Calculations on New Cooling Measures: To buy or not to buy

[Hiro76]

I am a newbie to property investment and have been looking to buy a property for the past few years but with the climbing prices and the frequent government measures, I have not purchase any property yet.

After reading about the new government measures, I went to do up an excel sheet to see whether I should buy or wait. I have came to a conclusion but as I am a newbie, I will like to seek expert opinion on whether I am right.

As it consist of tables, I am not sure how to post the info here. I have attached a link for you to view my analysis. Pls comment. I welcome all kinds of feedback as I hope to learn from all the experts here.

Thanks!

http://survivesg.blogspot.com

[kingkong1984]

Don't have to waste time calculating. Now it's not the time to buy unless it's firesales. Anyway to buy or not to buy depends on individuals financial position. Sentosa cove 36 million drop to 3.6 million is still out of reach for most hdb folks. U need to spend time calculating on that meh?

[Hiro76]

Don't have to waste time calculating. Now it's not the time to buy unless it's firesales. Anyway to buy or not to buy depends on individuals financial position. Sentosa cove 36 million drop to 3.6 million is still out of reach for most hdb folks. U need to spend time calculating on that meh?

There are other property within my reach. I am a person who needs to be convinced by figures, so that I will not do something stupid. That was the purpose of the blog, to remind myself of my thoughts.

Anyway my next step is to calculate how much the price must fall before it is worthwhile to buy a property. However, was hoping for some feedback on my calculations and assumptions as I am really new to this. The reason I am looking now is because the measures opens up new opportunity. I do not want to be caught waiting and not taking actions again when the price drops sufficiently.

[Lovelle]

it will be difficult to buy as seller will withdraw their condo frm the market.
unless u buy frm developer.


gahmen wan to see low transaction vol. Must plzz

[med80009]

There will now be a buyer-seller impasse. Stable property prices and near 0 growth (what government wants). The only way to resolve this would be:

a) External factors influencing the economy

b) Rise in interest rates such that mortgage payment exceeds rental

Else, no one will budge...

[Hiro76]

it will be difficult to buy as seller will withdraw their condo frm the market.
unless u buy frm developer.


gahmen wan to see low transaction vol. Must plzz

Low transaction is good as it will lead to lower prices. It happens in the stock market and it also happened after the 97 peak. As I only have a HDB, the measures are godsend.

[Hiro76]

There will now be a buyer-seller impasse. Stable property prices and near 0 growth (what government wants). The only way to resolve this would be:

a) External factors influencing the economy

b) Rise in interest rates such that mortgage payment exceeds rental

Else, no one will budge...

I believe that rates will go up and there are many in the market who has over strectched. Prices will fall.

I have seen many people argue that government does not want prices to fall. I disagree. Government wanted to stabiles the price since the 1st measure. How much has prices increased since then? This meant be an indication of how much government is willing to let the price slide.

[Wild Falcon]

If prices fall, buy. MBT already hinted this set of measures "not permanent".

[rattydrama]

4th cooling measures. Good time to buy. But

1. Buy within your means and make sure you can hold long. Make sure if another cooling measure comes, you can still hold on.
2. If there is a firesale - buy.
3. Make sure that the rental income is sufficient enough for u to tide over if you cannot sell.
4. Right now must buy with your brain and not heart.
5. Consider resale instead of new.
6. Go for as many viewings as possible.

expect that it might drop 10% within the next 6 months. If that doent happens, review again.

[spikey69]

I believe that rates will go up and there are many in the market who has over strectched. Prices will fall.

I have seen many people argue that government does not want prices to fall. I disagree. Government wanted to stabiles the price since the 1st measure. How much has prices increased since then? This meant be an indication of how much government is willing to let the price slide.

"Stabilise" is not equal to "let the price slide"

[Hiro76]

If prices fall, buy. MBT already hinted this set of measures "not permanent".

Agree. Nothing is permanent, even if they say it is. However, normally the market will over or under correct. Even if policies change, the market will take time to react, especially if the market has been falling and falling. People will wait to see whether the price will drop further.

This is observed in every policy.

[Hiro76]

"Stabilise" is not equal to "let the price slide"

Nope. But since when has government told us everything. When he say stablilise, he meant not mean it in exactly this context. Then again, he might be. I might be wrong on this but rem that government only sets policies. How the market reacts might be totally different.

Based on my latest calculations. You will need to expect at least 15.5% upside to just break-even. Not sure about you but this kind of upside to me is unreachable now. Not when the government promise further measures.

