A friend of mine is puzzled why I keep telling others to beware of buying overpriced properties.
“Didn’t you make your bucks from people who bought at the last peak of the market?”
“If all buyers are so cautious, where can you find good buys next time when the market clashes?”
I was speechless.
Yes, you won’t go warning the fish about the bait when you also want some fish for dinner.
According to the ‘Property Investor Profile Survey’ conducted by Ascendant Assets, for a typical Singapore property investor,
– the average age is 46.
– 82 percent are married.
– 42 percent have $100,000 to $400,000 spare cash on hand.
Assuming a buyer bought a property at $1.5 million with 80 percent loan at $1.2 million. If the price of his property drops 30 percent and now worth $1.05 million, the mortgage bank can ask him to pay $150,000 in cash to cover his negative asset.
What happen if prices fall 40 percent? The buyer will be asked to pay $300,000 in cash.
Those with less means will be forced to sell.
What happen to those with holding power?
People bought in 1996 take 15 years to breakeven. If the average age of an investor is 46, they might have to hold onto their property till they’re 61.
Fingers crossed that they still keep their job during bad times and their family can get by, despite paying mortgage of an overpriced property.
An actress-turned-interior designer said it best,
“I don’t understand why people spend their life savings to pay for heaven’s price, when they are only buying a place on earth.”
During the bad times between 2002 and 2005, I went for hundreds of flat viewings. Each time I would ask the agent why the owner was selling the unit.
Many gave answers of cutting loss, over-commitment, loss of job, failing business, etc.
Some planned to downgrade to a HDB flat.
Although the market was bad at that time, prices of HDBs were still strong due to big demand from buyers downgrading from condos.
For these sellers, they had suffered losses from selling their condo units, yet still had to bear the high prices of HDB flats.
Frankly, it was not too bad about downgrading. The saddest part was viewing the flat of a bankrupt or a person close to bankruptcy.
I could never forget the miserable looks of the owners and their family members as I walked through the house with the agent, with the Official Assignee in the background at times.
Obviously, these owners were forced to sell their residence at any price. Yet I couldn’t buy their places.
I prefer to buy from another investor who wants to cut loss, rather than from an amateur who is forced to sell.
Because from experience, I could easily tell that it’s a bad choice — bad location, odd layout, poor facing, etc.
Property has a cycle. Catch it only when it’s low.
Your advice is very sound and logical. Condominiums in most parts of Singapore are overpriced now. What is your view on freehold landed properties? Their price seems to be very resistant, even in times of recession.
Thanks. Agree with you that the price drop of freehold landed properties is less drastic. However, they’re also difficult to be sold at a good price during bad times.
The tricky thing about landed properties is that the rental return is low (except in prime areas) while the maintenance is high. So if you buy at a high price and need to hold onto it, you’re prepared to ‘subsidize’ your tenant to stay in the house for a very long time.
If you’re buying for your own stay, either the prices climb or drop has nothing to do with you since you need a place to stay anyway.
Yes the market is only ready for you only when you are ready to buy because no one can predict the market perfectly.
I can remenber forty years ago when my dad bought a terrace house that cost only $70000 but today it was sold at min $2.5M.It was inflated by 3500%.
From long term prospective, property price will definitely rise in value due to inflation & growth in population.
So just buy within your means , don’t over leaveage and it will be fine for you.
Just giving my two cents worth.
Yes, those are the days. Mortgage rates were double digits and only the priviledged few could afford to buy (and in cash!).
No one can predict whether and when a country will enter a second-time high growth stage.
But in the next 10 to 20 years, the likelihood of experiencing some 50 percent fall in the property price index will definitely be much higher than a 3500 percent hike. We’ll be overjoyed if we can live to see the latter to repeat itself in our lifetime. In the meantime, I’ll try my very best to protect my assets from suffering from the former.
Property soul, thanks for sharing your insightful thought. I just bought freehold inter-terrace for own stay. Not looking for huge capital appreciation but definitely won’t want to see a fall of 50% in future. We have been looking around for condo but been advised to buy landed as it is safer.
Are you taking advice from property owners or their agents? These days less people are buying properties for investment so the sales pitch is targeted at the “users” now.
Well, no one can say exactly what will happen in the future. Though there’s always risk when you buy or invest when the market has been doing well for quite some time, when many have bought (and exited) before you.
I am glad to find your blog and wise words. I just bought a inter-terrace for own stay and been thinking if I should sell my option after reading your blog.
Buying properties is a big decision and I’m sure that you’ve thought of all the pros and cons before taking the step.
I hope you are prepared to pay mostly in cash. So in the future, even if the value drops, you won’t face problems of holding a negative asset.
You can proceed if you’ve prepared to stay there for a long long time. In that case, all the price fluctuations have nothing to do with you (if you don’t mind the opportunity cost).
Renovation costs are inevitably higher during good times. But it’s ok if you’ve budgeted for it.
