Unfortunately, if you’re here expecting to see the answer for this question to be a hard “yes” or “no”, you may be disappointed. No one can tell whether it’s a good time or not to profit from a condominium purchase.
Instead, what we can do is tell you why we think it may not be a great time to buy a condominium in the last quarter of 2020. Some of the reasons may even hold true for the early part of 2021.
Buying a home – whether it is a condominium or an HDB – is likely going to be your biggest purchase. Remember to make a financially prudent decision and consult with trusted advisors before making a property decision.
With that in mind, here are 5 reasons we think it may not be the best time to buy a condominium right now.
#1 COVID-19 Uncertainties Will Continue To Linger
For starters, no one knows if we have beaten COVID-19, or if a second wave will be even worse than the first one. This could have a drastic impact on your job and the economic outlook, even if you are not directly affected by COVID-19.
Even if a second wave does not come, a slowdown in the economy may translate into lower property prices in the near-term.
In the short term, what we do know is that many people’s livelihoods and jobs have been affected because of COVID-19. While the government is helping to support local employment, foreigners may lose their jobs and return to their home countries. This will lower any demand for rentals.
Additionally, once the government support for jobs, including the Job Support Scheme (JSS) and Jobs Growth Incentive (JGI), begin to taper off, we may see more locals affected by COVID-19 and the economic slowdown. This may further depress rental demand and, more importantly, impact some condominium owners who may have to sell quickly – which often means selling at a lower price.
#2 Government Is Artificially Giving Property Owners More Holding Power
As part of the COVID-19 support measures, the government had announced a deferred repayment of residential property loans for individuals up to 31 December 2020. This allows individuals with residential property loans to apply to their respective banks to defer either i) their principal payment or ii) their principal and interest payments.
Along with the government’s various measures to support jobs in Singapore, which will help tenants to continue making rent payments and homeowners to continue paying for their homes, homeowners may have been handed greater holding power with the deferred payment.
Again, once these measures are cut back, there may be a greater impact on property prices.
#3 Low Interest Rates May Not Always Be The Norm
Before COVID-19 ravaged through the global economy, interest rates were starting to tick upwards. Now, they are back to near-zero levels to encourage individuals and companies to invest rather than save.
This may entice individuals who may think it’s a good time to stretch their finances, because they aren’t affected by COVID-19, to take advantage of the current low interest rates to finally afford a hefty home mortgage.
However, part of the uncertainty surrounding the impact of COVID-19 is the possibility that it is a short-lived downturn. In such a case, interest rates may bounce back up.
For those who have overleveraged themselves, an upswing in the economy may create problems when interest rates start to rise again.
#4 Paying For A Slightly Expensive Valuation Today
Let’s say when we want to purchase a property, we may be more inclined to buy when the agent tells us that the property is being rented out at a 4% rate yield or that nearby properties are being rented at an attractive rate.
However, current rents could likely be supported by the government’s schemes for companies to retain employees and create employment opportunities. The attractive rates could be also impacted by another COVID-19 wave.
Rents are also based on historical outlook as they can be locked in several months prior – when the economic outlook was very different.
Once rents start to inch downward, as the government support measures for jobs and home loans dry up as well as when new rental leases are renewed or signed, property prices may have to come down to continue offering the same yield.
#5 Pipeline Of More Residential Properties Coming In
Adding to a potentially weakening market for home demand and rentals, is a pipeline of more than 27,977 units as at the end of the 2nd quarter 2020, with a further 1,899 Executive Condominium (EC) units unsold.
In addition to this 29,876 unsold units, there is a further 5,400 units (including ECs) from Government Land Sales (GLS) that have not been granted planning approval yet.
As more supply of private property comes into the market, weak demand (due to weakening job prospects and the slowing economy) may see prices for private residential property decline.
A Lot Of Uncertainty Ahead For Condominium Purchasers
This does not mean we should not purchase a condominium if we want to. What we are trying to highlight is that risks now are as high as any time, and perhaps even higher than usual. We need to make an even more prudent financial decision because there are more unknown variables we could be facing in the coming months ahead.
The last thing we want to do is buy our dream home, renovate it, move into it, and then realise we cannot afford it because we need to accept lower pay to retain our jobs. Such a situation is no longer unimaginable, given the current state of the economy where retrenchment numbers are higher than before.
At the same time, with less demand in the market, it could also present some valuable purchases if we are able to buy within our means and negotiate an attractive price.
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