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Thread: Dilemma for genuine home buyers

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    Default Dilemma for genuine home buyers

    [url]http://www.todayonline.com/Business/Property/EDC110128-0000184/Dilemma-for-genuine-home-buyers[/url]

    [B][SIZE="5"]Dilemma for genuine home buyers[/SIZE][/B]

    [B]Some wonder if they should wait and see if the recent cooling measures push down prices significantly[/B]

    by Ong Teck Hui

    05:55 AM Jan 28, 2011


    The Government's latest round of measures to cool the residential property market was clearly targeted at short-term investors and speculators.

    Effective since Jan 14, they include the highly punitive stamp duties which apply to the resale of residential properties within four years of purchase, the reduced loan limit of 60 per cent for buyers with one or more outstanding mortgages, as well as the 50-per-cent loan limit for buyers who are non-individuals, for example companies and trusts.

    It would appear that the measures have been applied to slow down the market to avoid the growth of a property bubble, as well as to allow genuine buyers the opportunity to purchase their dream homes without runaway prices.

    Genuine home buyers do form a significant demand pool, and many have planned to make their purchases in the near term. The introduction of the fresh measures has led them to wonder whether prices would soften and whether it might be worth their while to wait. Some are hoping for a substantial price correction, "maybe 20 per cent or more", before deciding to buy.



    SEEING PRICE DECLINES IN PERSPECTIVE

    But would the residential property market correct by that magnitude - 20 per cent or more - due to the measures alone? It would be useful for us to analyse past declines in prices to arrive at an informed conclusion on the price outlook.

    The most recent price correction in the residential property market was due to the economic recession arising from the global financial crisis. From the peak in mid-2008 to trough in mid-2009, prices softened by 25 per cent, according to the Urban Redevelopment Authority's residential property price index. The impact of the new measures will certainly be nowhere as catastrophic as that of the global financial crisis.

    Another benchmark is the decline in prices following the announcement of the anti-speculation measures in May 1996. The very harsh measures, which included a 20-per-cent upfront downpayment in cash for all property purchases and taxes on gains from properties sold within three years of purchase, affected the entire residential market, bringing transaction volumes down by 75 per cent. Prices eased by 8.9 per cent over a one-year period before being dragged down by a further 40 per cent by the Asian financial crisis.

    In contrast, the current measures have been calibrated to discourage shorter-term investors and speculators, leaving genuine home buyers relatively unaffected.

    Barring external shocks or economic downturns, the measures by themselves are unlikely to drag prices down significantly, if at all. Under the present positive market conditions, sellers are on a stable footing and under no pressure to slash prices.



    BUYERS' IMPATIENCE

    After the set of measures announced on Aug 30 last year, potential buyers retreated to the sidelines to watch how the residential market would pan out.

    Last August, developers launched 1,165 units and sold 1,259. What potential buyers saw was a slightly slower market in September, with 1,058 units launched and 911 sold. Activity in October picked up, with 1,070 units launched and 1,066 sold, but that was the month when two new executive condominiums (ECs) were launched, generating much hype and interest. Including ECs, 2,049 units were launched in October and 1,596 sold.

    The market also watched developers' response to the sale of residential sites. Tenders for mediocre residential and EC sites were met with fair response and cautious bids, while the more attractive sites saw strong competitive bidding.

    The URA's property price index for 3Q2010 showed that residential property prices rose 2.9 per cent, although it would have captured primarily pre-measures pricing. Market behaviour and evidence would have led most potential buyers to conclude that the residential market was holding up well against the measures, transactional activity was resuming and prices were unlikely to soften.

    By November, the residential property market picked up with a vengeance with several major launches and good take-up. Including ECs, 2,331 units were launched and 2,092 sold, making November almost the busiest month last year. The December figures for homes launched and sold (including ECs) were lower at 1,859 and 1,699, respectively, but this was expected as it was the typical year-end holiday period.

    When the 4Q2010 price index was released, it showed residential property prices continuing to climb by 2.7 per cent, notwithstanding the effect of the measures. It only served to confirm potential buyers' fear that prices would continue to rise.



    TO WAIT OR NOT TO WAIT?

    Potential buyers' behaviour over the next few months would determine the direction of the residential property market for the rest of this year. If buying sentiment recovers in the short term, transactional activity would pick up, leading to firm prices with, perhaps, some upside. However, if the market slows without an improvement in sentiment, prices could eventually soften.

