Panic buying of homes out of FOMO

Panic buying in a perceivable crisis under the out-of-stock fear is real.

Hideko Yamashita (山下秀å­), the famous advocate of danshari (æ–­æ¨é›¢), once handled an extreme case of hoarding.

An elderly woman lived alone with over 200 rolls of toilet paper in her tiny apartment. With her usage of one roll a month, 200 rolls could easily last 16 to 17 years. But she was constantly living under the fear of toilet paper being sold out. She had experienced this once during the time of oil crisis in the 1970s. Despite living in a hill of toilet rolls, she would still be compelled to stock up more whenever there was discount for any toilet paper brand.

Irrational panic-buying induced by the pandemic

Remember Singaporeans’ panic buying and hoarding behavior during every raise of Covid-19 alert level?

One shopper in the queue, who only wanted to be known as Mrs Chin, said she bought more pasta, flour and toilet paper than usual for her family of five.

“After going through panic buying last year, I think I’m better prepared and knew to come to NTUC as soon as possible because the weekend supermarket crowd would be worse,” said the 40-year-old.

– “S’pore has adequate stocks, says Chan Chun Sing, amid long supermarket queues after Covid-19 rules tightened”, The Straits Times, 14 May 2021

A deadly pandemic dropped from the sky has caught everyone by surprise. Human beings under panic attack became irrational shoppers. More and more people joined the insane crowds under unprecedented threat. Everywhere we saw wandering zombies queuing in front of pharmacies and supermarkets. They behaved like possessed spirits going around hoarding for masks, food and toilet rolls, and months later, panic buying of properties as well.

– “Who’s fueling the housing bubble?“, Propertysoul.com

The last time Singaporeans stockpiling on food and groceries was back in May this year. For the last round of Phase 2 Heightened Alert in July, there were no more long queues outside supermarkets.

How did the kiasu people overcome their fear of missing out? Did they find a cure or vaccine for panic buying? Or was it the hoarders who finally came to their senses and realized that their out-of-stock fear was unfounded?

The fear of missing the boat is real

I know a guy who proposed to his girlfriend and had yet to receive an answer from her. Out of desperation, he told the girlfriend that his colleagues mentioned a well-known fortune teller who could tell their past and future in details. He passed her the contact number.

As instructed by this guy, the fortune teller told the girl, “This guy who just proposed to you is the one. Don’t hesitate. If you miss the boat, you will stay single for the rest of your life.”

For fear of missing out, the girl came back and said yes to her boyfriend. By doing so, she self-fulfilled the prophecy that she would not be single.

Getting hitched is a big and lifelong commitment. Shouldn’t she ask the fortune teller all the right questions? Is this guy a good husband? Will she have a happy marriage? If she stays single for the rest of her life, will she be happy, healthy and wealthy? After all, it’s far better to miss the boat than end up in a sinking boat or the boat of divorcees.

The question is not whether she can or cannot be married. It is whether she wants or doesn’t want to get married now. And above all, whether she will be happy being married to this guy.

Likewise, purchasing a home is a big and long-term investment. Shouldn’t you ask yourself all the important questions? Is it the right home that meets your purchase criteria? Do you think the property is a good buy now? Is upgrading and living in a condominium affordable to you in the first place?

The question is not whether you have or haven’t managed to buy a home now. It is whether you need or don’t need to buy now. And above all, whether this is the right place, the right price and the right time to buy.

Value-for-money determines whether to buy or lease

I went with my friend for a flat viewing. She told the property agent that she would be renting for two years. After the lease, she might consider buying if the property and the price are right.

The agent said immediately, “Then you must buy now. Prices will surely go up in one to two years.”

I couldn’t help but laughing up my sleeve. The agent’s advice was typical from a Singaporean. When our vested local media said the property market has picked up and people are buying homes now, many think that they have better hurry than sorry. They follow the herd to buy under the fear of missing out.

When private home prices escalate, people who have plans to upgrade are afraid that they will miss the boat if they don’t buy now. We saw it happening at the thriving property market in 1996, 2000, 2012 to 2013 and 2017 to 2018. Remember how excited buyers queued overnight for a new launch before the introduction of anti-speculation measures in 1996? Remember how new projects were all sold out on the first day of launch in 2013? Remember the 1,000 buyers queuing at the not-so-ready-to-launch new projects on the evening of 5 July 2018?

– Vina Ip, Behind The Scenes of The Property Market

However, my friend is not a typical Singaporean and she doesn’t have that kiasu DNA. She makes her buy-or-rent decision based on which option offers better value-for-money. If she doesn’t think it’s worth buying now, even if she knows property prices are going up soon, it’s still not worth buying.

