Readers have been asking about during this current COVID19 situation, should they be buying up properties or just wait and see. In the last post, I mentioned that unprecedented situations are not within our control and this crisis is caused by a virus and not a financial crisis like back in 2008. This is a very different situation, somewhat similar to the SARS situation in 2003. I have friends who are telling me that this time is different, it is the whole world undergoing a major lockdown. I get this almost very often whenever a crisis happens. Yes! I agree totally that this crisis is different from the previous ones but the basic fundamentals of such situations never change. It is either a V-shape or a U-shape recovery. Does it matter? It will recover ultimately. Will planes fly again? In 2001, after the 911 incident, people were saying that planes will not fly for a very long time but they did start to fly again. Air travel was altered, the way we fly is different, tighter securities before checking in and whatsoever. We just need to understand that the virus is getting smarter and they will ultimately multiply itself but we humans have earned a right to be on this planet. Our bodies have the ability to fend itself against viruses. This situation is not PERMANENT! So stop getting all panicky and rush to buy toilet paper and form long queues in supermarkets!

Opportunities are always available in all crisis situations. Regardless of whether it is a viral situation or a financial meltdown. It is actually a matter of your personal investment perspective. If you think that during the crisis, you should stay conservative and keep liquid cash, then just stick to that school of thought and don’t lament over the fact that you missed the boat again. There are people who said that they should be taking a wait and see approach before they buy anything. It is definitely ok but most of the time, it ends up being waited and seen. Meaning that you have waited and seen the market move from low to high and you have missed it again.

Real estate market chart

How many times have you missed the boat? How many times have you waited and seen the opportunities past you by nicely? Are you ready to take action and start grabbing opportunities? I have friends and clients who have mentioned to me that they are waiting for a crisis to buy into real estate in Singapore. Is this current situation considered as a crisis? Is this the best time to buy or should they still be waiting? The Singapore government has already made announcements in digging out $48 billion dollars to support Singaporeans through this situation. Banks are instructed not to foreclose and to defer mortgage payments for up to 6 months. Non essential businesses during this period of time are not allowed to operate and because of this, the government is making compensations for these businesses. Airlines are protected with a large chunk of the budget catered to ensure that they stay afloat amidst of this crisis. If people are expecting to see fire sales, not anytime soon unless the situation does not improve after the circuit breaker lockdown on 1st of June.

The resale market would not be seeing any fire sales this time round. Higher savings rates and the introduction of TDSR in 2013 has helped to keep Singapore borrowings at a healthy range. It is during times like this that we appreciate control measures. There are no over leveraged situations except for the “industrial property advocates of no money down investment schemes”. Those who have over leveraged, please call the banks to defer your mortgage payments asap before your tenant defaults on the rent payments. Non essential businesses have been ordered to close and stay at home. So where are the opportunities?

2006-2010 crisis chart

“Be fearful when others are greedy and be greedy when others are fearful.”

– Warren Buffett –

Singapore’s residential property has always been filled with opportunities. From the chart above, we can see that during the last crisis of 2007, we can see that both prices and volumes have decreased tremendously but take note that the transactions were still at an average of about 1000 per month. Now if you adopt and wait and see approach, hoping to only go in when the market starts to rebound back. What indicators will you be using to ascertain this? Would you be saying that you would like to wait a while more to be more confirmed before taking a position? Would you have missed the buying opportunities and bought in on the high side? Let’s take a look at the facts and figures to make our decisions and not based on what you see on the surface, visit www.maidthis.com. Data do not lie and the past performance cannot be used as gauge for future performances. But there is a trend that follows. What goes down, must come up right? At this juncture, developers are concerned about the market situations and they will be even more sensitive when they are pricing their units. They need to sell the units. The pricing at this moment will be priced to the buyer’s advantage.

Low interest environment will make it cheaper to borrow. Lesser interest payments and taking more equity is the name of the game now. In fact, before this COVID19 situation, developers have already been pricing the units at a more sensible level as compared to before the 2018 cooling measures were set in. After the tightening of the Government Land Sales, developers have been cautious in the land bids and we did see some land bids being done at lower levels than before the cooling measures. So with lower land bids, and thinner margins, developers have been threading carefully in this current climate. Even with the COVID19 situation, it makes it even more difficult for developers to raise the pricing to average out their costing.

Some developments are already being priced back to prices in 2017 and 2018. According to price predictions of Propnex Realty, the prices for projects located in the different regions are still being sold at past pricing. The hint is quite clear, if you could buy in at prices based on 1-2 years back, your safety margins are in fact quite high. If there is a safety margin of approximately about $100 to $200 psf, you can be assured that this project should be able to ride you through the crisis safely. I cannot give you a guarantee that prices will definitely rise up but we do know that developers will eventually have to raise the prices accordingly, especially when the new development approaches it’s TOP date. We can see from some of the past projects that upon reaching TOP, the prices will be adjusted upwards.

We have also seen that in China, once the lockdown is over, the spending actually hit sky high. Pent up demand for real estate also resulted in panick buying from consumers. As of now, foreigners are not allowed to enter Singapore. Once the COVID19 situation improves, it is likely that the travel bans will be lifted and we can expect the foreigners to start coming in to buy into Singapore’s prized real estate. That will give a lift to the current dampened markets. During this circuit breaker period, where no physical viewing of properties are allowed, real estate professionals have taken the real estate business into a new level. Viewing is now done through virtual viewing and deals are concluded via the virtual method. Nothing stops a serious buyer and I am sure that your real estate professional will be able to assist in getting the documents signed and validated.

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