I am sure you would have seen this headline a few days ago.
“Half of developers likely to cut prices of Singapore new launches” – The Business Times, 5 May 2020
I share my thoughts on this article in the FB post below.
Basically the headline is based on a survey conducted by NUS.
I decided to explore this further by checking out the Private Property Price Index.
You can visit the website itself here: https://data.gov.sg/dataset/private-residential-property-price-index-by-type-of-property
In the same article, the Real Estate Sentiment Index (RESI) is included.
From the same Business Times article
Real Estate Sentiment Index (RESI) Versus Property Price Index
From 2010 Q1 – there is a dip in sentiment. But if you refer to the overall trend in the price index – is still going upwards.
In 2011 Q3 – it shows that the sentiment index is going up sharply but the actual trend in the price chart is increasing at a much slower rate.
From 2017 Q3 – there seems to be a big drop in the sentiment index. But on the overall price trend, it goes all the way UP.
From what I observe – the actual market movement lags behind sentiment.
By the time the market moves, it might be too late to take action.
The sentiment index will not always reflect the overall long-term general trend.
What action has the government taken?
They are giving a 6 months extension for married couples who brought a 2nd property.
These couples usually need to sell their 1st property within 6 months after their 2nd property has hit TOP or after they exercised the purchase of their 2nd property.
What Is the Impact of This 6-Month Extension?
I like helping my buyers find such sellers.
It’s because these sellers have a strong urgency to sell and are usually willing to accept lower prices.
But of course – they are not always easy to find.
Check out the #09 floor transaction.
This owner was selling due to ABSD remission.
So he actually sold at a price that was $60k cheaper than the last transaction and almost $200k lower than the highest transaction in the list.
I saw the unit before. It was a nice unit. And the buyer had to exercise quickly.
I did another case for my client who dealt with the owner who also cut loss – about $200k.
But it was to claim back an ABSD of $600k. Exercised within few days after receiving the OTP from seller.
So if they have more time to sell – then this urgency no longer exists.
Sian right? LOL.
Additional 6 Months Reprieve For Developers
Now developers have an additional 6 months to sell their units.
This news releases the tension that developers might have. Not the best news for consumer like us.
But it is definitely good news for developers.
Let’s try to understand how many units are caught in the position that they need to sell on time and will have a deadline to meet.
Propnex’s research department consolidated this data to see how many units will be meeting the deadline soon.
They also included the number of units reaching the deadline for the next few years.
- 29 units need to be sold by 2020 to avoid the developer’s ABSD.
- 276 units need to be sold by 2021 to avoid the developer’s ABSD.
For the next 2 years, the numbers are still low and manageable.
They have about 3 years to clear about 5400 units. Should be easy for them.
The main bulk will actually come in about 4 years’ time.
Of course, you can choose to buy in 2023.
But it is also possible the govt could provide more extension for developers if the Covid-19 situation continues to be serious.
“I Thought Developers Are Giving Discount!”
One of my readers shared with me that he wanted to wait for awhile – he wanted to check out if developers are giving a discount.
To be honest – there ARE developers giving a discount.
And I will always pay close attention to those units that are being discounted.
Most of the time, I feel those “discounted” units might not be the best choice.
Yes, you can choose to close one eye and still proceed to buy.
But I think you will NOT spend $1-million to buy a 1 bedroom facing a tennis court and substation right?
Or $9xxk for a 1-bedder at an unsuitable location – just because it was around $10k cheaper thanks to the pandemic?
So be careful and highly aware why such units are often discounted.
How To Find A Good “Lobang” From One of the Hottest Launch
Below are the transactions from “The M”.
From the data above – you will realize there is 1 really good deal in the market. And if you didn’t notice this – you will likely be paying a whole lot more.
It is the unit at #07. Why is it so?
- It is only $6k more expensive then the #06 unit.
- It is $109k more cheaper than the #08 unit.
- And what’s even more scary – it is $317k more cheaper then #15.
