No matter what your new year resolutions are, it’s time you said goodbye to your bad habits in property investment. If you are buying a private home in 2015, avoid making these three common mistakes.
Mistake #1: Rush in and get burnt.
According to URA, there are 88,627 uncompleted private residential units, including Executive Condominium (ECs) in the pipeline. As at 3rd Quarter 2014, 28,120 units (excluding ECs) are launched but remain unsold. For public flats, Housing Development Board (HDB) will launch another 16,900 Built-to-Order (BTO) flats this year.
Do the math. Ninety percent of resident households already own their homes. Population growth in Singapore is a record-low 1.3 percent in 2014. For the past five years, the annual increment in the number of resident households ranges from 3,000 to 22,500. Assuming there are two persons in each new household, every year only 1,500 to 11,250 new homes are needed.
Among the 81.9 percent HDB dwellers who have plans to upgrade to condominiums, the sale of their home is deterred by depressing HDB resale prices. Furthermore, buyers of HDB flats and ECs have to pass the 30 percent Mortgage Servicing Ratio (MSR), just like many owners with multiple properties have their hands tied by Total Debt Servicing Ratio (TDSR).
Foreign buyers have to bite the bullet for higher Additional Buyer’s Stamp Duty (ABSD) and lower loan-to-value (LTV). In 2014, growth of foreigners has slowed down to 2.9 percent. Foreign employment growth also dropped to 3 percent.
Even if you build, they won’t come.
Leave developers solve their problem. But don’t let their problem become yours. You don’t want to be left holding a hot potato.
The property market slowdown is just starting. Patience is key if you are looking for a real bargain. Sit back and wait for the demand to dry up.
Mistake #2: Be caught unprepared.
We’ve heard the Fed talking about raising interest rates too many times. Just when everyone grows tired of the cry wolf game, the untamable animal is getting ready to attack in 2015. It stalks the prey silently in the dark. And when it finally attacks, it bites agilely and furiously, pouncing on it repeatedly in a short period of time.
Take an example from one of my rental properties. In mid-2005, I was still paying an interest rate of 1.3 percent. After three to four rounds of interest rate revisions, with the step-up rate of a variable-rate loan, the rate had already been raised to 4 percent by end of 2006.
If you are contemplating buying a private home, rather than using the arbitrary 3.5 percent interest rate from TDSR, you are not being too conservative to use 4 percent for your calculations.
For those who have an existing home loan, call the banks now to ask for their latest housing loan packages. Don’t wait till your bank send you the letter on interest rate revision.
Paying higher interest takes effect the following month, but repricing and refinancing will take time to process. Even after approval, it needs another three months to be effective. You have no choice but to pay higher interest before the adjustment takes place.
(For more about refinancing and repricing, read my blog post “Getting the most out of housing loans”)
Mistake #3: Expect to get rich quick with properties.
If someone tells you that you can buy properties with little money or using other people’s cash, don’t be too carried away.
They promise to share with you where the money is. But these ‘profitable investment opportunities’ and ‘undervalued assets’ are most likely unsold units of overseas property projects being marked-up and marketed to you.
I have received countless proposals from overseas developers who want to market these projects to our Property Club Singapore members. Some even put forward the commission they will offer right in their first message.
You can close one eye, buy any property and still make a handsome profit in a growing market. But prices in many foreign property markets are currently at their all-time highs. There are also countries with structural economic problems but no turnaround in sight.
Frankly, I haven’t seen real property investors who won’t keep mum about which projects they are buying. Instead of buying jointly with complete strangers without any background check, they only invest with people they know very well for obvious reasons.
Besides, what make you think that you can too become a property millionaire, but minus the hassles of the punishing discipline to save, and the enormous efforts to do all the legwork?
The problem of these get-rich-quick property seminars is that they tend to over-simplify the strategies. There is no short-cut and no magic pill in property investment. And you really don’t have to pay so much for a course and go around in circles to learn that.
Lastly, don’t be distracted by all the noises around you. Make sure that all the fundamentals are sound before you make any decision.
P.S. I am afraid that the upcoming Buying My First Private Property 1-Day Workshop on January 24 won’t sell you any get-rich-quick strategy or undervalued overseas property. The workshop will only tell you all the tips and traps of buying private property the first time so that you know how to make the right decisions.
This article was first published at propertysoul.com