A friend of mine is puzzled why I keep telling others to beware of buying overpriced properties.
“Didn’t you make your bucks from people who bought at the last peak of the market?”
“If all buyers are so cautious, where can you find good buys next time when the market clashes?”
I was speechless.
Yes, you won’t go warning the fish about the bait when you also want some fish for dinner.
According to the ‘Property Investor Profile Survey’ conducted by Ascendant Assets, for a typical Singapore property investor,
– the average age is 46.
– 82 percent are married.
– 42 percent have $100,000 to $400,000 spare cash on hand.
Assuming a buyer bought a property at $1.5 million with 80 percent loan at $1.2 million. If the price of his property drops 30 percent and now worth $1.05 million, the mortgage bank can ask him to pay $150,000 in cash to cover his negative asset.
What happen if prices fall 40 percent? The buyer will be asked to pay $300,000 in cash.
Those with less means will be forced to sell.
What happen to those with holding power?
People bought in 1996 take 15 years to breakeven. If the average age of an investor is 46, they might have to hold onto their property till they’re 61.
Fingers crossed that they still keep their job during bad times and their family can get by, despite paying mortgage of an overpriced property.
An actress-turned-interior designer said it best,
“I don’t understand why people spend their life savings to pay for heaven’s price, when they are only buying a place on earth.”
During the bad times between 2002 and 2005, I went for hundreds of flat viewings. Each time I would ask the agent why the owner was selling the unit.
Many gave answers of cutting loss, over-commitment, loss of job, failing business, etc.
Some planned to downgrade to a HDB flat.
Although the market was bad at that time, prices of HDBs were still strong due to big demand from buyers downgrading from condos.
For these sellers, they had suffered losses from selling their condo units, yet still had to bear the high prices of HDB flats.
Frankly, it was not too bad about downgrading. The saddest part was viewing the flat of a bankrupt or a person close to bankruptcy.
I could never forget the miserable looks of the owners and their family members as I walked through the house with the agent, with the Official Assignee in the background at times.
Obviously, these owners were forced to sell their residence at any price. Yet I couldn’t buy their places.
I prefer to buy from another investor who wants to cut loss, rather than from an amateur who is forced to sell.
Because from experience, I could easily tell that it’s a bad choice — bad location, odd layout, poor facing, etc.
Property has a cycle. Catch it only when it’s low.