seamlessly.

Why not?

Down payment become 25% after HDB is sold.

Stamp duty becomes 3% or 4% after HDB is sold.

And when we do the calculations – it turns out that we don’t need to pay installments for 10-15 years – we just free up the profit and unlock the CPF in your current HDB. Why not?

So with this – what will happen to the resale (but brand new) condo pricing? Will it move up?

Brand new. Available for stay at the right price. No more waiting. Immediate move-in possible.

This is what I mean by a consumable property.

This basically means you will definitely have someone willing to buy a unit from you to “consume” and stay.

And these buyers do not really have alot of other choices.

Unless they are open to the idea of buying an older unit.

But they will need to spend on renovation. Usually these renovations are not that cheap as well and a headache to do.

Choosing tiles, choosing cabinet laminate, choosing flooring, choosing the designs.

I don’t know how many quarrels I have seen between the family members regarding these decisions.

How do I know? Simply because I have met so many families.

In fact – about 450+ families over the last 4 years.

Conclusion

These are the small micro-trends that are happening on the ground. A lot of people who are NOT in the property market will not notice this.

Some agents might not even be aware of this as well.

It is really just about watching and understanding human behaviour.

By understanding all this small trends and human behaviour – it can actually bring you a lot of profit from the property market without much worries.

The truth is this: Covid-19 or not – people are still looking forward to upgrade their homes.

In fact – I just met someone who shared with me that it is time to upgrade.

Why? He believes the confidence of some property owners have become lower now.

And he believes this means prices can get cheaper now.

Of course, there are many steps take note of and lots of detailed planning to do first.

But the key thing is being able to see the end in mind and understanding the exit strategy.

Most important – you have to understand the demographics of future buyers at that location.

This is not always so easy to do.

I have seen cases where people thought they bought the best unit in the development.

But when it is time to sell – they make much lesser profits than those who thought they bought “lousy” units in the development.

I really wish I can share more here.

But some of the points are quite sensitive which might affect certain groups of people.

If you wish to know more about how I consider and weigh the factors of demographic behavior of your potential future buyers – drop me a message.

Believe me – not many people even consider these factors.

But it is actually a very important consideration in your overall decision.

A lot of buyers out there are making important purchasing decisions blindly.

If you are keen to explore your options – I am available for an online Zoom consultation.

As usual, I promise to never pester you after this no-obligation discussion.