Being a property agent for the past 13 years, I have seen all the weird and interesting behaviour from investors during the various periods when significant rulings were put in place.
I remembered seeing a high net worth investor buying 10 units simultaneously and selling the Option To Purchase (OTPs) just a few hours later with significant markup.
And people actually flocked to him to buy!
It was the Wild West and cowboy town for a while before the government stepped in to regulate all the processes.
If you think 2020 is a “new normal” because of the pandemic, agents like us had our own “new normal” way back in 2013 – when rulings such as ABSD and TDSR kicked in and kicked out whatever “typical” practices that existed.
However the market and buying behaviour have changed.
And we have to change accordingly. We cannot expect to use our past strategies and experience to invest in properties in today’s market.
Especially with the implementation of cooling measures, if you applied past strategies in today’s market – the chances is that you are likely to fail.
Let’s explore how the market supply was like back then and compare it to today’s market.
The property bull run between 2009 and 2013
In a shortage of supply situation , everybody were rushing into the market to grab a unit. It’s like the herd mentality , I see people buy , I also must buy . Those who can afford just want to get something. The fear of missing out (FOMO) was on everybody’s mind.
In that kind of highly emotional situation, I believe some people did not plan their exit strategy well.
As shown in the chart, it was a shortage of supply with a huge pent-up demand situation.
There were some who made significant returns on their property investments:
In anticipation with Jurong Lake District undergoing transformation, J Gateway Jurong East in Mid 2013 was sold within a day on an average price of $15XX psf with those smaller-sized and high floor units commanding $17XX psf.
The price level was something that we had never seen before in Jurong Lake District.
There were some owners who made decent profits when they exited 6 or 7 years later.
But here, I highlight 2 units which did not make much profits for the owners – compared to everyone else.
In the example shown above, both units were later resold at $18xx psf in 2019.
It’s a break-even, barely made profits or even a loss in my opinion if you factor in the 5% down payment cash, stamp duty and other costs when they bought the property in 2013.
The mistake here? High entry point.
Here is another example of high entry point.
Seahill is located at west coast area that was officially launched in May 2012 at approximately an average of $14XX psf.
These units were purchased back in 2012 and 2013 – this was before very punitive cooling measures were imposed.
And yet, losses still occured for these owners. So not everyone who bought during those period made “profits easily.”
Perhaps location can have more impact than entry price?
Is Location More Important than the Entry Point Price?
Let’s look at Bishan.
Sky Habitat was launched in 2012 with an average price of $16XX psf. This price was something that was never seen before in Bishan area.
Do bear in mind that you need to exit the market at least $19XX psf if you enter at $16XX psf to get a decent profit – which have yet to be seen in this development.
I’m not saying that those who bought units in the above mentioned developments in that period of time also made a loss.
There are still some who made a decent profit.
It is highly likely that you will still make money later on if you bought close to developer’s break-even price.
The Property Developer’s Mindset
When there is a pent up demand situation as what you had seen between 2009 to 2013, the developer will most likely wish to achieve bigger profit margins as it’s a sellers market.
It is the same behavior in the resale market.
If you are in the midst of selling your property and you know that there are plenty of viewings and plenty of offers received , will you want to drop your property price?
From time to time, price adjustments will be made by developers. So you will need to be aware.
Pay close attention to the Break-even Price Vs Current Price which will determine the Profit Margins of the Developer.
Post Cooling Measures: The Oversupply Situation Between 2014 to 2016
With the restricted borrowing power and the imposed Additional Buying stamp duty (ABSD) – developers had to do aggressive selling.
Many new launches were happening islandwide.
It was also a period where developers whom bought many land sites from previous years and had to launch within the next 1 to 2 years timeframe – resulting in an oversupply situation.
And because of the cooling measures taking effect – developers were only experiencing 10% to 20% units being sold on the launch day.
60 units out of 698 units in Panaroma were sold during launch day which accounted about only 10 percent of the total number of units.
Even the article said it was “lukewarm response”.
However as shown in the data below, people who bought during this period of time and exited the market 4 to 5 years later made very good profits.
In fact, there was zero unprofitable transactions for the Panorama!
Here was another development that was launched in 2015 – when the market was going through heightened cooling measures.
Located next to Bartley MRT and launched in April 2015 – it was launched at “affordable prices.”
