Keep Calm and Buy a Home – A Gentle Reminder

KEEP Calm and buy a home a gentle reminder

Four months ago, I wrote a post to encourage first timer home buyers and upgraders to keep calm and buy a home right after a statement mentioned by Minister Lawrence Wong in Parliament.

Today, we have yet another statement from managing director Mr Ravi Menon of Monetary Authority of Singapore (MAS) who says “It is too early for the Government to consider lifting the property cooling measures“.

If you have not taken action in the last four months, you could have already missed some good opportunities. From March to today, there were 8,284 private non-landed transactions and 8,404 HDB transactions.

Just by looking at the volume since march, many have already accepted that fact of cooling measures is going to stay for awhile longer and strategized their portfolio accordingly.

Total hdb transaction in 2016 0727

Total private non landed transaction in 2016 0727
Source: Squarefoot Research

If you are still hopeful for cooling measures to be lifted assuming that it is the only way for market to recover, you may be wrong. The market can still recover without lifting cooling measures.

 

Hence, a gentle reminder for first timer home buyers and upgraders, wait no further. And for current home owners who are hesitant to pay additional taxes for your second or third properties, do be informed that there are some entry prices in certain districts still looking attractive even after paying the taxes. If you are thinking of prime district, you have to check out Gramercy park.

Finally, there are many things in life we can delay or wait; wait for promotion, wait to win lottery, wait to go on holiday, wait for Mr or Ms Right, but there is one thing you cannot wait.

Your age.

How many more years can you wait before you realise you are not eligible to get the maximum loan tenure anymore?

 

 

 

 

Price Inelasticity of Supply in the Premium Residential Market

You may be wondering why are there still record breaking transactions from public housings when the property prices are on downslide since Q4 2013. Here is a key reason that resulted in a handful of public housing units sold above the million dollar mark (or close to). It is the price inelasticity of supply.

Price Inelasticity of supply
Price Inelasticity of Supply in Premium Residential Market

Let us recap the general economic rule that when supply increases, the price will be reduced eventually. At the start, due to scarcity of supply, the price will be relatively high as seller will do their best to push the market price as high as the buyers will bid for. In this situation, buyers are willing to pay the premium and this is the phenomenon of perfectly price inelasticity of supply. Thereafter, with this record selling price (a new price ceiling), it will entice more sellers to come in and hence shifting the supply to the elastic side. With more supply, the market will soon force the price down to an equilibrium; a reasonable market price. It is a free market.

You must have already heard of the recent record breaking public housing transactions. Just to name a few;

  1. $1,088,000 – Pinnacle @ Duxton, 5 Rooms
  2. $1,028,000 – City View @ Boon Keng, 5 Rooms
  3. $990,000 – Pinnacle @ Duxton, 4 Rooms
  4. $955,000 – Toa Payoh, 5 Rooms
  5. $900,000 – Clementi, 4 Rooms

These record breaking transactions happened only when the supply is perfectly inelastic, or at least in the eyes of interested buyers. When this happened, the seller then has upper hand in negotiating for a higher price.

Would I buy a property that has perfectly inelastic supply? Probably not worth spending that amount unless I have a really good reason for it.

Direction is more important than speed
Direction is more important than speed

Ask yourself, do you really need to buy that particular unit at this moment? Are there other similar units available?

In short, do understand your needs thoroughly especially when you are buying a property with perfectly inelastic supply.

P.S. If you have too many factors to consider, you may use this pairwise comparison matrix to identify your deciding factor. you can download it here or read more about it in my other post on the 3 stages of buying.

Pairwise comparison 3
Pairwise Comparison Matrix

3 Stages of Buying a Property

Are you buying a property the right way? A typical buyer will go through three stages in any property purchase and by going through these sequentially; he will have the right financial and psychological preparation to get the best deal for himself.

Stages of Buying (6)
3 Stages of Buying a Property

Reality Check –Should I buy?

A trigger event must have happened that cause you to start thinking about buying a property. Whether is it hearsay from your colleagues making good profit from property or to get a larger house for your parents to stay in together. Hold your horses!

Before you start jumping into stage two to start searching for a property, the very first question you should ask yourself is “am I eligible to buy a property?” There are more than handful criteria but here are three important ones.

Eligibility to purchase

Buying a property is not straightforward (even if you are loaded with cash) due to the complex policies to maintain a sustainable property market. For e.g, if you are a foreigner or Singapore Permanent resident (SPR), you will need approval from the Land Dealings Approval Unit in order buy a restricted property to stay in. Other than citizenship, the list goes on as follows which I shall not go into detail in this post:

  1. Citizenship
  2. Age
  3. Property type (Public new, Public resale, Private restricted, Private non-restricted)
  4. Loan quantum approval
  5. Current ownership of private property (for purchase of public housing)
  6. Income ceiling (for purchase of public housing)
  7. Bankruptcy

Opportunity cost

If the sum is not spent on the property what can you do better with it otherwise? Buy a car? Or start a business?

