How to be a Happy Property Buyer Part 2 | Steps to making a good private property purchase

Updated: May 17, 2020

2020 started with a bang and have brought many on a roller coaster ride.

First it was the ongoing trade war between China and USA. Despite the trade war, the market seems to rally and property sales volume and rental prices were climbing up steadily. Never mind the trade war, our local market was able to support the growth in the real estate market, confidence to buy was strong. Many were ready to take jump into the market and own a slice of the lucrative property pie.

However there are also a good number people uncertain about the trade war, sat on the fence and wondered is it the right time? And before one can find some sense of stability and certainty we were swept by COVID 19 which adds on to more uncertainty for many.

Perhaps you are thinking is this the time for me to purchase my own home?

Is this the right time for me to purchase my investment property?

The following are 5 observations/insights I have gleaned for the past 10 years which I hope to shine some light and help you gain clarity and certainty before you commit to a private property purchase.

1.Objective: Buying for Investment or Ownstay

This is the first question, you will be asked when you first step into a show flat or when you engage a buyer agent. Are you looking to purchase for Investment or Ownstay?

The most common replies are as follows...

- I want to buy something to stay, but I also want it to have an investment value.

- I want to buy something to rent out, but also might want to stay in it in future.

-I’m not sure yet.

We love to have the best of both worlds, when we purchase something, And it's normal to want to enjoy the maximum benefits and value.

Since property value generally goes up, is the distinction between buying for own stay vs investment a very important question to address?

The answer is a resounding YES,

While it’s possible to purchase an own stay property that can also have good capital gains, due to the lifestyle/life station needs of some, it might not be possible to achieve both due to budget constraints or specific needs.

As such having a clear objective is important in helping you make the most sound decision when there are many distractions. Distractions can be in the form of, hype on growth areas, hype on potential gains. Knowing your objective will help you determine what are the more pressing factors you should consider vs those that might be secondary.

The table below illustrate the different consideration in buying a property for own stay vs investment

Thus it’s important to set very clear objectives at the start of your property purchase so that you can cut through the hypes and achieve the goals that you want.

2. Finances

It is highly recommended to get a mortgage loan when purchasing a private property. This because currently the interest rate is at a low of below 2%, this means the cost of borrowing is lower than the interest you can make in your CPF. Your cash can work harder by keeping them in your CPF or other safe haven investments that can give higher than 2% yield.

Also during uncertain times like this, it would be wiser to keep more cash on hand than to throw all of them inside your property.

As such, before you commit to a purchase, always assess your eligibility of loan by getting a IN-PRINCIPAL- APPROVAL (IPA) of loan from banks. If you engage a buyer agent, your agent will likely be able to connect you to experienced bankers who can help you. If you are new to private property purchase, it will be wise to connect yourself with experienced bankers and brokers to ensure a smooth transaction.

Getting this IPA helps you decide in advance, the budget you should set aside for your purchase. This is important as you should not waste your opportunity by under leveraging or neither should you get too emotional over a certain purchase and in the case of FOMO (fear of missing out) make the mistake of over leveraging.

3. Timing

When is the best time to purchase a property?

New Condo Purchased in 2008 crisis highest profit
New Condo Purchased in 2008 crisis highest profit

According to this data the best time to purchase a property is in 2008 where the highest profit achieved.

However when you look at this research base on profits and losses recorded of properties bought and resold from 2007- Q2020, you will observe that there are also properties purchased during this period that resulted in losses.

This graph above illustrates the relationship between Property price vs GDP growth during the various crisis. While the graph tells us that in each crisis, when GDP falls, prices also falls, the irregular shape of the graph also illustrate that beyond this clear understanding there is no formula to anticipate how the degree of which the graph will move.

However if you take note of the general peaks and toughs of the curve you will note that the lows in each toughs is still higher than the previous one, as highlighted with the blue rings below.

What this means is that holding the property for a longer period will reduce the instances of making a loss.

While timing is definitely an important element in property purchase, as world events and various cooling and warming measures have an impact on property prices and cost of financing, the price which you enter into the market also plays an important factor. As seen in the previous profit and loss from matched caveats, it is possible to still make a loss when you enter into the market at the same time as those who make a profit.

The best time to buy a property is when you can afford it. That is, you are able to hold the period for the long period and not feel pressured to sell during an unfavourable market environment.

If a deal comes along, does entering today at a 10% discount vs 20% lower in 2 years time make a significant difference when the market recovers?

Buy Now vs Buy Later
Buy Now vs Buy Later

What’s the risk in return for $30k more profit?

Timing the market and potentially losing out another decade to wait for the next price correction if the property did not correct further after waiting out the additional 12 months.

That saying so, timing is unique to each individual, for some it might make more sense to wait and buy at a later time, for others now could be a right time to enter. Instead of following general trends and sentiments, it will be prudent for you to be clear about your objective and your current financial standing and life station and gauge your timing accordingly.

4. Determine the right price

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." - Warren Buffett

It is probably wiser to enter a property at a right price rather than trying to gamble on a right time.

The following are some useful gauge for right price of property

Bank Valuation

If you take up a loan, the bank valuation will be a good gauge if you are entering the property at a fair price. As the bank that is granting you the loan will be providing the bulk of your financing, the bank will need to do due diligence to ensure they are backing an asset that is of fair value.

So purchasing a property within bank valuation is a good indicator of purchase at a fair price.

Entry Price

Compare the price that you are going to pay for