Why it is better to wait until 2017 to buy private property

Recently, Urban Redevelopment Authority (URA) has released 1Q2016 statistics and it clearly shows that our property market is still weak and can potentially see further price correction, in consumer's favour.

The prolonged price struggle between property developers and consumers has occurred since the introduction of the total debt servicing ratio (TDSR) and developers are growing weary, as the end does not seem to be anywhere near (kudos to the government).

New private property launches have reached an all time low since 2011 at only 953 units with take up rates nearing its lowest point too in 1Q2016. Looks like property developers are also feeling the pinch despite their strong balance sheet.

Here are some reasons why we should not be looking at buying a property in 2017.

TDSR and ABSD are here to stay, at least a little longer

Brand new finance minister, Heng Swee Keat, have laid the "smack down" in the faces of property developers when he said that it is premature to remove the cooling measures given current market conditions.

If we have to pick two key cooling measures, it would be the TDSR and the Additional Buyer Stamp Duty (ABSD).

3 reasons to consider buying a condo as your first home

  • While freehold properties are few and far between these days, if you can afford it there are some reasons to opt for a freehold home instead of one on a 99 year lease.
  • Note that if you just want a good return on your investment, there is no need to go the whole hog and buy freehold.
  • Studies have shown that properties on a 99 year lease tend to earn better gross rental yields, meaning the amount of rent you earn is a higher percentage of the price you paid for the property.
  • If you think the facilities are one of the draws of a condo, base your purchasing decision on whether you actually use these facilities now, rather than whether you intend to use them later.
  • For instance, if you've got an existing gym membership, being able to use a condo gym for free will allow you to work out at home.
  • While HDB property is a more cost-effective purchase from the point of view of someone who actually wants to live there, HDB ownership is fraught with restrictions, and if you're not the kind of person the government thinks you should be to qualify then tough luck.
  • If you're under 35 and not married, you can forget about buying HDB property till you're old enough or find someone to tie the knot with (hopefully not for the sake of the property though!).
  • The same goes for couples whose earnings exceed the income ceiling of $12,000 for 4 room or bigger flats or $6,000 to $12,000 for 3 room flats.

A quick summary of what TDSR does. It basically means that we cannot purchase anything else on credit if our repayment per month exceeds 60 per cent. For example, if home monthly mortgage is $2,000, credit card bills averages $500/month and car monthly repayment is $1,000, it sums up to $3,500/month. This means that we must at least earn $5,833.33. So even if we have the extra $2,333.33, we still cannot borrow more money to purchase another property.

ABSD simply means, the more properties we buy, and the more we will be taxed. Our first property will be taxed at 1 per cent for the first $180,000, 2 per cent for the next $180,000 and 3 per cent for the remainder.

Our second property will have an additional stamp duty of 7 per cent, with the third and more being taxed at 10 per cent extra. Imagine buying a few $1 million condominiums and get taxed $100,000 per transection.

Since these two cooling measures will not be removed or reduce its severity, our property market is not expected to rebound from its downward cycle. In fact, it will continue to dampen property appetite with prices continue to dip.

Rising number of vacant and available properties

As of 1Q2016, there are 24,919 vacant private residential properties while available properties have soared to 330,303. Comparing this to pre-cooling measure period at end-2012, with 15,980 vacant and 268,768 available.

This meant that we have more choices to choose from and should therefore take our own sweet time. For once, we can be picky and demanding without feeling the urge that someone else will outpace us in grabbing that dream property of ours.

What type of property in Singapore should you buy

  • Buying property is a long term investment. When you're thinking of diving into real estate investment, it's better gather as much information on it as possible.
  • Just like in any part of the world, having a private property is a good decision as there are many benefits. For instance, the property cycle in Singapore over the last years indicates that there is a steady rise in real estate's value.
  • Alternatively, real estate investment can be a source of passive income. You can purchase a property and rent it out.
  • Hougang Capeview BTO flats

    BTO comes under the Housing and Development Board (HDB), Singapore. It's a responsive system, which allows Singaporean citizens to apply for flats at a location of their choice.

  • BTO flats at Sky Terrace@Dawson

    Once 65-70 per cent of the flats are booked, the construction work begins.

  • Tampines GreenLace BTO flats

    After the construction is completed, you will have to wait for some time before you can move in.

