With the many significant events in the world going on, what are some of the financial considerations we need to be mindful of? With the many problems seemingly coming together, what could we do to manage the situation on the property front?
Property investment is still considered safe
Compared to other more volatile financial instruments and investment vehicles, property investment is considered safe in Singapore. Buyers, or rather Investors, that have bought a 'correct' property unit would be likely to get sufficient rental to cover their monthly installments for mortgage loans.
By locking in the rental prices, this would cover them for 2 years with the lease. One can say it's difficult to find units where rental is able to cover installments but we have seen examples where it's entirely possible for rental to cover monthly installment even at a 75% loan. At current rates, rental should be able to cover 70-80% of monthly installments.
Recession proof plan
The main method for a recession proof property investment plan lies in the details of financing, as having cash and cashflow is most important due recessionary periods.
Instead of exhausting the CPF OA account, taking loans might be a better idea as this keeps money growing at the 2.5% interest rate in the OA account.
If and when the recession hits, and times get harder, one can then switch over to the OA account, which we anticipate can help cover the average person for 2-3 years of monthly installments. Hence, do consider the potential worst-case possibilities for your personal finances in times for financial hardship and make a more measured decision now.
Interest rate
As we discuss loans, mortgage interest rate would be a topic of interest. The overall sense and thought is that interest rates are rising. This is true as we are looking at rates of 1+%. However, we have to recognise that low interest rates have been a feature of the recent years and not the norm. Previously, rates were expected at around 2+% and this change is likely to be a return to the norms.
If you feel you are paying a high interest rate, constantly check with your bank to do repricing. However, note that it does not make sense to do refinancing due to the referral fees, legal fees overall involved.
Possible future projections
It's hard to predict the future exactly, but there are signs today that are clues to what might happen tomorrow.
Price movements would be hinted first by transaction volumes, if transaction volumes year on year fall, prices are likely to follow. Next, buying power of buyers will likely fall due to many financial factors around the world and in the global economy. With the completion of many property units and collection of keys, there will be changes to the demand and supply situation in the market.
Summary
Ability to hold is important for the next 5-8 years, and it's unlikely to earn money by flipping within the next 3-4 years no matter what many agents might say. For purchases in 2021, 2022, it will be hard to earn money within the next 3-4 years. Also, there is the seller stamp duty for 3 years for recent buyers which decreases supply in the market. Prices are at an all-time high, so a drop in supply might not necessarily mean prices would continue to go up.
Overall it is most important to think through the financial details when making the decision of investing. Think about your immediate financial needs and cover those before looking to invest!
Watch the below video as Aaron shares his sincere advice with the dark clouds looming for the global economy.