When something looks undesirable, the price is set to slide

[Hiro76]

4th cooling measures. Good time to buy. But

1. Buy within your means and make sure you can hold long. Make sure if another cooling measure comes, you can still hold on.
2. If there is a firesale - buy.
3. Make sure that the rental income is sufficient enough for u to tide over if you cannot sell.
4. Right now must buy with your brain and not heart.
5. Consider resale instead of new.
6. Go for as many viewings as possible.

expect that it might drop 10% within the next 6 months. If that doent happens, review again.

Thanks for the excellent advice. Do you mind if I quote you in one of my post in my blog? I am keeping the blog to remind myself to stay sane and this includes sourcing for advices like this.

Problem with rental is that whether it is sufficient depends on rates. I am expecting rates to go up to 3-4%. It was not too long ago that it was at this rate.

If interest rates goes up, prices will slide further and the fire sales you talk about will really start. Imagine someone paying $2.9k being asked to pay $4.3k. That's $1.4k more. Not alot, but alot if the person has stretched it!

[spikey69]

If the government wanted prices to slide, they would have killed off foreign buyers/investors, first time buyers or genuine upgraders with the latest cooling measures. But they didn't...and these are exactly the groups that are most impt to threatening the political status quo - by either screwing up economy or by voting against the govt respectively.

We've been through multiple cooling measures over the last 24 months, the trend has always been, launch cooling measure, wait and see for one quarter and then prices creep upwards. There is simply too much liquidity pouring in and the economy is still powering ahead.

But the bottomline for your latest blog post is correct - after 14 Jan, property no longer offers that kind of leverage anymore (unless you get a fire sale). Flippers are now extinct.

[Lovelle]

Low transaction is good as it will lead to lower prices. It happens in the stock market and it also happened after the 97 peak. As I only have a HDB, the measures are godsend.

how to equate low transaction to lower price ? ahahaha

[august]

I believe that rates will go up and there are many in the market who has over strectched. Prices will fall.

I have seen many people argue that government does not want prices to fall. I disagree. Government wanted to stabiles the price since the 1st measure. How much has prices increased since then? This meant be an indication of how much government is willing to let the price slide.

u already know the answer ~

[Hiro76]

how to equate low transaction to lower price ? ahahaha

Low transaction for short duration may not result in dips. Depends on who blinks first. However, low volume for long periods tends to slide prices. You can see this in all kinds of investment.

As I stated in another post, the low volume caused my mum's HDB to drop by around 40%. I know this is very true as I managed to buy mine for just 200k (160k after grant), a super steal. Now it is selling close to 500k.

If you still don't get it. Let's looks at how investors think. Investors invest in what can give them the best returns. If property no longer give that kind of leverage or returns, they will move on to other investment tool. Even in a particular kind of investment, investors invest by sectors. They will whack one sector, bring up the volume. When the price is right, they will dump everything and move on to the next sector. This original sector is no longer attractive, volume thins, and price slides.

You can see this everywhere in every investment tool.

[Hiro76]

If the government wanted prices to slide, they would have killed off foreign buyers/investors, first time buyers or genuine upgraders with the latest cooling measures. But they didn't...and these are exactly the groups that are most impt to threatening the political status quo - by either screwing up economy or by voting against the govt respectively.

We've been through multiple cooling measures over the last 24 months, the trend has always been, launch cooling measure, wait and see for one quarter and then prices creep upwards. There is simply too much liquidity pouring in and the economy is still powering ahead.

But the bottomline for your latest blog post is correct - after 14 Jan, property no longer offers that kind of leverage anymore (unless you get a fire sale). Flippers are now extinct.

By setting our measure harsher than HK, it is sending out a very strong message. If you are an international investor and considering between HK and Singapore, which will you choose now? I would choose HK for various reasons. Money will flow out. When property doesn't provide the leverage which it should. Why should investors choose it over other forms of investments?

This is my view but I may be wrong as I have only been following property news in recent years. Which is why I went to do the calculations. Numbers don't lie and as long as the measures exist, Singapore property is no longer attractive. How to remain attractive when you need a 15.5% upside to break even and with looming interest rates hikes.

I am with the government this time round. As it will help save lives. The fact is if the bubble is allowed to burst, we will see a repeat of 97. Not something nice to go thru.

[kingkong1984]

Sorry can clarify your figures?

$1 million, add in Stamp Duties of $24,600. Plus $500 mortgage fees and assume $3k legal fees. It would be $1 million + 28,100. Interest at 1% per annum would be 8k (assuming flat rate). Disregarding commission. The total cost would be $1,036,100.