  • Pasir Ris One DBSS project

    Design, Build, and Sell Scheme (DBSS) is an incentive of the HDB system. DBSS is public housing scheme developed by private developers.

  • City View @ Boon Keng DBSS project

    The DBSS scheme offers more comfortable designs and better locations.

  • Executive Condominium

    Executive Condos (ECs) caters to young graduates and professionals who wants a property in between public and private housing.

  • Executive Condominium

    ECs are comparable in design and facilities to private condominiums as they are developed and sold by the private developers.

  • When it comes to investing in real estate, you should ask whether there is easy access to MRT stations, schools, and other essential facilities; the property can be easily resold; and affordability.
  • What are the costs involved in buying a property in Singapore? First, you have to check your stamp duty rate. Based on the market value of the property, you can compute for your Buyer's Stamp Duty (BSD).

Rising interest rate environment

Interest rates and property owners have a love hate relationship. The lower it goes, the happier property owners will be for two reasons, (1) lower interest rate = higher theoretical property value and (2) lesser monthly mortgage payments.

However, since 2015, we have been hearing from the Federal Reserve (Fed) of the United States, that their benchmark interest rate is expected to increase into 2016. Upon the release of that information, we have witness our Singapore Interbank Offered Rate (SIBOR) increasing to as high as 4x from its lowest point.

For those who are intending to purchase a property soon, you might want to plan ahead for the impending interest rate hike. This will definitely create a larger dent into the disposable income, as a larger portion of our salaries will be used to pay down our mortgage.

With higher interest rates, we are expecting property prices to continue falling to compensate for the potential increase in interest burden of mortgage payers.

Global economic jitters and disappointing recovery

The United States and most Asian countries have recovered very well from the Global Financial Crisis of 2008/2009. It is this largely fueled by supranational support (e.g. IMF) and global governments coming together to inject steroids to stop a depression from happening.

This steroid is called credit. Just looking at China's balance sheet, we know that these steroids cannot be injected indefinitely. Structural reforms are painful and a drag to the economy, but it's a path that these big economies must take.

10 steps to buying your first home

  • Step 1: Check your eligibility and the affordability of the property - Citizenship - Family Nucleus - Age - Income Ceiling - Ownership in other properties
  • Step 2: Obtain an Approval-In-Principle Approval from the bank An approval-in-principle (AIP) is a conditional approval for your home loan.
  • Step 3: Search for your ideal property Now that you know how much you can borrow, you can continue your search for your dream home. Spend some time considering the property's location, type, size, price and affordability.
  • Step 4: Make an offer for the property you want
  • Step 5: Close the deal
  • Step 6: Decide on your home loan This is when you need to have an idea of the different kinds of home loans available.
  • Step 7: Finalise your loan application There are many documents and paperwork to prepare when taking a mortgage loan. Having a clean credit history definitely helps!
  • Step 8: Appoint a Lawyer You would need to engage a lawyer to act for you and the bank on your conveyancing matter for your home purchase and mortgage loan.
  • Step 9: Formal valuation of property The bank will appoint a valuer for a formal inspection of the property.
  • Step 10: Completion of your property purchase Upon the date of completion of your property purchase, your lawyer will call for the release of bank finances payable to the seller's lawyer.

As a small nation, we get shoveled into these big boys' game of Russian roulette without volunteering to be part of it. Other than importing foreign talent, we have also imported the global slowdown. This can be seen from an uptick in retrenchment and slower rate of job placement.

These are all instrumental to property prices, as people spend lesser during slowdowns. Therefore property prices again are expected to drop further.

How sure are we that property prices will continue to drop further?

Theoretically, with all these negatives, property prices will have to drop in order for consumers to pick up appetite and participate in the market again. It can be witness that since 2Q2013, property prices have decreased steadily.

However, we have to note that property developers in Singapore are not Company XYZ or "I am poor" Inc. They are powerful names such as Far East Organisation, Wing Tai Holdings, CapitaLand and City Development. If there is something that they have, it is money. They might very well arrest price reduction and hold on to the property until the market picks back up again.

We believe that 2016 will be a rough year for property agents and developers as consumers continue its bargain search and unclear global headwinds. However, in 2017 when the smoke that is causing our confusion alleviates, the property market might go back to its upswing again.


DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.

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