Saturday, November 3, 2012

Property discussions

Recently, two colleagues I know made bought or sold properties, all of them private property. Colleague A just gave birth and so a bigger house was in order. However, she was not going to buy another property but rent from someone for the next 12-24 months. Colleague B bought a private apartment because she was in no way eligible for HDB housing. I on the other hand, am in the process of putting money down for a HDB flat that will only be delivered in 2016. It is affordable - around SGD 550 k for 90 + 3 square metre or SGD 569 per square feet. It is affordable because my colleagues are dealing with millions of dollars.

It is apparent that there will be a difference in opinion between the three of us and it is apparent from the conversations that I had. Let us analysis each of our positions.

Colleague A: Market has reached a peak. Sell now to realise the gains, and rent a place in the medium term and hope to pickup a cheaper unit when the market cools down when the supply comes online.

Analysis: I think that this is a good move, provided she rents a much cheaper place in the medium term. Otherwise, any capital appreciation might be wiped out from renting from a hot market. I did tell her that she should just rent a five-room HDB but she said that she is used to living in a condominium.

Colleague B: Just bought a unit and hence Colleague B's actions disconfirms her own belief that the market will keep going up. Her theory is that the government will not allow the market to crash

Analysis: She is suffering from buyer's remorse. She is partially right in believing that the government will not allow the property market to crash. This is backed up by the fact we are heading towards 6 million people in Singapore by some time frame.

Myself: 2016 is a long time. If I wait any longer, I will have to buy a resale flat or worse, an expensive private home. My theory is that the market will crash in 2015-2016 but I cannot wait till be proven right.

Analysis: I agree with Colleague B but I am okay even if the market crashes because I still have the option of staying in the HDB in 2016 onward and wait for the next cycle. Moreover, the effects of the loan will not come in till much later. More importantly, which part of the market crashes matters a lot. while I do not think that the government will engineer a crash in Public Housing, it may try to cool the Private Housing sector because it drives prices in the resale market. 

What do you think?

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