A property purchase is a huge decision for anyone, particularly the first purchase. A decision this big has to be made wisely, let Aaron explain how!
Summary:
To buy a property wisely, you have to consider the current supply & demand in the market. Buying high above market price during periods of low supply will put you in a tough position in the future.
Read on to understand the reasons affecting supply, demand and market price, whilst understanding what buying wisely means, according to Aaron!
Supply & Demand
Properties available for viewing and their asking prices are always dependent on supply available in the market. Demand is always there, with people that need a place, rushing to buy a property, looking to invest spare money or somehow just willing to pay a premium for a property. There will always be this group of buyers in the market. Thus, in times when supply is low, property prices surge.
Buying above Market Price
Think twice when prices are too high above the market value. But, what does "too high" mean? Too high is when you are paying over 100k more for a $1-1.2million property. 8-12% above market value is a very high price.
Listings with prices 10% above market value come sellers taking advantage of news articles proclaiming that property prices are going up to justify listing at higher prices. There are also sellers looking to sell at a premium that would list under such market conditions.
It's important for buyers to learn and buy wisely when faced with these prices because:
Would banks match unit's valuation high above market value?
Would you be able to make money making a purchase above market value?
Is it worth it to buy?
There are still buyers making purchases, finding units at market value which they are happy with. For such cases, it's great to continue buying. However, if a condo unit with last transacted price $1.3mil is asking for $1.5mil, the seller is 'trying their luck'. In such a case, if you are willing to match the asking price because of emotional reasons such as really liking the unit very much and seeing yourself having a great living lifestyle for the next 10 years there, then yes, you can pay the premium.
However, for buyers that are in the market for property investment and looking for a profit, it's not worth it. Whatever profit you can possibly make for the next few years have already been paid to the seller in the form of the price above market value.
Wait to Buy Wisely!
Consider the timing and market conditions and be willing to wait if you can. During the year end period, it's common to have low supply in the Singapore market before Chinese New Year.
Reasons for low volume include:
Sellers are unwilling to list their units and move out or do packing during the Chinese New Year period
No renovation services available during the Chinese New Year period
Families going on year-end holidays will shelve plans of selling their property
Therefore, do not go into a bidding war with buyers that are in a genuine rush and willing to pay a premium. If you can wait, the options will open up. After the Chinese New Year period, there will be significantly more properties available for viewing, for example 15 units compared to 5 units in the area you are interested in. With those numbers, you will find more units that are listing nearer to market value.
This increased supply leads to competition between sellers, allowing prices to stabilise around market value and you can get 3-4 serious sellers listing at market value out of 15 units. This provides choices for a buyer and reasonable ones too.
Conclusion
Make a wise buying decision by evaluation the market situation and analysing the pricing carefully before making your purchase!
Watch this video to hear from Aaron himself about how to buy property wisely!