Friday, October 26, 2012

Trend watch To buy or not to buy?

That's the question home buyers ask as they try to navigate the maze of record prices, Government cooling measures and an economy teetering on the edge of recession
04:45 AM Oct 26, 2012

It's a familiar conundrum faced by anyone who has sought to buy a home: Do I buy now, or wait in the hope that prices will fall?

But the current dynamics of the Singapore residential real estate market makes this question even more pertinent. On the one hand, prices have continued their relentless march upwards even as the broader economy struggles to keep its head above water.

On the other hand, the Government continues to keep a lid on frothy prices by introducing more measures aimed at curbing demand and ramping up the supply of homes. The sixth and latest round introduced at the beginning of this month included caps on long-term loans and lower loan-to-value ratios for certain purchases.

Prices of private residential properties in Singapore rose 0.5 per cent to a record high in the third quarter of the year, according to flash estimates released by the Urban Redevelopment Authority earlier this month. The consensus among experts is that prices will hold steady over the next 12 months, supported by low interest rates and a robust employment market, with only the premium end of the market expected to suffer a small decline.

In any decision regarding a big-ticket purchase, the usual caveats apply: Buy according to your needs and what you can afford. But within those parameters, getting the timing of your purchase right can make a difference.

WAIT, OR ...

With prices moderating, there might be less urgency to get into the market. This could give you the opportunity to capitalise on a significant market correction.

Both private property and HDB resale markets have shown signs of stabilising this year due to Government measures and rising supply. For private property, prices have slowed from a growth of 18 per cent in 2010 to 6 per cent last year, falling to just 0.9 per cent in the first three quarters of this year.

"One could choose to wait since prices are unlikely to rise significantly, with the possibility of buying at a lower price if the external economic circumstances were to worsen drastically," said Ms Chua Chor Hoon, DTZ's Head of Asia Pacific Research.

Under a worst-case scenario where the euro zone crisis deepens - pulling down the US and Chinese economies with it - prices could fall by 10 to 20 per cent, said Ms Chua. Another doomsday scenario could see the Government continue to introduce more measures to sap demand in the face of runaway price inflation, possibly causing the market to correct drastically.

"Under this scenario, you may face serial layering of additional cooling measures, and with each measure, there is the risk that the last one could be the straw that breaks the camel's back," said Mr Alan Cheong, Research Head at Savills Singapore.

Indeed, the latest move by the authorities to place restrictions on home loan tenures that stretch over more than 30 years took market watchers by surprise, coming even as price inflation seemed to be moderating.

Experts believe the Government could be trying to mitigate the impact of the US Federal Reserve's decision last month to pump more money into the system under a scheme known as QE3, or quantitative easing. QE3 is likely to result in liquidity flowing into Asia, pushing down interest rates and supporting asset prices in the region.

... BUY NOW ...

Others argue that barring a major shock to the system, the market's strong fundamentals will continue to push prices higher, albeit at a slower rate than seen in recent years. As such, those who have identified a property that meets their criteria should not hold back.

"When the market is buoyant, sellers dictate the price and buyers chase the price," said Mr Mohd Ismail, CEO of real estate agency Propnex. "Today, sellers are more rational so it is a buyers' market from a choice point of view."

Escalating land prices are also likely to result in pricier developments next year as developers pass on the higher cost to buyers. Mr Cheong estimated that land prices rose between 10 and 22 per cent in the first half of 2012, which could translate to a 9 to 12 per cent increase in home prices when these developments hit the market in the first half of next year.

Interest rates, a key driver of housing demand, are also expected to remain low as major central banks artificially depress rates in an attempt to revive their moribund economies. The low-savings interest rates could also make it worthwhile to buy a property now and collect rental income that will provide a higher yield, with potential capital appreciation in the long term, said Ms Chua.


Given the uncertain economic outlook, if you do buy, be prepared to hold for at least four to five years in the event of market shock that sends prices crashing, the experts advised.

However, what you eventually decide to do will ultimately depend on your own circumstances. Said Ms Chua: "The decision on whether to buy now or wait will depend on the buyer's objective, urgency, risk profile and investment horizon."

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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