Are you suitable for property investment?
Do you consider a property purchase for purely financial and investment reasons, i.e to earn money? Or would you need to consider things like liveability, amenities, location and perhaps how you feel about the area and more? All these individual factors contribute to evaluating if you are someone that is suitable for doing property investment. Today we discuss more of what Aaron breaks down in his video below!
There are constant enquiries from property buyers with the market showing all time high prices. There is still belief that the market will turn despite the all time high prices, all we need is patience. Also, the context of rising prices is important, we have to understand the transaction price index. Figures shown on the URA website are based on exercise dates, which means transactions updated could be from some time ago and there is a lag in the data.
The dynamic market
There is often panic from seeing prices rise, with people questioning themselves if they should enter the market to not 'lose out'. However, it's important to recognise that we are in an ever-changing and ever-moving property market, the supply of units selling constantly change. Unlike other financial assets, properties are not always available for purchase at market price, for the obvious reason that each property unit you are purchasing is unique.
Devil in the details
By understanding that each unit purchased is unique, it's implied that being in the market requires the skill and ability of negotiation. Negotiation is a skill, and comes with the need to understand the property market with its intricacies. To explain the intricacies, we consider some common scenarios we encounter.
There are certain people with mindsets that should not buy condo. Buyers need to recognise that wanting a condo that is Big + Cheap means it is = Old. Subsequently, big, cheap and old means such a purchase does not earn money. If you want to buy a big, cheap condo and yet earn money, it's next to impossible. So people who think it's possible, are not suitable for planning such purchases, as something always has to give.
Factors leading to value
A client of Aaron ever said that two factors that determine the pricing of a unit are land price (50%), structure (50%). Whether it is really 50-50 or otherwise, it's more or less true and important to understand that the 2 factors that make up value are land price and then structure value (based on the building conditions). Thus, valuating units becomes an important art to perfect.
Between co-buyers of a property, often husband and wife in the Singaporean context, it often becomes a tug of war between the 'Earning money' side vs 'non-financial characteristics of a property' side. For the latter, purchasing an unit is often based on emotional requirements, where the priority is not money. Whereas, on the other camp, the priority is to earn money.
If both sides do not come to a consensus, they will not make any purchase, choosing instead to live with family, or rent properties instead. Consensus comes only when either side chooses to adjust their mindsets, often when it becomes too hard to live with parents or continue to pay rental. By understanding the potential conflicts, you can help yourself evaluate if you are suitable and ready for investing in property.
Fear of missing out - Selling.
Many people are selling now without knowing the market situation or knowing what the next step is - this is a bad idea even if 'selling' is not, in and of itself. After selling, these people want to buy a property that does not exist in the market and are subsequently totally lost about what to do next. The initial agent which tells people to sell sell sell has disappeared after the closure of a deal. The result?
Panic without a plan - resulting in having to rent or stay with family.
The key question next that arises then is 'Should I buy or not'. We hear buyers that say they 'need to buy, yet do not have an immediate need to buy.' They are able to buy in the next 2 or 3 years, and can adopt a wait-and-see approach. In this case, such buyers will always have the mindset that prices will fall and it's always a high market whenever they are looking.
If you are such a person with a belief that the market will fall, do not waste time on entering the market today.
Aaron himself shares his decision to buy today stems from him having found a good price for a good unit that's suitable. He is ready to buy now, ready to enter the market for the right unit. Instead of constantly looking for units for endless viewing, you can engage the expertise of an agent to evaluate the details of each potential property after doing the work of researching certain possible listings.
Having a set of requirements that determines that a property unit is correct, and if the unit meets the requirements, you would then be ready to enter the market. Without consensus, understanding and this set of requirements, you are not ready to buy.
Overall, financial considerations are important. People need to understand property as an investment properly, compared to other financial investments. It's a unique item. It is pretty much impossible to satisfy all conditions you might want and require beyond financial investing considerations, so often sometimes has to give if you want to be successful investing.
There is more financial safety in HDB & landed freehold compared to condo purchases. If you are purchasing a condo to live in due to factors like locations and amenities, it would not be a good idea to consider it an investment as it's not true that all condo purchases earn money, so think it through and get proper advice.
If you are not ready, then the best advice is don't. Just don't think of investing in property.
This video is for those who are feeling lost in this market, listen to Aaron discuss what makes you ready to invest in the private property market?