Why Buying a Property in a Soft Market May Just Make Sense
During this season of higher interest rates and an uncertain economic outlook, the Singapore housing market has experienced some softening. A softening property market refers to a period when demand is relatively low, compared to the supply of properties available, lower property prices, and a longer time needed to sell.
This situation is compounded by the government's recent cooling measures that saw the Additional Buyer's Stamp Duty (ABSD) spiking from 17% to 20% for locals buying a second residential property, and from 30% to 60% for foreigners buying any residential property here. Such taxes saddled on foreigners are currently the highest in the world! They are imposed by the state to ensure that property prices do not run ahead of economic fundamentals, and subsidised housing still remains affordable for its people (since subsidised housing prices would rise somewhat in tandem with private housing prices).
Higher interest rates become a concern for people as it would mean paying less towards the principal and more towards interest. It increases their monthly mortgage payments and reduces the capital appreciation for their properties. Hence, higher interest rates do drive demand for housing down.
1. High interest rates are only temporal
But what is noteworthy, and that people often forget, is that interest rates go in cycles. There is a season when interest rates are high, but they do not remain high forever, they will eventually come down (and in fact the interest rates do show signs of impending decline). So it can still make sense to buy a property (for the reasons i will spell out below), and borrowers can opt for a bank loan with more flexibility, that locks them in for the shortest period, so that they can reprice/refinance quickly when interest rates decline.
2. Soft market means it's a buyers' market
With a softening market, buyers actually have more property options, such as more resale units available to view and choose from, since the supply of housing units is higher than the demand. This is termed as a buyers' market, and there are many factors that work in favour of buyers.
More supply means more competitive pricing, and buyers can take the opportunity to negotiate for lower prices. There will still be people who need to buy and sell in this season, such as moving nearer to their workplaces or children's schools, or to increase cashflow, and if homeowners cannot afford to wait too long and have to sell, they may just be willing to settle for lower-than-market prices for their properties. And indeed I have noticed that sellers in this period, have become more reasonable in their asking prices, with many willing to sell at market or below market rates. That means less or even no cash-over-valuation (COV) to pay for many properties, though some properties in central or popular locations will always command a substantial COV no matter the market!
3. Playing the waiting game means paying more for a less ideal property when demand goes up
Furthermore, if buyers wait till the market picks up or when interest rates dip, don't forget that many others would be doing the same! Hence, demand will inevitably increase accordingly, and the supply of housing units will decrease in a strengthening property market. Buyers may end up paying more for a property that has a higher price quantum and possibly with a higher COV, choosing a property that may be less than ideal since there are fewer options to go for, and eventually it can increase their cash outlay and reduce their cash on hand.
4. Singapore's property market is tightly controlled to prevent a property bubble
Given Singapore's limited land size and a growing population that is currently already past 6 million, there would not be a situation of perpetual over-supply, so investing in real estate is still a safe and reliable option. Housing in Singapore was never a no-holds barred, free for all market in the first place; lots of measures are at the state's disposal to prevent a property bubble. The government watches over the market steadier than a hawk, and controls housing prices, and influences demand and supply with cooling measures that can be suddenly announced and then immediately implemented at the stroke of midnight, as well as various policies such as the lowering the borrower's loan-to-income ratio, or imposing the wait-out period for one to downsize (maybe it can be considered as upsize!) from a condominium to subsidised housing.
For all the reasons stated above, all in all, a softening housing market may just work more in favour of the buyer who chooses to take action now rather than later. After all, as the saying goes, the early bird catches the worm. And time in the market is more important than timing the market, which is quite impossible anyway.
