For the past few years, property prices have been falling. Private property prices have decreased by 10.8 per cent over 12 consecutive quarters. Prices of public housing fared slightly better, with a 9.8 per cent decline. As such, many people would wonder if it is a good time to buy into property now.
When buying property, many would try to buy at a low price and sell at a high price. However, such behavior is highly speculative in nature. Instead of being overly concerned about the timing of purchase, buyers should instead adopt a longer term perspective. Due to the cyclical nature of Singapore’s property market, taking a longer investment horizon means that the timing of purchase does not matter very much at all.
Instead, buyers should ensure that they have enough holding power so that they will not be forced to sell their property. In other words, they have to be prepared for unexpected situations. These could come in the form of interest rate hikes, difficulties in achieving the desired level of rent or in an extreme case, loss of employment. All these could lead to difficulties in fulfilling any mortgage obligations with the bank.
To this end, the Singapore government has come up with some measures to ensure that property buyers are not taking on too much debt. Monthly mortgage payments (inclusive of other monthly debts) are capped at 60 per cent of income (Total Debt Servicing Ratio or TDSR). For those purchasing public housing or executive condominiums, there is a mortgage servicing to income ratio of 30 per cent. Banks must use a hypothetical 3.5 per cent interest rate when computing the maximum loan a buyer can borrow. These measures create an adequate capital buffer for buyers, ensuring that they will not have to be forced into selling their property, but can do so at a time of their choosing.
Hence, buyers should not be looking to “flip” their property and expect to make profits within a short time as it is risky. By talking a longer investment horizon, the risks are minimised, and buyers can then sell at a price which they are comfortable with. As such, there never is a “right” time to buy a property.
Contributed by Eugene Lim and Seah Yao Hui, key executive office and assistant manager of research of ERA, respectively.
ERA Realty Network has been an industry leader in the real estate agency business since 1982. As Singapore’s largest real estate agency, it has served the housing needs of hundreds of thousands of sellers, buyers, landlords and tenants. Its growing number of customers over the last 34 years is a testimony to the highly trusted and respected ERA brand.