There are four commonly-asked questions often raised by followers of my blog at PropertySoul.com and readers of my book No B.S. Guide to Property Investment. So I decided to give some quick answers here for easy reference.
Q: Is it a good time to buy properties now?
A: It depends.
If you are a savvy property investor with many years of experience, if you have the financial means and you know what you are looking for, by all means go ahead.
But most of us are just ordinary property buyers who are most likely able to afford only one or two private properties, who have no idea about what real good deals are and where to find them, who are at the mercy of restrictions of Total Debt Servicing Ratio (TDSR), burden of additional buyer and seller stamp duties, hike of SIBOR rates, fear of market oversupply, softening of rental market, etc.
I mean no offense but property agents have to tell you “any time is a good time to buy” because they need to make a living any time of the year. Developers will say “buy now before prices go up soon” because they need to clear their unsold units before the penalties of 96 percent (8% + 16% + 24% + 24% + 24%) of land value over 5 years kick in.
The answer is: Take a good look at yourself. Know your limits and calculate the risks before taking the plunge.
Q: How do you know when housing is overpriced?
A: When prices have climbed to a point that they are out of reach for the end users, that housing becomes unaffordable for people who are buying for their own stay, that residential units are purchased only by investors and speculators looking for a quick profit, you know that housing is overpriced in that country.
Afterall, housing is a commodity and its prices are affected by supply and demand. Housing is not like collectibles that only the privileged can afford. When there is no real demand to support the supply or the price level, prices will go south.
It is especially dangerous when residential projects built for the mass market are being acquired only by investors – once these investors lose interest in the projects or lose confidence in the market, the prices will collapse.
Q. Should I buy that overseas property?
A: Many buyers are feeling the pain of the TDSR and other buying restrictions from the government’s cooling measures. They now understand that the government’s efforts in slowing the property market are not going to go away soon.
With the aggressive marketing of overseas projects, some buyers decided to go abroad to try their hands on lower quantum foreign properties.
Many don’t realize that they are actually stepping into an unknown world. Yes, they may be free of property buying restrictions in Singapore. But simultaneously, they are also exposing themselves to markets unprotected by the Singapore laws and the stability of the Singapore economy.
Now foreign property buyers start to understand that the biggest risks of buying overseas properties are the political and currency risks.
I think I have done my part to warn my readers in my 2014 blog posts “Three biggest risks buying overseas properties” and “Tough times ahead for Iskandar and Malaysia properties”.
Now it’s not the time to add salt to the wound. But let me say this again: Buy that overseas property only when you know the market or the project better than the guy selling it to you, and when the return is much higher than what you can find at home.
Q: How do tell whether it is the next hotspot or the future ghost town?
A: It doesn’t matter what the marketers say. Just remember this: The proliferation of construction projects or residential development itself cannot do miracles to transform a remote place into the next modern town. Everything must start with economic activities.
It can be a government decision or the locals’ initiative to promote an industry there. When activities start to gain traction, the creation of job opportunities will naturally attract people to move there. The growth in population creates the demand for housing and amenities. That in turn makes the place a hot market for residential and commercial projects.
If people try to work everything the other way round, the outcome is likely to be a new ghost town.
As what I said in my blog post “When property hotspots become ghost towns”, ask yourself the following questions before you buy into that “property hotspot”:
1. What are the industries there and how can they support the growth of the local economy?
2. How is the salary growth of the existing population compared with the hike in property prices?
3. Where is the new population coming from and how fast can it grow?
Answers to these three questions should immediately give you a hint to whether this place is going to be the next hotspot or just another ghost town.