    The dilemma that many genuine home buyers face is whether to continue with their intended purchases or to hold off in the hope that prices will correct significantly.

    It would be worthwhile waiting if prices do eventually decline substantially, but delaying also runs two main risks: Higher interest rates and stronger measures imposed by the Government that may affect even genuine home buyers. On the other hand, higher interest rates and stronger Government measures could result in price softening, but that would mean postponing one's purchase even longer.

    Historical experience may show that prices are unlikely to correct significantly due to measures such as those recently introduced. But it is what potential home buyers believe or perceive that will drive their behaviour, which will, in turn, influence the market.

    The residential property market may have been jolted by the Jan 14 measures, but market fundamentals remain favourable. Together with inflation concerns, the current low interest rates and expectations of long-term capital appreciation, it appears that buyers would likely be drawn back to the residential property market after an expected period of hesitation.



    [I]Ong Teck Hui is executive director of research and consultancy at Credo Real Estate.[/I]

  2. #2
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    No crisis, no fall in prices. People just don't understand money remains in the market when growth is expected.

    May 1996 slump was caused by Asian financial crisis. Started in early 1997 and last till 1998, just like subprime started in early 2008 till 2009.

  3. #3
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    Quote Originally Posted by thomastansb
    No crisis, no fall in prices. People just don't understand money remains in the market when growth is expected.

    May 1996 slump was caused by Asian financial crisis. Started in early 1997 and last till 1998, just like subprime started in early 2008 till 2009.
    Those who hope for 20% in priced should continue to wait longer. When their dream home goes out of their reach they save money by remaining where they.

  4. #4
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    MBT tell them to "wait" mah. End up the specu-investors are still snapping up the cheap-quantum shoeboxes while genuine buyers dun wanna buy becos MBT says so.

  5. #5
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    Quote Originally Posted by Wild Falcon
    MBT tell them to "wait" mah. End up the specu-investors are still snapping up the cheap-quantum shoeboxes while genuine buyers dun wanna buy becos MBT says so.
    'wait' so tat to cr8 a pent up demand?? hehe....later leads to sudden surge in prices again? oo..

    its not solely about affordability....but more on willingness to pay/buy......see recent ulu BTO ...hehe....mabe ask them to wait longer so tat choiced locations will be priced out of their reach later and no choice but to take ulu BTO?

  6. #6
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    for genuine home buyers, they should buy when they see their ideal units... those who r waiting for big price falls r not genuine buyers at all, they r just opportunists/speculators

  7. #7
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    Quote Originally Posted by Allthepies
    for genuine home buyers, they should buy when they see their ideal units... those who r waiting for big price falls r not genuine buyers at all, they r just opportunists/speculators

    you are right provided it is within the buyer's budget and they are willing to pay for the needs at the price offered to them lo...

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    Wait for 18 Feb budget day announcement for first time... Who knows there might be some goodies coming....

  9. #9
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    There shouldn't be any dilemma for any buyer be it buying for investment or own stay.

    No matter what the cooling measures are, property prices will still continue to creep up slowly and steadily in a growing economy with low interest rates. Where can one invest in to reap in returns to counter inflation?

    Stock market, commodities, derivatives? Too risky and volatile. It's like putting your money in the hands of others who are running / managing the show. So many IPOs - how many companies directors are really serious in running and expanding the business to increase shareholders' value after they themselves have profited from the sale of the company shares / stock options?

    Fixed deposits, bonds and treasury bills? Forget it, interest rate / yield too low.

    Property? Yes, because it has been proven years and years that property prices will always rise in the long term. Short term rental covers your monthly instalment. Long term resale yields in capital gain. And its a tangible asset that you can feel and touch. And you have full control of how you want to play the investment game.

    Next, there are no negative factors that will force / convince sellers and existing owners to do firesales. Nobody in the right mind will want to cut profit margins or worst still take losses especially when no other investments now yield a better return than property investment. It's just that those who dun hv enough bullets / cash to invest in property will be kept out of the market.

  10. #10
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    Quote Originally Posted by westman
    Wait for 18 Feb budget day announcement for first time... Who knows there might be some goodies coming....
    increase subsidy for public housing?

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