Updated: Nov 18
A few factors to take note of before putting a downpayment
Are you looking to buy a property in the year of 2020? Well, we know how stressful it can get when searching for your first home or upgrading to a private property. So, we have listed a few things that you should take note of before putting a down payment on what could be your biggest investment yet.
Given the current economic situation and the recent Covid-19 virus outbreak, there are some who wonder if 2020 is the right year to buy a property. This is where it gets complicated. The real estate market is unlike anything we've seen over the past few years.
Imagine telling someone years back that we would have an oversupply of 30,000 units in the property market yet prices are still relatively stable or that a private condo in Sengkang could go as high as $2.2mil, they would have said "no way!".
In this article, we will be discussing some of the bigger issues that you should consider before buying a property in 2020.
Here are 4 factors:
1. A bleak looking economic situation due to US-China trade wars and other political issues, actually makes buying a home more affordable
For the vast majority, purchasing a property means taking a loan. Taking a loan in turn means having to look at interest rates. There are many factors that affects interest rates in Singapore but one major contributor is the United States Federal Reserve System. The Federal Reserve actually keeps interest rates low when the global economy is not doing too well. By the ripple effect, interest rates on home loans in Singapore follow suit.
So, even with the current economic situation looking bleak, home loan interest rates remain low. To add on, interest rates (bank loan) for home loans have been floating at around two percent for more than a decade now, this is lower as compared HDB's home loan of 2.6%.
2. The oversupply in the market caused by the en-bloc fever in 2017
The above graph shows a 13.4% drop in unsold units
There is an estimated 30,162 unsold units in the market which should clear up around 2024. With the large number of unsold units and the time needed to clear up the supply glut, one would expect prices to plummet. But reality is that, prices remain consistent. This is simply due to the fact that developers have paid premium prices for land during land sales. On top of that, there was an increase in Development Charge (DC), which further raised cost for developers.
So, with developers paying premium prices during land sales and the increased Development Charges (DC), there isn't much room for discounts.
3. VERY expensive properties are moving in the market
In a time where buyers/investors are cautious due to bleak economic situation, properties between $2million to $4million are not moving as much.
On the other hand, VERY expensive properties valued at $9million and above are selling. The sale of these extremely luxurious units have reached an 11-year high in 2019 last year. With the current economic situation, firstly if you are very wealthy, you would want to put your cash in a safe place. As Singapore is often perceived as a stable country welcoming foreign investments, you'd naturally want to park your assets here. Secondly, extremely luxurious properties are well very rare and unique in its own way and some believe they are able to hold their value in an uncertain market.
The above graph shows an increase in home sales by foreigners in the Core Central Region
4. A huge number of HDB upgraders from year 2020-2022
The above graph shows the estimated number of HDB flats reaching MOP from 2019-2023
In recent years, it has been a pretty common sight seeing buyers upgrade either to an EC or private condominium after their HDB flats have met their Minimum Occupancy Period (MOP). Of course, not all HDB owners will choose to sell or upgrade right after MOP but there is a substantial amount of owners who will choose to upgrade to private condos, some for investment reasons while others simply to upgrade their lifestyle.
The above graph shows the number of private new homes sold
Seeing a large number of HDB flats reaching MOP this year all till 2022 and assuming the Corvid-19 virus goes away, you'd see a huge number of upgraders and long queues at showflat.
So, is 2020 the "best" time for you to buy a property?
In light of the virus and economic situation, research has shown that prices of private properties are increasing each quarter since 2018 and prices will continue to increase. So, waiting on the sidelines would probably mean buying at a slightly higher price in the months to come.
However, do remember that it's always good to take a step back and rethink what you are looking for out of this property, and if you have a strategy for it. Not forgetting that you should also consider your gross monthly income as a home loan can be a big commitment.
All efforts have been taken in ensuring the accuracy of all data and information presented here. We shall not be liable or held responsible whatsoever for any loss or inconvenience caused relating to decisions made by the audience. This article is not intended to give investment advice or recommendations.