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Buying property? Spot these 5 red flags in "advice"

For many realtors, social media platforms are a means of marketing themselves. Unfortunately, they also become echo chambers for the same reason. Over the years, clients have asked me the same questions over and over again:

Does buying a unit from a new launch always make money?

Can the 17% ABSD really be recouped in no time?

Will the cheapest unit in a condo project suffice for investment?

To the untrained eye, advice like this may seem logical. But experienced folks in this line of work will tell you no absolute statements are true in this industry. In this article, we examine when the five most common hearsays might hold true and fall through.

Myth 1: “Buy a new launch, sure make money.”

This sounds like a no-brainer, especially since property in Singapore is known to appreciate, and there is indeed some truth to the statement. In the new launch’s vicinity, impending land sales will raise its value and consequently sales prices down the line. For districts that are low in supply and where new developments are few and far between, new launches could be all the more promising.

Timing matters as well. At the end of the day, property is a brick and mortar product. While it’s a piece of paper for investors, home hunters are looking for a liveable space and therefore place a premium on buying units which have been completed. Naturally, the former stands a chance at profiting from the transaction. Nevertheless, this premium is not an easy amount to stomach. Some may be put off by the expensive prices of new launches. If you present the same buyer with a completed product and a larger price tag, chances of a sale are pretty low. Should you scrap the idea then? Well, it depends. If you are buying and keeping it for a longer duration, from one cycle to the next, you can easily lease the unit out and cover your loan and interest with rental income. This helps you to save up while achieving your financial goal of buying a unit from a new launch.

Myth 2: “Past performance equals future results or profit.”

Data is only half the picture; experience and judgement is another. Past performance does not necessarily guarantee profit unless you are in the landed homes segment where locales are predictable, supply is finite, and new inventory is absent. This, however, is the exception to the rule.

In the condominium environment, a myriad of other factors can contribute to performance. It is convenient to sell the idea of profitability with upward trendlines, but it helps to clarify your representatives’ reasoning behind their predictions. What do they foresee in the next 5 to 7 years? Why do they think that? Difficult questions may put them in a spot, but doing so politely will help you discern between realtors who know the market from those who are defaulting to data to paint a peachy narrative.

Not all “crystal-balling” should be taken at face value in this trade, and realtors with legitimate experience and judgement are better placed to help you mitigate potential risk.

Myth 3: “Buy the cheapest condo unit for investment.”

This statement sounds logical for buyers who are looking to invest, but it does not consider the preferences of future buyers. The fact of the matter is that they rarely share the same thought process as sellers, and doing so might well shrink the pool of potential buyers.

It also matters who buys from you. If the prospective buyer is purchasing your unit for their own stay, a location that faces the bin centre directly or is too close to the neighbours for comfort could end up being a deal breaker. So don’t just buy the cheapest unit and close the case. Rather, buy one that is relatively cheap but still addresses the basic wishlist of potential buyers. These criteria will be your bargaining chips for price and value down the line and are certainly worth putting thought into.

Myth 4: “ABSD can be recouped quickly.”

ABSD, or Additional Buyer’s Stamp Duty, is a burden we undertake as a last resort. But a solid realtor will be able to advise workarounds. For instance, if you’re buying property with your spouse, you could decouple and buy over each other’s share to mitigate this. Don’t get us wrong—this has nothing to do with tax evasion. Perhaps when you bought your first home, ABSD hadn’t come into the picture. Or maybe you were simply unaware. Now that you’re ready to buy a second home, is paying and recouped ABSD your only option? Get a second or third opinion to determine if ABSD is absolutely unavoidable.

Myth 5: “Fixed rate loans are your best bet.”

When it comes to decisions between fixed or variable interest rates, there’s no definitive best way. Seasoned analysts, brokers, and financial advisors will tell you that much. Instead, it depends on your personal preference, risk appetite, and comfort with ambiguity in the interest rate environment.

Say, the fixed rate today is 2.7-3%. If you were to take a 3-month SORA (Singapore Overnight Rate Average) package with a spread of 1.25%, you’ll be looking at 2.25% as your going interest rate. What happens if the feds decide to hold off the rate hikes and do the exact opposite? Having taken a fixed rate, you would be locked in to 2.25% and stuck with it for two years. If your interest rate package allows for conversion, this can be mitigated. But if it doesn’t, you would wish you had this conversation with your mortgage banker from the start.

Don’t take property advice at face value

Hindsight is always 20/20, but buyer’s remorse can be avoided with proper due diligence ahead of time. Again, it’s wiser to be preemptive than reactive. Journeying with an experienced realtor helps you to analyse your next move, whether it be a mortgage loan or choice of unit, from all perspectives possible. Reach out to me (Harvey Chia) at 9199 9141 for a non-obligatory chat.


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