Again there has been zero unprofitable transactions for those who bought a unit there early.
Another example – Sims Urban Oasis – which is located at Geylang.
Those who entered this period of time with the right entry price also made decent profit gains.
Again, those who bought it early on – had zero unprofitable transactions.
But the Property Supply Started To Dwindle In 2017-2018
At that point of time, property developers were replenishing their land stocks through enbloc sites and Government Land Sales (GLS).
And unsurprisingly, this was when interest started to pick up as people began to feel tired of waiting at the sidelines.
This interest was also heightened thanks to small boost when the seller stamp duty (SSD) were eased with effect on the 11th March 2017.
Buyers are now able to sell their purchased property on the 4th year mark in order to avoid paying SSD.
During the period in 2018 – when there was dwindling supply of properties, some units were sold at peak prices.
Thanks to enbloc fever and land sales bought by developer during 2017 and 2018, there are now more than 50+ new residential launches in 2019 and 2020.
Today, we are facing an oversupply situation. Buyers are now spoilt with choices.
This is similar to what past buyers went through in 2014 to 2016.
With the current pandemic, everybody expects the developers to drop prices.
There will be star buys in some launches to attract the buyers so long as the developers are able to achieve the average price.
At this point, the only one thing developers can do is this:
They will not dare to increase their prices. But at the same time, you cannot expect a 20% drop in prices from them. That’s my take
Imagine if the pandemic had not even happened.
I think we will probably reach the stage of shortage in supply probably by next year – sooner than expected.
In the meantime, the pandemic will keep the property supply significant for awhile.
When response from buyers is weak – that actually signals that developers will not be raising prices anytime soon.
But you have to be careful on which new launch you are monitoring.
The Impact on the Resale Market
There are also not many buyers and sellers in the resale market – as there are still many new launch units for sale at the current moment.
That probably explains why the resale market today is still going through a stagnant period in prices.
However, if developer units continue to sell at this going rate – we might see people turning into the resale market as an alternative investment option.
And they are already starting to consider resale options seriously.
Thus we might see the resale market moving as I forsee that there will not be much new upcoming launches in 2021.
As shown on the above examples in
- 2011 to 2013 and in
- 2017 to 2018
it becomes challenging to make make profits if you enter the market when there’s a pent up demand.
Making a loss is more likely due to the higher entry point.
In this kind of situation – developers will sense the demand and likely to increase their prices and seek to maximise their profit margins.
But those who entered the market between 2014 to 2016 and between 2019 to 2020 – when there was an oversupply situation – they made good profits.
“So Melvin, are you saying that we should enter the market in an oversupply situation to get a decent profit?”
What I’m saying here is the possibility of getting a decent profit is much higher if you enter the market when there’s abundance in supply and when there’s fear in the market.
There are other micro key factors you need to closely pay attention too:
- Any upcoming supply in the vicinity that could potentially pull away the demand which might result a drop in prices in your development in future
- Existing supply in the vicinity that are selling way cheaper that could potentially be your competition
- Lastly as mentioned earlier, entry price is also a key factor that could determine how much profit / loss that you will make in the near future
Why am I sharing you this is because at the end of the day, it is about demand and supply.
If you are able to catch either one – regardless of government intervention or economic downturn – you will be able to gain the advantage to reap the profits from your property – that is if you decide to sell it.
Therefore before you make any move – before you sell your property, before you even start planning to buy a property – please do a thorough research based on your own property.
I like to reiterate these are just my observations over the years as I witness the various trends and buying behaviour of people.
Will your investment unit behave in the same manner and achieve similar high returns?
I don’t know.
In any investment – there will always be risks.
Risk means there will always be outcomes outside your control.
But what I can do is to minimize those risks and increase the odds of success.
How? Based on my 13 years of experience and understanding of the common factors of success in property investment.
My goal is to educate readers that not all new residential launches that you invest will give you the returns that you hope to achieve – which is ultimately a decent capital appreciation.
As clearly shown in the above examples, you can still make a loss or very reduced profits – if you enter at the wrong price.
If you have any questions or issues you are confused about regarding your property – you are welcome to drop me a message.
Who knows… Those few minutes of texting can help you save some money and prevent you from making bigger financial mistakes?
Get some clarity on what are the options open for you through a no-obligation discussion.