Things appear to be crazy currently. Singapore is going head on into its first recession in years and the pandemic is showing no much signs of subsiding.
So while the situation seems tough at the moment, it’s not surprising that many people have secured their purse strings, and became more prudent given the extent of things. But while this might appear strange, the current climate is actually a good time to purchase and invest in real estate. Here are 4 reasons why:
1. It’s a buyer’s market
In case you have not picked it up, real estate prices have dipped by 1.2% in Q1 2020 — the first after 3 consecutive quarter-on-quarter (QoQ) gains. In fact, experts predict that real estate prices will dive by 8% this year.
On top of that, Singapore has a large supply surplus of unsold inventory as a result of 2018’s collective sale frenzy (the total unsold stock amount to 30,473 units as of 2019). This means that property developers may be driven to reduce their rates for new launches or offer discounts as the inventory of unsold homes go up over time with more upcoming launches. For an example, the Dairy Farm Residences Balance Units Chart shows the “star buys” available at discounted rates now for those keen to snap up a unit.
“Given the recent situation, purchasers are able to pick from 40 new developments in the pipeline of which 50 percent are in the CCR (Core Central Region) and probably at more affordable prices than in 2019”, says Mr Tan Tee Khoon, Country Manager for Singapore at PropertyGuru. One city fringe development that’s going to be priced affordably when it becomes available is Penrose condo.
2. Near-zero interest rates
With the global economy severely impacted by the Covid-19 pandemic, the U.S Federal Reserve has sliced its interest rate to close to zero in efforts to cope with the economic effect of the virus.
As Singapore’s interest rates are closely linked with the U.S, the Singapore interbank offered rate (SIBOR) is predicted to follow suit. That means banks are probably going to offer lower mortgage rates.
“In fact, interest rates for mortgage loans have been steady and not seen an increment despite previous upward movements back in 2018”, says Mr Tan. This is good news for buyers looking for a unit at Penrose later as it reduces the cost of borrowing.
“Fortunately in February 2019, the US Federal Reserve declared that interest rate hikes would be put on hold, on the backdrop of slowing growth in Europe and China and sluggish inflation. This gave a timely reprieve for home buyers and owners which remains to this day. This has helped many property agents’ career thrive during this turbulent times.
“With the silver lining of lower interest rates, prospective purchasers going home hunting seem set to find good deals”.
Furthermore, MAS has also declared that homeowners with outstanding home loans can apply for up to 9 months deferment on principal or/and interest payments with their banks (But do note that interest will remain to accrue on the deferred principal amount).
While this might translate to a lesser borrowing cost or refinance rate for potential buyers / today’s home owners, it still means that you should move ahead with caution as mortgages are costly. At the end of the day, you’ll better off borrowing within your means.
3. Because, technology
Since Covid-19 hit Singapore’s shores, property developers have taken extremely careful measures to market their projects while also ensuring the safety of visitors at their showflats.
Apart from recording travel history declarations, increasing cleaning frequencies, temperature screenings and crowd control, property developers have also utilized technology such as e-applications, online balloting and virtual tours, like what the Penrose Showflat has adopted.
Currently with the ‘circuit breaker’ measures implemented to prevent further spread of the virus, developers have to shut their sales galleries for a month from 7 April to 4 May.
However, thanks to technology, Mr Tan Tee Khoon notes that in spite of the pandemic, prospective purchasers can resume to view showflats on digital mediums with no physical contact and from the safety, and comfort, of their own homes.
One such real estate developer who has turned to technology is City Developments (CDL), who will continue to provide potential purchasers with floor plans, virtual tours and e-brochures on its One North Eden website.
4. Purchasing during a recession has been proven to be a good investment time, as reflected during the SARS period
While situation is crazy now, it will resume back to ‘normal’, to how things were prior.
Restaurants will be packed.
Sporting events will be happening again.
And Singaporeans will continue to sell and buy properties.
If there’s 1 parallel to be used as an example, it will be when Singapore faced the SARS pandemic. Back then, majority of sellers made a profit after selling their homes.
During the SARS period of 2003, there were 10,386 private real estate sales according on URA data. From these, 2,658 units were resold over a 5-year time horizon, between 2003 and 2008.
And Guess what? 86% to these sellers sold their units at a profit.
According to the chart above, 51% profited between $100,000 to $499,000, 31% profited less than $100,000, 12% gained between $500,000 and $999,000, and 6% got a whopping $1 million and more. In its entirety, sellers made an average of $331,000.
Granted, there were sellers who lost money too. But the average loses was around $104,000, with 80% of those made a loss of less than $100,000, and only 2% made losses of more than $1 million.
However by comparing the figures above, the profits were more than the losses. Besides, while things are relatively worse than prior, recall that Warren Buffett famously stated: “be fearful when others are greedy and greedy when others are fearful”. Those who stayed calm to take advantage of the crisis will probably gain in the future.
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