Buyers have to note that the opportunity cost does not come from the one time down payment or monthly mortgage only, other cost such as renovation, furniture, maintenance cost and bills are not small sum as well.

Timing

Timing refers to not just about market timing, but more on individual’s timing in life. Ask yourself, what major plans do you have in the next 5 years? Getting married, planning your first child, oversea work assignment, your child moving out to his matrimony home, parents retiring and the list goes on.

Once you have figured out your 5 year plan, you will see that there is no need to wait for the bottom of the property price dip because no one really knows. For a long term investment that is of heterogeneous characteristic, the best time to buy is always now, if not yesterday.

The Search – What can I buy?

Once you have convinced yourself (and/or your partner) in reality checking stage, you are now ready to move to stage two: The Search.

For many of you, you will spend so much time on this till you get so tired and could make a less wise decision. There are two key items that will make your life easier; to make your search more effective you have to identify the purpose of this purchase and to make the search more efficient you will need a good decision matrix.

Purpose

The purpose has to be clear for a meaningful purchase. There has to be one goal in your 5 year plan that will qualify to be your purpose of this purchase. It could as simple as “to get a larger house for my parents to stay together”. Once that is decided, you can start by asking yourself the following questions, which will then be the factors for the decision matrix:

  1. To stay or to rent out
  2. Preferred location (to parents, children, office etc)
  3. Rooms count and space (balcony, yards, garden, pool etc)
  4. Facilities

Decision matrix

A decision matrix is a simple pair wise comparison which ranks the factors in ascending order to help you decide whether if a property is buy or no buy for you, in a systematic manner. These factors are highly subjective and the same property may have varying outcome for different buyer profiles. Note that these factors must be related the attribute of the property excluding the price tag. Here are some examples:

  1. Specific location (Redhill)
  2. < 10 mins walk to public transport
  3. < 10 mins drive to office
  4. Unblocked view

Each of these factors will be compared to one another using the matrix shown as follow. For each empty cell, if the factor on the vertical axis is more important than the factor on the horizontal axis, I will indicate “1”. Otherwise, you will see “0”, which means the factor on the horizontal axis is more important. Once the entire table is filled up, you can then sum up the score horizontally to see the final score for each factor and the larger the score is, the more important the factor is to you.

Pairwise comparison 3
Pairwise Comparison Matrix

This matrix works best if you have 8 to 10 factors. I have put this matrix in a simple excel file that is available for download here.

If you would like to show appreciation, you may show it by liking my Facebook Page 🙂

Seal the Deal – How do I buy?

Finally at the last stage, you have come a long way and you are so close to getting the property in your hands. Here are some points to keep in mind to ensure that you are in for the best deal.

DIY or Agent

Say you have done your decision matrix well, you are now reading through the details of several new launch condominiums that are within your budget and finally after rounds of discussion with your partner, you both finally made a decision on one condominium (better if you have already narrowed it down to exactly which stack). On the launch day, you are served by a customer service officer onsite with the showroom presentation and purchase paperwork. The deal was sealed within a day, he got his commission and you have your property. This is how your DIY property adventure comes to an end.

Let’s turn back time a little now, say you have a property agent in your circle and you consulted him on your property purchase intention early, you would have receive a pretty comprehensive analysis of a few condominiums that suit your needs. On the launch day, this agent will accompany you to the showroom and handle most of the paper work as well. Finally the same commission is paid to this agent whom you have spent many days with. This is your property adventure with your agent. This is the start of your long term endeavor in real estate, building up a professional relationship with your agent who not only understands your needs but provides sound and timely advice to real estate.

Pricing

A successful property transaction is always about matching price points of two parties. The selling or buying price range for a specific property is very critical as it could mean a make it or break it situation. In order to get the price point (range) right, it requires substantial amount of work, and ideally with the help of a professional agent. If the price point (and range) has no intersection with the opposite party, the negotiation will not be fruitful and the best way out is actually to walk away early, see the illustration in the next section.

You have to keep in mind that the price point and range will change as time passes if the property is still not sold, hence do still keep this property in your watch list.

Negotiation

Skillful negotiation comes into play when then selling and asking price range intersects, the greater the overlap the easier the deal can be sealed. Whether who will gain more out of the negotiation will largely depend on the negotiator’s skills and strategy. If you are not a skillful negotiator, I would suggest that you engage an agent with such skills especially in the situation when there is little overlap in the two price ranges, as shown in the following illustration.

Selling and Asking price (5)
Selling and Asking Price of a Property

Paperwork

Finally, when both parties have come to an agreed price, what is left is the long list of paperwork as follows, which I will not go into detail;

  1. Option to purchase (and 1% option fee payment)
  2. Legal requisition
    • Check property has no outstanding tax and payment
  3. Caveat emptor
  4. Sales and Purchase Agreement
  5. Legal completion
    • Apply for Certificate of Titles

 

All in all, your property purchase journey is strongly dependent on how early you take the first step, how well you understand your intention and the factors affecting your decision and finally whether you have gathered sufficient professional armor before going in to close the deal.