Singapore, 2 Dec 2016 – For the past few years, property prices have been falling. Private property prices have decreased by 10.8% over 12 consecutive quarters. Prices of public housing fared slightly better, with a 9.8% decline. As such, many people would wonder if it is a good time to buy into property now.
When buying property, many would try to time the market by buying low and selling high. However, such behavior is highly speculative in nature. Instead of being overly concerned about the timing of purchase, buyers should instead adopt a longer term perspective. Due to the cyclical nature of Singapore’s property market, taking a longer investment horizon means that the timing of purchase does not matter very much at all.
Instead, buyers should ensure that they have enough holding power so that they will not be forced to sell their property. In other words, they have to be prepared for unexpected situations. These could come in the form of interest rate hikes, difficulties in achieving the desired level of rent or in an extreme case, loss of employment. All these could lead to difficulties in fulfilling any mortgage obligations with the bank.
To this end, the Singapore government has come up with some measures to ensure that property buyers are not taking on too much debt. Monthly mortgage payments (inclusive of other monthly debts) are capped at 60% of income (Total Debt Servicing Ratio or TDSR). For those purchasing public housing or executive condominiums, there is a mortgage servicing to income ratio of 30%. Banks must use a hypothetical 3.5% interest rate when computing the maximum loan a buyer can borrow. These measures create an adequate capital buffer for buyers, ensuring that they will not have to be forced into selling their property, but can do so at a time of their choosing.
Hence, buyers should not be looking to “flip” their property and expect to make profits within a short time as it is risky. By talking a longer investment horizon, the risks are minimized, and buyers can then sell at a price which they are comfortable with. As such, there never is a “right” time to buy a property.
By Eugene Lim, Key Executive Officer and Seah Yao Hui, Assistant Manager, Research