Home Loans

Is Now a Good Time to Buy a Property?

The effects of COVID-19 have rippled through Singapore's real estate market. Potential home buyers may now feel uncertain about whether or not they should pursue a home purchase during this time.

As the world economy plunged into a crisis during the Covid-19 pandemic, Singapore has reportedly entered a recession. With the second-quarter gross domestic product (GDP) taking a 41.2 percent dive, Singapore's economy has also contracted by 12.6 percent on a year-on-year basis. Naturally, these shake-ups have ripple effects on the property market, which was already experiencing changes in prices and transaction volume over the first half of 2020. Beucase of these effects, there are several factors to consider before property buyers sign off on the dotted line to buy their dream estate. Below, we outline some pros and cons that can help guide you in your purchasing decision.

Changes in GDP and Property Price Indices

This table shows the change in GDP and property price indices between 3rd quarter 2019 and 2nd quarter 2020

Covid-19 Presents Difficulties For Many Home Buyers

Social distancing measures are still advocated by the government during this post-Circuit Breaker time, which can hinder property viewing and slow down or even complicate the transaction process. Some buyers may be tempted to take the easy route by relying on photos and virtue viewings that may not always accurately reveal every aspect of a property. To avoid possible regrets, buyers would be wise to take time to ensure that they have full details of the properties instead of rushing through the process and end up with a property that is less than desirable.

With news of doom and gloom following the global pandemic, buyers may not know the appropriate time to purchase a property. In a recent survey, more than 50% of Singaporean interviewees expressed uncertainty towards the property prices in the current climate. When people are uncertain about real estate prices, there is tendency for buyers to hold back in the hope of lower prices and sellers may withhold selling their properties in hopes of better future offers. This means that homes that would have been on the market are put on hold and buyers may miss out deals by waiting too long for prices to drop.

If You're Considering Private Property

Amongst the different types of properties in Singapore, private residential properties seemed to experience a greater decline in prices and transaction volumes than other residential properties. With developers having to close their showrooms and restrict property viewings since the start of the pandemic, the Urban Redevelopment Authority (URA) has reported the fall of private residential property index by 1 percent in the first quarter of 2020 and 1.1 percent in the second. Market experts are also projecting private home prices to continue their decline by another 3 and 5 percent.

Private Property Index Based on Property Type

This table shows the change in property price indices between 1st quarter 2019 and 1st quarter 2020

Market watchers pointed out that the pressure to lower property prices in the resale market will become stronger because home sellers may not have as strong holding power as developers. Such sellers will also face competition from the increasing supply of new homes and the lack of incoming foreign entrants, which can further limit these property owners from making alternative rental income from their properties. As a result, it is a matter of time before these owners will succumb to the market pressures and choose to sell their properties at discounted price.

From the pricing point of view, regarldess of whether buyers are purchasing new or resale properties, they may have have stronger negotiation power during this period. Furthermore, the fall of property investment sales (by 45%) in the first half of 2020 has run counter to developers’ confidence. Prolonged travel bans have also shut out the large pool of foreign buyers. All these can work to the advantage of local buyers who can benefit from wider property options at much lower prices. While the market may be a little hard to read at the moment, what is certain is the declining prices that are swinging in favour of buyers.

If You're Considering Buying an HDB Flat

Due to the pandemic and the barring of in-person home viewing, the HDB resale volume plummeted significantly to 789 units in April and May as compared to the same period in 2019 when 3,985 resale flats were sold, an unprecedented number that was much lower than what was observed in previous crises. However, unlike private properties, HDB prices haven't fallen. Instead, prices stayed relatively stable in the first half of 2020, with only a marginal quarter over quarter resale price index increase of 2% between 1st quarter 2020 and the second quarter. The stable pricing may suggest that HDB homeowners view their homes more favourably during the pandemic and are unwilling to sell at discounted rates. Furthermore, there has been little panic thanks to the 4 rounds of government stimulus packages.

While this pandemic may not have lowered the prices in favour of the buyers, the current HDB market may present more alternatives to potential buyers. For instance, there will be more than 20,000 flats that will come off their Minimum Occupancy Period (MOP) this year and HDB has announced the offer of another 13,500 Build-To-Order (BTO) flats for the rest of the year. While these numbers are not the highest they've been, they still provide opportunities to wait out for more diverse array of properties throughout the rest of the year.

Mortgage Interest Rates are Lower, Presenting More Favourable Loan Conditions

Homebuyers can receive more favourable mortgage interest rates at the current moment due to declining Sibor rates. Due to the pandemic's effect on the economy, Sibor (Singapore interbank offered rate)—the daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market—has been trending downwards in recent months. The lower rates imply that buyers will incur less interest over time if they take up a loan package now and will be able to channel more of their money into repaying the principal amount instead of the interest generated from taking up a loan.

Sibor Rates from March to July 2020

This table shows the Sibor rates from March to July 2020

Don’t Let the Pandemic Rush You

Because of the pandemic, having a comfortable roof over our heads has become increasingly important. Even though there are reasons to enter the market now, do not let the spur of the moment drive you to make a hasty decision. On the flip side, if you have found your dream home and have done your calculations, the current market conditions may present you with upsides like lower prices and lower mortgage interest rates that were not as favourable before.

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