Learning Hard Truths in Property Investment: Timing the Market Can Hurt
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TLDR
Understanding the factors influencing property prices in Singapore for 2024 can help in making informed decisions. Despite high rental rates and rising mortgage rates, property prices have continued to climb. The government’s cooling measures have segregated the HDB and private property markets, affecting property valuations. Sellers holding multiple properties are driving the market, while limited options for downgrading to HDB contribute to the high property prices. The market dynamics suggest that buying or selling now depends on individual circumstances, and strategic real estate advice can guide through the process effectively.
As we move into 2024, there is a theory that property prices in Singapore will not drop but instead continue to rise higher and higher. This theory is backed by several situations that have emerged over the past three years.
Despite the interest rate remaining at an elevated level and possibly rising further, we have seen no signs of property prices falling. In fact, property prices have been climbing higher despite the low transaction volume. This signifies that not many are willing to sell off their property at a lower price, and buyers can still afford to buy.
Firstly, we are facing very high rental rates in the market right now, and owners of properties are getting extremely high rental yield. Mortgage rates have been on the rise since January 2022, and three months solar rates have reached 3.029 percent, putting off many home buyers. The rising home interest rate has made home loans much more expensive to service, so buyers feel that it is too expensive to service the loan or are no longer eligible to borrow the same amount of money, causing the number of qualified buyers in the market to drop. This has led to a drop in property transaction volume. With lesser buyers now in the market, one would expect property prices to drop. However, the theory suggests otherwise.
One reason why property prices can continue to rise into the future without dropping at all is that the high rental rates in the market can actually cause property prices to go up. High rental rates must be priced into the property, and since rental rates are very high, it has to be priced into the property as well. With this, rental rates are even higher, and investors are getting high return on their rental properties. There is no urgency to sell their properties, as they are getting a net positive monthly return. The only situation they will consider selling the property is if the rental is being priced into the price of the property.
Private property owners who want to downgrade to an HDB will find that it is no longer an option as part of the recent cooling measure announced by the government. Home sellers can no longer sell their prime property and subsequently buy an HDB unless they are above 55 years old. If they want to do so, they have to wait out a 15-month period, which means that they have to rent a property for 15 months at least, causing rental prices to go up, and this can also cause property prices to go up again. Even if they are 55 years old and above, they can only buy an HDB four rooms and below immediately. This has segregated the HDB and the private property market very clearly, which can cause property prices to remain high.
Today, people who are selling their private property are not likely selling to downgrade to an HDB, but it is more likely that they are either upgrading or downgrading to another private property. If they choose to downgrade, they have to find a place to rent, causing greater demand for rental properties, thereby driving private property prices up. If they choose to buy another condominium, it is kind of zero sum, as when they sell, they buy, and this can also cause property prices to go up.
In conclusion, sellers who are in the market right now are probably people who own multiple properties because they have holding power. They are not scared of price drops or, in other words, are just savvy enough to price in the rental if they even want to sell the property. Rising rental demand causes rising property prices. With interest rates at an all-time high, TDSR at 55, and a high 25% down payment requirement, private property sellers find it hard to downgrade to an HDB.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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