Will The Property Market Crash On The Current Market?

Currently the property market is at an all time high and new record benchmark prices are set on a monthly, weekly and often even daily basis. In the current bullish and toppish market, property investors must be thoroughly be educated to make wise investment decisions. I have always advocated the principle that if an investor is focused on the downside risk in property investment, the upside profit will take care of itself. Each property that any investor or home buyers wishes to acquire must meet very stringent property analysis criteria.

A range of investment strategies will have to be applied on a case by case basis. Some examples are such as using private limited companies as as investment vehicle is advantageous, and could result in a substantial increase in Return On Investment. Other examples such as property sharing agreements allow investors to pull together their financial strength so they are not stretched out financially as an individuals. I will touch on some of the examples and explain in details later on.

So what is the correct time to enter into the property market is the golden question that many clients of mine have been asking me everyday. Many property gurus and agents will always tell you that, "Anytime is a good time to buy". Even though I am a real estate salesperson myself, however I disagree with this saying. Buying a property at the wrong time can cause a lot of financial plan and prove to be a long term commitment for the uneducated investor, especially if you buy the wrong property at the wrong time.

After studying the URA Property Price Index carefully, I noticed a distinct pattern of property cycles some examples will be like (1993-1998, 1999-2004, 2005-2009). Basically my technique of timing your entry into the property market is to buy properties only during certain window periods. Examples will be during the market has just begins to turn upwards, such as beginning of 1994, 1999, 2005, 2009), and those homebuyers and investors who bought at these times have enjoy handsome capital gains and appreciations. Through timing my entry to purchase, I have bought more properties during such windows period than at any other times.

Source: Private Residential Property Price Index, https://data.gov.sg/dataset/private-residential-property-price-index-by-type-of-property

Of course to know when the window periods occur and what properties you should buy at what prices during those times, you should monitor closely on the market and be on the constant lookout for good buys and the first sign of recovery. Basically there are two signals that I look out for,

1. The prices of the properties that you are monitoring must have fallen close to or below the previous transacted prices during the downturn and bottoming of the market in the last property cycle.

2. A marked increase in the number of property transactions is usually the first sign of an upturn and recovery in prices.

One way to share the burden of having to pay a huge upfront sums of money towards property purchases is to form property sharing joint ventures. Each investor pays a small sum of money, depending on their percentage of shareholding to tap into bigger investment opportunities.

With a bigger investment budget, a group can also bargain for better discounts in bulk purchase deals or buy costly properties such as luxury condominiums with good locations that are able to yield a higher rental returns. Even small buildings are also possible to be bought.

Property sharing will also provide you with a greater financial safety net to cushion you from the ups and downs of the property market. This will help you sit out any lull period in the property cycle. But before you do so, make sure all your partners possess high integrity and make sure you do not run afoul of the rules relating to soliciting funds from the public. Property investment is a business and you can only build a good business with honest people and people with great integrity.

In olden days, property sharing ventures often take the form of private companies, but however, private companies nowadays are slapped with high property stamp duties and tax rates, therefore private legal agreements are here to be in place to safeguard individual interests. Unless the extra cost of stamp duties and taxes are not of any significance to you, and it is only a small fraction of the property investment returns that you are earning.

All in all, prudent is the keyword towards buying property. You should always make the effort to find out about all the relevant details regarding the property. Never ever believe in what other says, seeing is believing. Some of the important details to look out for includes,

1. Is the property freehold or leasehold aka 99 Years?

2. Where is its exact location?

3. What is its exact living area in terms of size?

4. Any other caveats or orders of court registered against the property (usually is more applicable to resale properties)?

5. Government plans for the area are also critical, such as road or drainage line reserves, transportation, future planning growth in the Concept Plan and Master Plan.

6. Certain zones require special caution as they may have special government planning restrictions. Some places for examples are Geylang, Changi, Serangoon, Balestier, Chinatown, Pasir Panjang and Tanjong Pagar.

Author By:

Brian Loh CN

MSc. Applied Finance, University of Adelaide, Australia

Registered Real Estate Salesperson by CEA Singapore