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Is it a Good Time to Buy Property now?

Balancing Barn

Being in the real estate industry, I get the above questions a lot, especially in the last twelve months. It’s a valid question, with the market-wide slump in the local economy.

In this opinion piece, I’ll try to address the question.

New Launches (Developer Sales)

To be frank, developers’ prices will not drop significantly because the market is slow. A project is years in the making before the launch. Pricing and marketing strategies have been considered long before the glossy brochures are printed.

The property market has been cooling for some time now. Most developers have taken the market slump into consideration. Accordingly, most recent launches are in line with current affordability (smaller units, lower specs).

What about completed property?

If a property is already complete, there is even less chance of a huge price drop. The value of real property will not drop. In fact, it will appreciate over time. If demand is weak in a certain sector or product, it makes sense to try to ride out the slow market. In a normal economic cycle, demand will eventually pick up again.

This means that the key factor is financial holding power. But the cost of maintaining unsold properties is negligible. Developers can also use their completed property as collateral to raise funds. So being tight for cash is not necessarily a big incentive to drop prices.

If there are no sales, won’t a developer go bust?

Most developers have different projects at different stages at any time. They also have multiple streams of revenue, e.g. rental income. A developer’s financial standing takes into account all their assets and business activities. Several unprofitable projects may not be enough to bring down a developer.

The opposite is also true— a company can go bust for various reasons, even if sales seem to be OK.

If a developer is really in trouble, assets may be liquidated at rock-bottom prices. However, such deals are usually first offered to other industry players or big investors. The average-rich-Joe is not likely to have access to such deals.

So, there are no good deals?

The property market is slow-moving and relatively stable; that’s why investors love it. Prices do not fluctuate like the stock market. Don’t expect to see a “closing-down sale” short of a major, catastrophic market-wide crash.

Having said that, developers are definitely finding it harder to sell in 2016. They may not slash prices, but there will be more discounts, freebies, and extras. It’s almost certain that you’ll get more bang for your buck now compared to a year or two ago.

In any economic climate, there will always be individuals wanting to liquidate their assets. Some of them will be willing to liquidate at below-market prices, especially in a slow market. In other words, it makes more sense to focus on the sub-sales market for good deals.

If it sounds too good to be true, it probably is.

Good deals will not fall onto your lap. It’s like gold prospecting— lots of digging required. You’re going to have to do lots of research and endless negotiation. All this requires vast amounts of patience and persistence.

And if they do fall onto your lap, beware, for a good price does not mean a good buy. Properties are priced at the “market price”. This is an approximate price for a similar asset in a similar location. It’s a general figure based on past transacted prices. It’s a different metric from its underlying value, which is the real potential value of an asset.

Low-quality properties are often offered at below market rate. It does not make it a good buy, as the underlying value of such properties is also correspondingly low.

Always focus on fundamentals

When analysing a property, ignore all the noise and focus on the fundamentals. The big four are location, capitalisation rate, yield and long-term appreciation potential.

It’s OK if a property is expensive, as long as it is fairly valued or undervalued. But it is not OK if a property is cheap but overvalued.

Which brings me to my answer to the first question: Almost anytime is a good time to buy property. Given that we’re nowhere near the peak of the property market, now is as good a time as any. The real question is, are you ready to buy property?

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