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Singapore Luxury Condo for Sale | James Lim

Is it a good idea to buy a private property during Covid-19?

If you have been paying close attention to the private property market during COVID-19 in Singapore, it would not be hard to notice how private properties have slipped in prices more so than other types of residential properties due to the current recession.

While some market watchers have been predicting that private property prices will continue the declining trend by another 3-5 percent, others are speculating that Singapore may undergo a similar property boom like the recession in 2008. In order to better answer the big question of whether it is a good idea to buy a private property during Covid-19, we have to consider the following questions first:

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1. How do SIBOR rates affect home loans?

Singapore interbank offered rate (SIBOR) refers to the daily reference rate benchmarked against the interest rates where banks lend unsecured funds to one another in the local wholesale money market. As released by the Association of Banks in Singapore (ABS Co.) in October, the current 1 month SIBOR is at 0.25 while the 3 month SIBOR hovers at 0.405. There has also been a declining trend since the start of COVID-19 pandemic. What does this imply for homebuyers then?

The lower SIBOR suggests that you as a potential property buyer can pay less interest over time and can put more of your money into financing the principal sum rather than the interest in taking up a loan package this year. Thus, you get a better mortgage interest rate currently as a result of the lower SIBOR and your home loan can be more manageable.

2. So, is it a good time to move into the private property market now with the attractive mortgage interest rates?

With new launch private properties sales skyrocketed by 57 percent in February, resale condo units were also up by 17 percent during the same period. How will this trend continue for the rest of the pandemic year?

On one hand, some market experts highlighted that transaction prices for resales may continue to trend downwards as home owners may not have similar holding power as private property developers. Due to the fewer incoming foreign home buyers, rental income could be affected as well. These property owners may eventually decide to sell their private homes at promotional prices. As a result, Singapore home buyers benefit from more options at cheaper prices as they have higher negotiation power during the covid-19 recession.

On the other hand, market watchers feel that the local market may not experience any property boom this year due to the overall weak sentiments. As homeowners are also aware of the lower resale prices currently, they may choose not to put their properties for sale at all unless they really need the money. Additionally, borrowers have also applied to banks to defer payment for their home loans as well. In view of these factors, it could be a wiser move to wait till 2021 or until the world pandemic situation stabilizes before purchasing a private property.

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3. Are you buying your first private property during Covid-19? What factors do you need to keep in mind?

If you have done your math and still wish to go ahead with buying a private property as a first timer, there are a couple of things you can take note as well.

Do you know that first timers do not need to pay any additional buyer’s stamp duty (ABSD) and stand to qualify for housing grants for executive condos (ECs)? If your gross monthly income is below $12k, you can apply for a grant ranging from $10k-$30k. Moreover, new launch ECs are reserved for Singaporeans only—it would be a good idea to buy an EC if you can afford it comfortably. What’s more, after the minimum occupation period (MOP) of 5 years, you can sell your apartment to both PRs and Singaporeans. There is actually minimal difference between a private condo and an EC after 10 years since you will be able to sell to foreigners as well in the open market.

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4. Are you picking up private properties for investment as you already own a condominium?

The nature of investing is that it does not guarantee profits. This logic applies when you are considering purchasing a private home. It is important to calculate the returns realistically after factoring in expenses such as brokerage and maintenance fees, property tax, ABSD, mortgage financing and other miscellaneous fees. If you have done your sums and projected that you will receive better returns as compared to putting your money in stocks or REITs, then buying a private property makes for a sound investment. 

It is important to keep in mind that property investment may become a liability rather than an asset if you run into problems with cash flow later on. This may arise due to a lack of tenants for rental income or the property not appreciating in value over time.

Conclusion

Nobody can read the private property market accurately all the time, especially so during a recession with COVID-19 like now. There are pros and cons to buying a private property during Covid-19 that are worth weighing before dipping your toes in the private property market in Singapore. As Singapore’s economy is seriously impacted by the worldwide pandemic, it would be a good idea to do a stress test on your own finances (e.g. sufficient emergency cash flow in the event of a retrenchment or pay cut) before rushing to buy a private property in the moment of haste. Get a head start and speak to our consultants, your one-stop source of information!
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