Lockdowns, an economic recession, panic buying of toilet paper from NTUC… Amidst all of the uncertainties that Covid-19 has thrown at us this 2020, some of us planning to buy a house might have found it hard to get a foot in the door (Get it?).
Now that things seem to be getting better as we’re inching towards 2021, is it finally a good time to consider buying a house in Singapore, whether it’s a HDB or a private property?
We look at some of the reasons why industry experts think it’s a good time to buy, and pick them apart:
1. “It’s a good time to take advantage of low interest rates.”
If you’ve been listening out for home-buying tips, you’ll probably know that bank interest rates have dipped to an all-time low, even dropping below 1% at some points of time this year. In comparison, it was almost 2% at its peak in 2019.
And if you’re going to take up a loan of hundreds of thousands of dollars to buy a property, even the slightest difference in interest rates makes a huge difference. Huuuge! Here’s some quick maths: If you take a $500,000 loan over a period of 25 years, the difference between a 1% and 2% interest rate is $70,472.83. That’s almost a fifth of your loan amount!
Sounds like an amazing thing to take advantage of, right? Um, yes and no – and here’s the catch. If interest rates are at an all-time low, it also means one thing: The only way it can go is up. Even with fixed rate bank loans, after the fixed rate period of 3-5 years, the interest rate becomes variable and might increase, especially when the economy picks up.
There’s no doubt that it’ll be much easier to pay off your home loan in the short term due to the lower interest rates, but be sure not to over-leverage yourself, and factor in some funds as a buffer when doing your financial planning.
2. “Property prices are falling because of the recession.”
Economic downturns leave few industries unscathed, and the property sector has inevitably been affected too. In theory, this means it’s more possible to become a homeowner in Singapore since it’s easier on your finances.
Why we say “in theory”? Because if you look at property prices in Singapore, whether HDB or private property, you’ll find that prices haven’t actually been that badly affected. Because HDB flats are public housing backed by stringent government policies, prices are bound to remain relatively stable; condo prices are also actually still increasing, albeit at a slower rate than normal.
So, what now?
Let’s think a little more long-term – if it becomes more of a seller’s market in the future (that is, when demand exceeds supply), this puts existing homeowners in an advantageous position as they could potentially sell their homes for a greater profit.
As for whether it’ll become a seller’s market? Quite possibly. On the HDB front, given that it could take a long time to resolve construction delays of BTO flats because of the pandemic, it’s very possible that many potential buyers would turn to resale HDB flats instead in the near future. Similarly, for condo buyers, Singapore is projected to see a smaller supply of new condo projects after 2020, which could lead to a trickle-down effect whereby demand for resale condos increasingly exceeds supply.
3. Property is a stable investment as compared to the likes of stocks and bonds
While it’s mostly true, this doesn’t mean you should rush to invest all of your savings into property all in the name of stability. The reason is that property is an illiquid asset, which means it can’t be easily accessed or spent as compared to, say, cash in your bank account.
Especially in a pandemic-hit time like this, it’s good practice to hold some liquid assets in the form of cash or other assets that can easily be converted into cash. This way, in the case of an emergency or whenever required, you’ve got finances readily available to relieve the pressure.
Of course, if you’re financially ready to comfortably afford a house, do plenty of research and happy home-shopping!