One of the biggest news going around my country, Singapore, these days is that the property market is heading for a recovery. Here is my two cents’ worth on bargain hunting property for investment in the Singapore property context.
Now that you are excited by the prospect of a property market upturn in the next year, you may be wondering, “Is now a good time?”
Whether you are buying a property for the first, second or third time, a property purchase is always likely to be one of the biggest financial decisions you will make. Buying a property at the wrong time is financially painful. It results in a long-term burden for you, worry over finding potential tenants, endless frustration and sleepless nights.
For an investor, buying the right type of property that meets your criteria is important. Success in the property market is mostly based on the timing of your entry.
A Look at Mr. PropertyXpert’s Purchase in 1996
Take for example Mr. PropertyXpert’s (call him Mr. PX) purchase in late 1996. He had bought 2 semi-detached properties costing $1.8 million each. Both houses were part of a landed property collection sold by a well-regarded developer in Singapore.
Thinking that the house was at a bulk purchase discount of more than 15% off their listed prices, Mr. PX was extremely satisfied with his purchase. What he did not know at that time was that he had bought the two houses close to the market peak of the 1993 – 1998 property cycle. Just two years after his purchase, the 1998 Asian financial crisis hit! Rental rates for both semi-detached houses plunged from more than $6,500 per month to less than $3,000 per month.
Thinking that prices would definitely recover in land-scarce Singapore, Mr. PX continued to hold on to his properties. Unfortunately, the property market continued to decline day by day. In a buyer’s market, Mr. PX’s properties were worth only $1.2 million each, meaning that he had suffered a paper loss of almost $600,000 on each property. What’s worse, the fact that Mr. PX could not find tenants for his house depressed his rental yields. Unless he rented out at a discount, property management and tax expenses would mean that his property investment had now become a liability!
After waiting more than 10 years, the property market finally recovered in 2007. Even then, the recovery was short-lived.
The moral of this story is that Mr. PX had purchased his properties at the wrong time. If you are thinking of making a property investment today, Mr. PX’s story would certainly be relevant to you. Disaster in the property markets happens when you buy the wrong properties at the wrong time. Whether your property purchase turns out to be a profitable asset or a heartbreaking liability depends on timing and patience.
Property Market Window Periods
In Singapore at least, property market cycles tend to last between 4 and 5 years. The most appropriate time to buy a property for investment or home ownership is likely to be just before the market starts to turn on an uptrend.
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By timing your entry at the beginning of 1999, 2006 and 2009, you could have been sitting on considerable property gains by today.
Will 2017/2018 be another opportunity? Only time will tell.