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3 Tips to Prepare For the Coming Property Market Winter

By Gerald Tay (guest contributor)

The current property market is in hibernation largely due to the Total Debt Servicing Ratio (TDSR), but prices are not falling steeply yet. In addition, we have other cooling measures, still high property prices, falling rents and the increasing supply. The numbers don’t make sense.

And yet in a slowing property market, some experts have shared why they think it is a good time for investors to take action to invest in Singapore properties “right now”. In this article I’ll share the arguments that they are making and my tips to help investors prepare for the coming property market winter.

Guru Argument #1: The downtrend does not last forever – buy now in preparation for the recovery.

A lacklustre market is indeed the best time to get into the property game. But is the current market lacklustre enough?

A lacklustre market comes after a depressed market when you see “blood” on the streets:

  • High levels of personal and corporate bankruptcies

  • High repossession rates

  • Negative equity

  • High defaults on unsecured lending and lenders suffer

  • Equity markets plunging

  • Highly leveraged borrowers being forced to sell

This happens during a major financial crisis similar to the likes of the Global Financial Crisis and Asian Financial Crisis. The years between 2003 and 2005 had a lacklustre property market hit by a series of unfortunate world events after the Asian Financial Crisis – this was the best period to buy.

What we are seeing today does not warrant a strong buy rating in my opinion. Equity markets are still robust, interest rates are low but rising and we are still seeing plenty of expensive cars on the roads.

The property market has indeed been on an upward trend over the last 40 years. But many investors suffer from short-term memory loss.

The majority of the market gains were made primarily during the rapid industrialisation years of early Singapore from 1976 to 1996. Thereafter, buyers who bought at the wrong time could still be sitting on negative real returns after inflation.

Guru Argument #2: The best time to bargain hunt is during a quiet market

Let’s look at the property market since end 2009 using the analogy of a clock.

9pm – 12am: Spring (Warm, 2009)

12am – 3pm: Summer (Hot, 2010 to 2012)

3pm – 6pm: Autumn (Cooling, 2013 to 2014)

6pm – 9pm: Winter (Cold, 2015 – ?)

Winter is coming

Due to the severe property cooling measures, strict lending restrictions and a market stand-off between buyers and sellers, we are likely at the beginning of a possibly long winter. Sellers have holding power and Buyers are staying away.

There is no money to be made here. If you own a property in a Winter market then you may experience the following:

  1. Having a property that is in negative equity.

  2. Having a property that is costing you every month to own it.

I hate to be the voice of doom, but I think people have forgotten that property prices have gone down that much in the past. There’s this feeling that they won’t fall dramatically, but, of course, that’s not true.

Property prices have fallen 5% since last year. This is a small drop. Don’t expect cooling measures to be removed anytime soon by the government.

The best time to bargain hunt is between 9pm to 12am – not right now. Historically, this is the period when cooling measures may be removed to prop up the market and economy.

When the market is hot or rising, developers may hold on to some units to sell them at a higher price later. But when the market is cold, this strategy is going to backfire. Many developers are currently under pressure to sell off unsold units to avoid paying hefty government fines.

Nevertheless, when one buys off-the-plan properties only to make short-term profits, it’s more of speculation and dumb-luck than intelligent investing.

Guru Argument #3: Invest in alternative property sectors such as offices

To enter into an unfamiliar investment because there is no Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty (SSD) is the same as telling Tiger Woods to switch from playing professional golf to playing football because it’s more lucrative.

Buying wine or art is not the same as buying real estate. Buying real estate is not the same as buying stocks and shares. Buying a residential property is not the same as buying a commercial property.

Buying into an alternative property segment simply because prices are rising is irrational. If you focus on the prospective price change of a property, you are speculating.

For novice investors, get started with a mass market residential property. It’s easier to understand, purchase and manage than other types of property. If you’re a homeowner, you’ve already got experience here. Start close to home, so you can stay on top of things.

Conclusion

Instead of being swayed by the gurus and buying a property during the Winter of the market I offer three tips for investors to capitalise on a property market in this phase:

1. Liquidate any unproductive assets you have

Sell or trade the car, jewellery, collections, and other expensive items to raise cash for future down payments.

2. Increase your income and save more of what you earn

There are really only two ways of saving money:

  1. Going without i.e. not spending

  2. Cutting costs i.e. spending less

I can already hear you – how do I increase my income? Well this depends on you. You need to be assertive, hardworking and just that little bit cleverer than the rest. Work extra hours, ask for a pay raise, increase profitability, take on another job, etc.

3. Avoid the property market for now and start educating yourself on real estate

If you’re about to make the biggest purchase of your lives, you need to understand the basic concepts of real estate. It’s not easy but if you are patient and hardworking enough, great opportunities lie ahead for you to capitalise on them.

Relying on industry “expert” opinions is never going to get you anywhere in your pursuit of wealth.

By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today. Posted courtesy of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Click here to get your free Property Beginner’s and Buyer’s Guide.

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