If he sells after 1 year, it would be 12% SSD so you have to sell at $1,155,032 to break even. Disregarding commission. The net proceeds to break even should be $155,032 and not $154,600. Anyway u need to add commissions and legal fees so you probably have to buffer another 1% to 2%. Anyway the figures are close enough.

On your "Anyway, I invest in stock market and whenever the volume slides, the price will slide too." These two goes hand in hand. Price slide because no one is buying. Volume small is because some will nevertheless go against the tide and keep them. It can also be the other way round. People offer low prices. Only some will sell and not many would sell. If you are expecting 40% drop, You can wait very long. You might find a few in between deals or even hit them but it is very unlikely.

You have the same conclusion. No point to buy to sell. Buy to keep is ok. Price will definitely drop for a short while, thereafter, it will bounce back up to pre measure prices and be stable there. (once all the speculators who have to make their exit are gone)

My

[proud owner]

By setting our measure harsher than HK, it is sending out a very strong message. If you are an international investor and considering between HK and Singapore, which will you choose now? I would choose HK for various reasons. Money will flow out. When property doesn't provide the leverage which it should. Why should investors choose it over other forms of investments?

This is my view but I may be wrong as I have only been following property news in recent years. Which is why I went to do the calculations. Numbers don't lie and as long as the measures exist, Singapore property is no longer attractive. How to remain attractive when you need a 15.5% upside to break even and with looming interest rates hikes.

I am with the government this time round. As it will help save lives. The fact is if the bubble is allowed to burst, we will see a repeat of 97. Not something nice to go thru.

our govt have managed to get rid of most of the lousy location land in the past 2 years ,,,and were at good price ...
they have also collected enuff stamp duties from 2006 to 2010 ...

imagine..3 pct for every single purchase ... !!!!!!

enuff to pay all the ministers bonuses ...

so maybe they paisei ... so came out with harsh measure ..to bring prices down ...


after that ...lift the measures .... and play the game all over again

solid right ? Uniquely singapore

[Lovelle]

Low transaction for short duration may not result in dips. Depends on who blinks first. However, low volume for long periods tends to slide prices. You can see this in all kinds of investment.

As I stated in another post, the low volume caused my mum's HDB to drop by around 40%. I know this is very true as I managed to buy mine for just 200k (160k after grant), a super steal. Now it is selling close to 500k.

If you still don't get it. Let's looks at how investors think. Investors invest in what can give them the best returns. If property no longer give that kind of leverage or returns, they will move on to other investment tool. Even in a particular kind of investment, investors invest by sectors. They will whack one sector, bring up the volume. When the price is right, they will dump everything and move on to the next sector. This original sector is no longer attractive, volume thins, and price slides.

You can see this everywhere in every investment tool.

there are many ways to play prop, u are still getting rental during no transaction period. up to you to decide..

and this is how real investor play property.

[cool_rrk]

hiro76, your analysis is very sound I think. I too feel there is only one direction which is downwards.
When my husband and I bought our house in Jan 2009 we felt prices were reasonably low enough. But over 2009 and 2010 we felt the prices were unreasonably getting inflated and being humans (greedy!) we regretted not buying an investment condo in 2009 itself. I think the time is coming for us to act in a few months. I feel there will be desperate sellers looking for buyers in a low demand situation. Once speculators are removed genuine buyers are fewer.

But the key is finding the right condo. I think if we look for new condos in city areas or penthouses which were typically bought by speculators with deferred scheme, they may have to sell in urgency otherwise they have to come up with the payment. This situation may cause fire sales because there is urgency for them to sell but the speculator market is gone, and there are too few genuine homeowners looking for these types of "investment condos". On the other hand, the mass market condos etc may hold fairly well with slight drop because they never catered to the investor/speculator crowd.
Hence my husband and I are on the lookout for this specific type of "rental/speculator" driven newly TOP-ed condos for investment.

But if you want to look for a home, I think just wait for now :-)
Good luck!

[kane]

speaking of selling land. I'd be interested how's the response for the land auction on the plot next to Bishan MRT right after these measures are announced.