“If you’re buying for your own stay, either the prices climb or drop has nothing to do with you since you need a place to stay anyway.”
I bought a condo unit in 1996 (after viewing a showflat) for own stay which, to me, was affordable. But when a few neighbours bought it after TOP for 30% less than mine, I felt so lousy.
BTW current property price is just too ridiculous compared to real wage.
I am so glad to come across this article. I was torn between getting an overpriced condo(15% above last transacted price) because my other half really likes it versus renting a hdb for now and waiting for prices to drop. Was feeling kind of rotten because i wasnt able to get the unit for my other half but now i am hoping that the unrealistic seller actually saved me from making a bad decision.
Hopefully the prices will drop soon and that unit becomes available at a lower price.
An overpriced purchase is always an overpriced purchase. If you buy it, you’ll regret sooner or later.
A few years down the road, after you’ve seen more flats, you might not want that unit any more. When I look back at the units I was close to make an offer after viewing, I’m glad that I held the horses at that time. Over time I’ve seen better ones, both in terms of quality and value-for-money.
Hi Property Soul, Is history price provide a good guess of the property price. I am concern of hyper inflation due to over printing of currency from the developed country and even more concern the government shifting the population policy to increase 5 to 6 million people. I am worry our limited land is depleting each launch by developer. I am worry we are moving toward Hong Kong Living style. Is waiting the next down cycle will arrive, maybe not.
History also repeats itself many times on cycles of boom and doom, isn’t it?
Thanks to US’s money printing, we are all richer with a stronger Singapore dollar. Compare with US and countries with US-pegged currencies, what inflation are we talking about (other than our ‘self-created’ high prices in private housing and COE)?
I would applause rise in population here. It implies a striving economy manages to retain locals and attract foreigners.
Don’t worry. Singapore will never be anywhere like Hong Kong. See the differences in their government, housing policies, etc. and you know what I mean. This small island still has lots of space, height and rebuild opportunities for housing for many generations to come.
How a basic coffee price rose from 50cent to 90cent in less then a decade, a 80% raise. A bow of dry noddle from $2 to $3, 50%. Transport ….etc. That terrible inflation. Starting pay of diplomat $1200 decade ago now $2000, 67%. HDB 4rm less 200K to 400K, 100%. So the future price of basic need will be higher. How do once hedge once asset? Sitting on cash in bank waiting for Asset to drop? I think no so wise, The property price will drop but nobody know from which level and how deep. Can anyone value the price of property? nobody can as it too complex. The supply of property is easy to calculate but not the demand. Who can see the demand and supply will be the winner in the property market. Sadly said that no one can tell you the demand because it near impossible. I think price will trend up at a low pace. The value of cash will depleted each day. The hundred thousand dollars was a big deal in the 80th now is peanut. So what a hundred thousand be like in another decade ?
Inflation is not something terrible. My parents’ generation has been complaining in the 70s and everyone survive it. What we’re afraid of is hyperinflation and fortunately we don’t have it here.
I think the term hedging is often misused by the financial institutions marketing their products. When things are overpriced, I would rather put my money in the bank than investing in anything risky. Inflation is at most single digit now but price drop in overpriced assets can be an infinity.
Remember what Jim Rogers said about supply and demand?
“I have learned that when you’ve done your homework, once you recognize that supply and demand is totally out of whack, and you make your move, you are definitely going to get very lucky.”
The key words here are “do your homework” first.
Yes, inflation is here to stay. My dad bought his first 3room flat in Queenstown in 1965 for $6,200. 46 years later, it can fetch at least $300k, almost 4800% inflation , for a 99 yr lease hold HDB flat !
Buying a property is not buying stock. One should not time it. Importantly is buy within your comfort price and the property you like. Then you plan the worst situation and do a mean testing whether you can handle it, like 4% mortgage rate and lost income for 6months, new born baby and etc.. Once the worst is been taken care of the rest will be ok. You never never ever going to time the market right. Nobody will. Only plan the worst is more important then analysis the market move. Leave the market to the speculator.
We don’t have to time the market but it is also not difficult to know where we are in the property cycle judging from the prices and market sentiments. Nonetheless, whether one wants to buy at the early or later stage of the cycle is a personal preference.
Hi, I have been comtemplating whether or not to buy my 1st pte pty now (at current peak prices) until I chance upon your blog. Thanks for the advice. I’m glad there are still people like me putting cash in banks than buying overpriced properties. At times, I asked myself why do I need to buy property when I already owned one (mine is a humble hdb). My “fear of losing out” and greed for more wealth may lead me to making losses in pty investment.
I’m glad that reading the posts in this blog reinforce what you believe in. Do only things that make sense to you. What other people say doesn’t matter at all.
I like your word ‘humble’. On the road to be a successful property investor, I am putting this word in my heart. And excuse me for quoting Jim Rogers again,
“If you let vanity and self-importance take over, you will lose all that you have achieved. And fast.”
Your advice is very sound and consistent. Condominiums in most regions of Singapore are overpriced today.