Of course, the view can also play a big role. But it is really worth to pay $109k and $317k more?
Usually, it is VERY difficult to get someone to pay for it.
And for people who wants a discount – do you know how much % discount the developer needs to give before it becomes a more “acceptable” deal?
Let’s assume the #08 is available and you miss the unit #07.
From $1.510m – the developer will need to give you 7% discount to make it $1.404m.
7% is not a small amount from the perspective of the developer. This is especially so when the developer’s profit margin is no longer like in the past where they used to have 20% margin or more.
But most developers are maybe having only around 10% margin.
Let’s have a look at another unit on the #15 for $1.718m. The developer will need to give 15% discount to make the unit $1.46m which makes it $59k more expensive compared to #07.
15% discount is also not easy to give.
So if you are really waiting for a developer discount…
Will we be seeing 7% or 15% discount? Or would we only see $7k to $15k discount?
I think if we missed the #7 unit…
Even if you were given $100k discount for the #15 unit – you will still prefer to buy #07 unit if it is available.
That is why we need to know what are we waiting for?
If we are waiting for a discount – I think we can look at what is available now and then decide again.
Not all developments are priced this way
Let’s take a look at the transactions at another new launch.
For this development, the prices at the higher floor are not much different from those below.
So if you have the chance to buy first – go for the higher floors immediately. The difference between the floors is only about $3K.
Of course, I will still caution you to select a unit carefully.
I am showing this to illustrate how different developers will price their launches differently.
Different developers will look at different factors differently – so never assume they will take the same approach to pricing.
Government Stimulation Packages and Interest Rates
Around the world, almost all governments are handing out stimulus packages to provide support and encourage spending in this pandemic.
All this packages will include measures to keep the interest rate low.
This ensures businesses can borrow money at lower interest rates to keep their business running and also to pay wages.
And when interest rate is low – businesses can use the cheaper money to buy stock and shares and real estate as well. Some might also cash out from their stocks and park those monies in real estate as well.
The disadvantage of low interest rates is it will lead to inflation.
Higher inflation will devalue our liquid cash in the bank.
If today – you have $100k inside the bank, you can buy 50k packet of chicken rice at $2 a pack.
Then inflation causes the price of chicken rice to inflate to $2.50 per packet.
Our $100k in the bank which did nothing – suddenly loses 10k packets. We can only buy 40k packet.
Assuming we consume 3 packets a day for 3 meals – 10k packets of chicken rice can last us for 9 years.
Guess what?
You actually just lost 9 years worth of breakfast, lunch and dinner just by doing nothing.
Photo by Ke Vin on Unsplash
Conclusion
The above is just a simple illustration to let you understand how inflation can affect us.
You can park your monies in property to hedge against inflation.
This is because your monthly installment is locked in since the day you buy.
I realize it is very confusing on what you should do in today’s market.
So many people saying different things about the market. So much information – but what knowledge will be useful for you?
I don’t claim to be an expert like you see in the mainstream media.
Everyone has the same data.
But who can piece all the data together to get the real trends and behavior to customize a solution that could make a big difference in your overall purchase?
I have been looking at past and present data everyday.
I have also met up with more than 400 families to understand how Singaporean families behave and plan their purchase.
It is about timing and understanding the opportunity.
Do take note I am NOT encouraging you to buy now.
Instead – my goal is to let you understand the situation from another perspective.
Right now, I know there are a lot of people who are waiting for the chance of great wealth to be built and transferred.
For me – before any purchase decision is made – I have to go through very detailed analysis of your requirements and current financial position.
Most importantly is doing the financial calculation.
In today’s market, the most important thing to understand is your holding power.
Can you hold till the chicken rice price increases to $2.50? Or maybe now it has increased to $3.50?
With inflation, your property prices gets pulled up as well.
Let me know if you are interested to find out what those 400 families did right and what was their biggest mistakes.
If you have any plan in mind, drop me a whatsapp message or fill up the contact form. We can discuss further from there.
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