June 21, 2009
7 things to keep in mind before buying that home
With a recovery seemingly in sight, experts offer investment advice
By Joyce Teo
The current rush to buy new private homes leaves businessman Alan Lim feeling cold.
That is because he recently lost $220,000 on the sale of his condo unit at The Inspira, off Mohamed Sultan Road, and is in no mood to shop for another.
He bought the unit for more than $1.4 million in 2006 as an investment and sold it in April for about $1.2 million. He wanted to sell it before the condo was completed.
Unlike Mr Lim, many other home hunters have put down money on new properties.
Sales of new private homes reached a recession-defying level of 1,668 units last month - the highest level since the property boom of August 2007.
Top sellers last month included Martin Place Residences in Kim Yam Road and The Wharf Residence in Tong Watt Road.
Buyers were drawn to the significant price cuts - up to 25 per cent lower than last year - at these projects.
Market watchers said the improved sentiment, which is in line with the recent stock market rally, has triggered a herd instinct.
But they warned that there are things to keep in mind when investing in a new apartment or house.
1 Do not rush
This is a perennial piece of advice given by industry observers and experts. In following the herd, some may end up buying a property that is 'not so good' for them, said one property expert.
Determine how much money you can spare and buy only what you can afford, they said.
If you are looking for property as an investment, you should do your research first. Units in prime areas and near MRT stations tend to be easier to rent out.
PropNex chief executive Mohamed Ismail feels it pays to think long term, given that the economic outlook is still unclear.
'If you can afford to buy a property now for investment, look at it only from a mid- to long-term perspective,' he said.
That means a time frame of five years and beyond. There is a higher probability that home prices will rise by then, he said.
But the HDB resale market has been more resilient, amid tight supply, with prices inching lower by just 0.8 per cent in the first quarter - the first fall since the third quarter of 2006.
2 To buy or not to buy?
Many people who entered the market recently were afraid of missing the boat, having seen how fast prices climbed in 2007.
They want to get a good bargain as they believe the market has bottomed. Their reasoning: There is little to lose buying at the bottom.
Still, if you ask Mr Leong Sze Hian, president of the Society of Financial Service Professionals, he feels it is better to wait till there are more concrete signs of a property market recovery.
The chances of reselling for a profit will be better then.
'In my view, when the market is declining in price, like now, don't buy, wait for the URA quarterly index to rebound,' he said.
The Urban Redevelopment Authority (URA) price index shows that private home prices plunged by a record 14.1 per cent in the first quarter, following a 6.1 per cent slide in the fourth quarter of last year.
Analysts expect to see a fall that is less steep in the second quarter. URA will release new data next month.
'Why take a risk and buy now? You don't have to try to catch the market at the bottom, but rather catch it on the upside - lower risk,' said Mr Leong.
Historically in a recession, the property market has never gone up, he added.
3 Check with your bank on financing
If you do decide to buy, get in-principle approval or a credit assessment from your bank to make sure it can finance your purchase.
This is particularly so if you intend to buy a resale home, now that more individual sellers have taken to raising prices.
Banks may be less conservative in lending these days but you may find that they are still not able to match the asking prices of the properties, experts said.
If this is the case, buyers will have to fork out more cash. Or they can wait, provided no one else is keen on that particular property.
4 Set aside spare cash...
Do not put all your cash into your property purchase.
Always make sure you have some left over to cover renovation and repair costs.
Determine how extensively you want to renovate the property.
HSR Property Group executive director Eric Cheng suggests setting aside 5 per cent to 7 per cent of the property purchase price for renovation.
Investors should also set aside some cash for unexpected repairs in the future.
5 ...and more spare cash
Do not rely completely on rental income to help pay the mortgage, experts said.
You may be able to buy a tenanted property, but when the tenancy ends in the next year or two, you may not be able to get the same rent.
Private home rents plunged 8.5 per cent in the first quarter, following a 5.3 per cent fall in the last three months of last year.
Many analysts expect rents to continue falling, though some believe they are stabilising.
Also, remember there may be periods of zero rental when there are no takers, said Mr Ismail.
He advises buyers to keep enough cash to pay for at least six months of mortgage payments.
6 Watch out for top-up calls
No investors would say 'no' to an opportunity to buy at the bottom. The problem is, no one knows where the bottom is.
Banks may do a fresh valuation right before the property obtains the temporary occupation permit, before they disimburse the loan, said Mr Cheng.
If your price today is not supported by the banks one or two years down the road, there is a possibility that you may be asked to cough up the difference in cold hard cash, he said.
7 Don't overcommit
Although Singapore remains in a recession, improved sentiment and high sales of new homes have drawn some speculators back into the market.
Developers are launching more properties. They typically hold preview sales for guests, who may also be offered discounts of around 5 per cent.
Developers may also raise their prices slightly at the proper launch.
That is when some flippers will offer to sell their units at a level a tad below the launch price, experts said.
It may seem like a bargain, but is it?
Do not be tempted to commit immediately, said Mr Cheng.
Always consider the purchase seriously - because the same risks remain.