Similarly, many foreigners never buy cars or drive in Singapore, unless the vehicle is provided by their company. They tell you that in their country they buy the same car model at a fraction of what it is selling in Singapore. And there is nothing called COE back home. Try telling them to buy a car now before COE prices go up soon!

In fact, no expat tenant staying in my properties had ever asked for a parking lot. To them, taxis and private hire cars in Singapore are very affordable. Some arranged with the same taxi driver to send them to work every morning like a personal chauffeur. This was unthinkable in their own country.

Buy or rent price-to-earnings ratio

Many Singaporeans believe that renting is throwing money away. Or they are helping the landlords to pay for their mortgage.

In contrast, foreigners are more open to renting. They are also more sensible and practical when it comes to their buy-or-rent decision. It is often based on current property prices and rental rates.

Nobel prize winning economist Bob Shiller suggested to use the price-to-earnings ratio as a deciding factor. One should rent if the ratio between the price of the home and the annual rental profit is over 20.

For example, the specific property my friend and I viewed was asking for a rent of $3,000 per month or $36,000 a year. The lowest selling price is $1.5 million. The price to gross rental return ratio is 41.7 times. The price-to-earnings ratio after maintenance fees and property taxes is 52.4 times. The annual rental profit (price-to-earnings ratio after mortgage, maintenance fees and property taxes) is negative 112 times. The monthly mortgage of $3,500 can’t even cover the rent of $3,000.

Yet the calculations haven’t taken into consideration the initial capital. It includes the downpayment, stamp duties, legal fee, renovation cost, etc. That can add up to around half a million.

Depending on whether the rent go up or down, my friend can move to a more affordable or more pricey home over the years. Assuming she pays a rent of $3,000 a month, she will be paying a total rent of $72,000 for two years or $108,000 for three years.

Property prices can go up or down too. If my friend bought that property at $1.5 million today and prices fall 10 percent in the next 2 to 3 years, she would be losing $150,000. That’s on top of her initial capital and the annual running costs, namely the mortgage interest, maintenance fees and property taxes.

Honestly, no one can predict what will happen to the property market in two years’ time, not even in six months. If we knew that Covid-19 and WFH were coming, no single or couple would buy and move into a cramped shoebox unit.

Regrets after panic buying of homes

You may say that it is not so simple. What if next time prices go up and you can’t afford to upgrade anymore?

During my flat viewings in the 2000s, I asked owners who were selling at a big loss why they bought in the mid-1990s when property prices were so high. Their answers were similar: They also thought prices were high at that time. But what the feared most was, if they didn’t buy now, they would not be able to buy in the future.

When property prices are surging, and the market is red-hot, we hear many people lament that they can never afford a private home. But what these people fail to see is: The saddest thing is not knowing that you cannot afford it. The biggest regret is one day you wake up and realize that you have over-committed. That you are unable to pay the mortgage. That you end up with a negative asset. That you have to wait for 20 years to break-even.

– Vina Ip, Behind The Scenes of The Property Market

Insurance company Aviva UK interviewed 2,200 UK homeowners, with 500 who bought their homes recently between March 2020 and June 2021. Below are the findings comparing homebuyers during and before the pandemic:

– Exactly half (50%) of those who bought between March 2020 and June 2021 regretted how much they paid, compared to just 12% who bought before February 2017

– Nearly 25% paid over the asking price during the pandemic, compared to 8% in the previous 12 months

– 94% of pandemic homebuyers felt under pressure to buy quickly after an average of 46 minutes of viewing, compared to an average of 68% for all homeowners

– Only around two fifths (42%) of pandemic homebuyers viewed their property in person. The rest relied on video viewings (33%), photos (36%) and written information (36%)

– 92% of pandemic homebuyers after moving in found problems that they didn’t notice while viewing, including cover-up faults, more repairs needed, busy traffic, noisy neighbors, etc.

(Source: “Property panic-buying could be the path to home-buyers’ regret”, Aviva website, 13 July 2021)

Food for thought

As a property blogger, I have received countless e-mail messages from homebuyers and property investors who regretted what they bought. They asked me what they should do now. Expect more coming after every round of new curb, every property or economic downturn, and every nightmarish overseas property purchase.

Frankly, I am not the right person to ask for advice because I have not been in such situation before. I think they should go back to the person who once told them that they should “buy now” Or the property agent who recommended and sold them the property.

I prefer to give my two cents before rather than after. Prevention is always better than cure.

1) Avoid making any panic buying purchase decision and end up with regrets.
2) Analyze costs and benefits of all the options available, be it buying or renting.
3) Develop the ability to evaluate independently the quality and fair value of every property purchase.
4) Cultivate individual judgment free of outside noises and distractions.
5) Read and think more than what others want you to read and think.

My new book Behind The Scenes of The Property Market is now available for preview and order online. Please vote for my book at Readers’ Choice Awards 2021.

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