[teddybear]

No lah, they still have a lot of lousy land around, so must shift focus to these places and put a grand plan of restoration/rejuvenation/new CBD (/whatever names) etc in order to sell at good prices mah. Last time got Punggol, then Marina Bay, then Tanjong Pagar, then Jurong Lake District, then Payar Lebar, then Hougang, then East Coast, then what? Puala Ubin, Puala Tekong, Simpang, Woodlands???

our govt have managed to get rid of most of the lousy location land in the past 2 years ,,,and were at good price ...
they have also collected enuff stamp duties from 2006 to 2010 ...

imagine..3 pct for every single purchase ... !!!!!!

enuff to pay all the ministers bonuses ...

so maybe they paisei ... so came out with harsh measure ..to bring prices down ...


after that ...lift the measures .... and play the game all over again

solid right ? Uniquely singapore

[Lovelle]

No lah, they still have a lot of lousy land around, so must shift focus to these places and put a grand plan of restoration/rejuvenation/new CBD (/whatever names) etc in order to sell at good prices mah. Last time got Punggol, then Marina Bay, then Tanjong Pagar, then Jurong Lake District, then Payar Lebar, then Hougang, then East Coast, then what? Puala Ubin, Puala Tekong, Simpang, Woodlands???

measure 5 is coming, so many wanting to buy

[Hiro76]

Sorry can clarify your figures?

$1 million, add in Stamp Duties of $24,600. Plus $500 mortgage fees and assume $3k legal fees. It would be $1 million + 28,100. Interest at 1% per annum would be 8k (assuming flat rate). Disregarding commission. The total cost would be $1,036,100.

If he sells after 1 year, it would be 12% SSD so you have to sell at $1,155,032 to break even. Disregarding commission. The net proceeds to break even should be $155,032 and not $154,600. Anyway u need to add commissions and legal fees so you probably have to buffer another 1% to 2%. Anyway the figures are close enough.

On your "Anyway, I invest in stock market and whenever the volume slides, the price will slide too." These two goes hand in hand. Price slide because no one is buying. Volume small is because some will nevertheless go against the tide and keep them. It can also be the other way round. People offer low prices. Only some will sell and not many would sell. If you are expecting 40% drop, You can wait very long. You might find a few in between deals or even hit them but it is very unlikely.

You have the same conclusion. No point to buy to sell. Buy to keep is ok. Price will definitely drop for a short while, thereafter, it will bounce back up to pre measure prices and be stable there. (once all the speculators who have to make their exit are gone)

My

Fully agree with what you said.

Thanks for highlighting that I left out mortgage fees, legal fees and commission. Have not bought any property since my HDB 8 years ago. Will revise my excel when I have time. The excel was based on selling in year 1. I initially used one month but not very fair as rental exceeds monthly payment. Hence decided to use 1 year rental and interest but consider as selling in year 1. I am not a flipper but I want to see to what level of profit is required to keep flippers in the market.

As for low volume and price increases, agree but it's in the minority. The norm is when price increase, vol increase, price increase further, in this cycle. When price dips due to bad news, vol thins, price drops further. If not how to buy DBS at $8plus. Lol

Using 40% as example only. I do not expect the government to allow price to slip so much. At a drop of estimated 20% (to be verified when I have the time), I expect the flippers to be back. Hence, if there are no adverse news and no rates hikes, I expect the price to drop no more than 20%. But if rates raise to 6-8%, anything is possible. The rates hike can cause a number of people to commit suicide. But I guess this time it may not. Why? Cuz the government has cap LTV to 60%. Even if price drops, banks will not have to ask for top up. With the property as mortgage, the banks may be more willing to allow for longer and lesser repayment.

This is why I think the government is doing the right thing. It needs to protect the many ignorant investors from rates hikes and exodus of foreign funds.

[kane]

round 5 of measures if it's required will likely be 50% LTV. right now, HK is already on 50% LTV for HKD12mio (SGD2mio) properties. akan datang...

[jwong71]

round 5 of measures if it's required will likely be 50% LTV. right now, HK is already on 50% LTV for HKD12mio (SGD2mio) properties. akan datang...

yes pls let it happen,preferable even for 1st property at 50% LTV.

[kane]

yes pls let it happen,preferable even for 1st property at 50% LTV.

cannot, that would be too unpopular. how will young married be able to come up with 50% downpayment even if they use their CPF? EC showroom can close down if that happens.

[kingkong1984]

round 5 of measures if it's required will likely be 50% LTV. right now, HK is already on 50% LTV for HKD12mio (SGD2mio) properties. akan datang...

Maybe lor... if developer keep pushing up the prices. Offer to absorb the SSD. Like that no as effective liao. Dun worry, the most the govt can ask is for 100% paid up upon purchase. Hahahaha.

To move from 20% to 40% means that what you use to be able to put down for 2 units (same price) is only enough for 1 unit. Assuming all things equal. Volume should drop 50% and price remain the same. But it's not that simpe, so we have to use the word 'monitor'.