Navigating the Unpredictability of Cooling Measures (Part 1)

According to numbers released this week by SRX Property, HDB resale prices in November have decreased 9.8% since their peak in April 2013.

This decline of 9.8% is double the 5% target set by National Development Minister Khaw Boon Wan.

In May 2013, one month before announcing TDSR, Mr. Wan, speaking in Mandarin, told participants at an Our Singapore Conversation dialogue on housing, "If housing prices keep rising, it won't be good. If we can maintain them or even lower them by a few percent, for example 5%, that's good. When I came into MND...that was my target."

Does this mean the government will end the Cooling Measures?

Until the government signals its intentions with new targets and timelines, we can’t know.

As a result, in some sense, we are navigating the Singapore property market with incomplete information and that can lead to uncertainty.

But here is the paradox about real estate: there is always uncertainty. That’s the nature of the beast.

Whether there are Cooling Measures or not, there are always unpredictable variables that introduce risk for buyers and sellers and make it impossible to time the market.

For example, uncertainty about movements in interest rates makes the real estate market unpredictable. What will happen if interest rates go up? Will this weaken demand or will it take many interest rate hikes before it curves demand?

Macroeconomic issues, like GDP, a financial crisis, and inflation, make it difficult for you to forecast the future value of your home with a high degree of confidence.

Therefore, my advice is to look at the Cooling Measures as just another set of variables and navigate around them.

Here’s how.

First, identify the current rules of the game so that you know how to play.

If you are an HDB buyer, today’s rules are in your favor.

HDB homes are more affordable thanks to the Cooling Measures and an increase in supply.

A larger percentage of Built-to-Orders this year has caused more resale flats to go on the market. Higher supply has meant downward pressure on pricing.

Furthermore, very low interest rates means it’s historically inexpensive for you to finance your home.

Second, take advantage of the rules of the game to buy the right home at the right price. The Cooling Measures and increase in HDB supply are dampening sellers’ expectations. The Go-Go Years of sky high COVs and seller expectations no longer dictate the rules of the game.

Instead, as reported by SRX Property, the median Transaction-Over-X Value (T-O-X) for November was NEGATIVE $3,000. That means buyers have negotiating power and are buying below the computer-generated market value.

Third, take a measured view about the future value of your home.

We don’t know when Cooling Measures will come off, but they will come off. It’s not in the interest of anyone for home values to fall off the cliff. New homebuyers want to preserve the value of their purchases and baby-boomers must be able to unlock the value of their homes for retirement.

Therefore, the rules of today’s market are quite clear for buyers. Take advantage of the Cooling Measures to negotiate a discount, recognizing that, in the long run, it’s in everyone’s interest for your home to appreciate and give you a good return.

Next week, I will explain how sellers can navigate the unpredictably of the Cooling Measures.

Source: St Property 9th December 2014

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Navigating the Unpredictability of Cooling Measures (Part 1)

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