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Entering the landed or condo segment in 2023? A summary of my advice to clients

Even with the current economic climate, market uncertainty, and slew of regulations and cooling measures, entering the private property segments can still be a smart financial move. Below are some insights I've been sharing with clients so they may make the upgrade with confidence.

The case for leasehold landed homes

With fewer listings and skyrocketing land prices, it can be tough to find a landed home that fits both your needs and your budget. But fear not - there's still hope.

Sure, the pandemic caused a crunch for contractors and interior designers, but the good news is that the worst is over now. This means that buyers have more options and negotiating power when it comes to rebuilding or alterations. Plus, the timeline for these projects has shortened, so you could be hosting guests in your new pad sooner than you think.

Got a budget of 3 to 4 million? Forget leasehold condominiums and consider leasehold landed properties instead. Everyone would have a slice of the freehold pie in the ideal world, but the ideal world does not exist. Some might turn their noses up at this smaller subset of the market, but don't be so quick to dismiss it. If space is what you're after, a 99-year leasehold landed could still serve its purpose as a home. From a per sqft perspective, there is still value in a S$2 million leasehold landed, especially since 3-bedder condominiums in new launches are just a little shy of that figure. That being said, you must time your exit well with a strategy in mind, and the market should be on an upward trajectory hen you do so. The next spike will reduce budgets significantly, and your 99-year leasehold will remain the most affordable option for buyers in the lower rung. Say, you're contending with 70 years left on the lease. My recommendation is to use it for 10 years before selling, which is what a couple I'd advised did. This timeframe lines up with the average cycle for young families, including the 18 months the buyers take to enter the position and their children's schooling years. Plus, having enough space is most important while your kids are growing. (We know how they start holing up in their rooms in teenhood) Even if you decide not to sell later on, you can always rent it out to recover your costs and even profit from it. Of course, if you have your heart set on a freehold property, be prepared to act fast. These listings go quickly - one recent listing of mine had over 10 enquiries in a single evening.

What to note when buying a condo in 2023

February came and went, and the price index finally took a dip. Does that mean it's time to rejoice and get a good deal? Not so fast. The new ABSD regulations and an impending rise in fed rates could put a damper on the party.

Developers are also facing their own set of problems. Limited land availability and stubborn en-blocs are making it hard for them to get their hands on land. No flour, no muffins. This means the first batch of future inventory will be in short supply, and developers will likely be selling them at a snail's pace.

If I'm being honest, the odds aren't in your favor these days. The per sqft price in every direction is at least S$2,000, which doesn't leave a lot of wiggle room for buyers. So, before you break the bank, ask yourself: Is it really worth shelling out $2,000 per sqft? Sure, the price might be right, but is the value there? For example, if living near your family is a top priority, that's a different story. Next, will the land in this area be more valuable in the future than in other neighborhoods? In other words, will an en bloc sale be worth more here than elsewhere?

How you structure your loans matters

Thanks to the interest rate stress test, courtesy of MAS, banks are tightening their purse strings and lending less money to buyers. Your budget for your dream home may be slashed, not because you're earning less, but because the bank is forcing all of us to be prudent. Those who are only financing 50% of your purchase with debt will less of a sting, but those seeking the maximum loan amount will feel the pinch.

Sure, there may be some relief in the second half of 2023, with bonuses and pay raises in the second quarter that could top up your cash and give you more access to loans. But let's be real, buyers hoping for the interest rates to bring down property prices may be left wanting. Inflation is natural, and property prices will naturally increase. Instead of trying to time your entrance into the market, which may leave you empty-handed in a market like Singapore's, focus on your exit strategy. And while you're at it, choose your mortgage and CPF/loan composition wisely.

If you're buying something that's still under construction, keep an eye on interest rate changes and adjust your loans accordingly. Remember, interest rates are a point in time perspective, and trends rarely last longer than two years. So, instead of worrying about interest rates, ask yourself: what can you do in the next two years to beat the situation? And if you have difficulty answering that question, and could use some help, reach out to me (Harvey Chia) for a non-obligatory chat at 9199 9141.


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