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March 23, 2022

Commentary: Times Of Crisis And Opportunity, What's Your Next Move?

By Ismail Gafoor, CEO of PropNex

Savvy investors know this well: never let a crisis go to waste. Of course, most of us do not like crises because they can be disruptive, but crises do happen from time to time and when they do, what’s your next course of action? When people are nervous about entering the property market, are you bold enough to make your move?

In times of crisis, fear and insecurity tend to speak louder, drowning out what logic may tell you. For example, you have done all the due diligence and financial planning, and are sure that you can afford a certain property – but all of a sudden, fear is holding you back from purchasing it. Now you could be thinking: is it risky; will prices fall sharply; or worse, will the market crash? It is normal to entertain these thoughts when there are uncertainties on the horizon but be aware that they can cloud your judgement.

Conversely, there is another set of questions you should consider: will I miss out on good buying opportunities arising from the crisis, can I take advantage of the price moderation; and what are the prospects of capital gains when the crisis passes and the market recovers? There are always two sides to the coin and it is important to have the right information to aid decision making.

The important question: Is there a crisis now?

The way I see it, we are not in crisis mode yet, but there are more uncertainties in the market due to the recent new cooling measures, the Russia-Ukraine conflict, potentially slower global growth, rising inflation, supply chain disruptions, interest rate hikes, and Covid-19. That’s a lot to take in and some property buyers may decide to sit on their hands and wait it out. But what is the opportunity cost of doing nothing? While these are uncertain times, we need to look at the fundamentals in order to have a clearer picture of how the market could shape up.

What is the track record of the Singapore property market?

The housing market in Singapore has proven to be resilient, demonstrating its ability to tide over tough times and achieve gains over the long-term. Don’t just take my word for it, let’s look at the Urban Redevelopment Authority’s property price index (PPI). At first glance, you can see that there are ups and downs, reflecting the cyclical market cycle (Chart 1) – but look at the troughs, even when prices declined they were still higher than the previous low-point. The same goes for the peaks. We like to say it like this: the low is higher than previous low and the high is higher than the previous high.

What this means is that home values are generally on an up-trend and buyers could likely see some price appreciation if they hold on to the property for a period of time. In fact, private home prices hit a new peak in Q4 2021, so if you bought a property when prices dipped during the previous crises, chances are you would be sitting on some decent gains.

Chart 1: URA Property Price Index

Source: PropNex Research, URA

Putting yourself in pole position to enjoy price appreciation

If you know which property you are after, if you are clear about your buying or investment objective, and if you have done your sums, then you can react quickly when an attractive option comes up. The key is being prepared. Therefore, it is advisable to speak with our experienced real estate salespersons regularly so as to stay on top of the evolving market trends.

Although we are not exactly in a crisis, there are enough uncertainties in the market to unnerve some buyers. Drawing reference to the previous major crisis (Chart 2) – the Global Financial Crisis (GFC) in 2008/09 - you can see that buyers who purchased a new private home when prices fell in 2009 would have garnered strong price appreciation if they had sold their properties after a 5-year holding period. They would have enjoyed an even healthier gains if they held on for 12 years and sold their properties in Q4 2021, based on caveats lodged on Realis.

If you have holding power, you will be able to weather rough patches and benefit from price growth over time. This is why we advocate real estate investment as a way to grow your wealth, to gain financial freedom, and to save up for your retirement needs.

Chart 2: Median Unit Price Trend of Non-Landed Private New Home Sales

Source: PropNex Research, URA Realis

Looking at Chart 2, you may ask, will prices correct sharply in the months to come? Should I wait for prices to plunge before I buy? You will be disappointed to hear that we do not expect private home prices to fall significantly – in fact, we are still projecting a slower price growth of 3% to 5% this year, compared with the 10.6% increase in 2021. Why is that so? Well, a large part has to do with land prices. Developers have bought land at a high price in the past year, coupled with rising construction and labour costs – there is little chance that you would see deep price cuts.

On the demand side, HDB upgraders and Singaporean first-time home buyers who are less affected by the new cooling measures will continue to underpin new home sales. With the limited unsold inventory in the market and resilient demand, we really do not see developers slashing prices anytime soon. In all likelihood, new launches may achieve new landmark prices given the pricey land and higher cost. The impending hike in the Goods and Services Tax could also add on to rising costs of construction. All things considered, will you end up having to pay much more if you wait?

Buying a property is a big decision and a long-term commitment. We know some investors and buyers may find it complex to crunch the data or analyse the numbers themselves, so we will be hosting the Singapore Property Xpo 2022 to breakdown the data and present a comprehensive overview of the market. Apart from looking at the market outlook amid uncertainties, we will also evaluate how the property market has performed since the introduction of fresh cooling measures in December 2021. Be sure to join us to gain insights that will help you make your next property move.

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