Singaporeans have a great affinity for property investment and purchase. Just look at the recent PropertyGuru Property Market Index Q3 2020. Despite the disruption from COVID-19 and stringent circuit breaker measures, the quarter actually closed with a slight gain, registering a 2.15% increase. The fact that a 2019 The Straits Times poll found that we spend more time doing property searches than we do reading bedtime stories to our children shows how obsessed we are with property and how much faith we have in it as an investment vehicle.
While property buying is a popular way to grow wealth, the market is full of misleading sales talk, trying to get you to buy without thinking too much ("Good deals that should not be missed!" "Many buyers interested!" "Price sure will appreciate!").
In this piece, we’ll look at some of the most common property misconceptions, how these tempting statements could end up costing you, and what the truth actually is.
1.“Just buy, all the rich people made their money through property!”
You may have heard this from people trying to convince you to buy on impulse. After all, isn’t it true that famous tycoons like Li Ka-shing made their money out of becoming landlords?
Well, if you’re thinking of splurging on an investment property because you believe it to be your road to fortune, you should first know that it’s not as straightforward as that, and there are opportunity costs and risks involved.
Say you already have a home, but you’re thinking of getting another property to “flip” or rent out. You must consider whether you can truly afford the loan payments for a second property, and also whether it is a good investment at all, based on factors like the remaining lease, potential rental yield, and etc. Not every condo is a road to riches. Even freehold condominiums, if they are old, can also depreciate in value.
But what about if you only intend to buy one HDB flat and sell it right after you complete the Minimum Occupancy Period (MOP)? Yes, it’s likely that you’ll turn a small profit, but it’s not going to make you an overnight millionaire. You’ve probably heard from your parents how they bought HDB flats for cheap in the 80s and sold them for double the price in the 90s, but that era is over.
Whether or not your property can ultimately make you money is not a "no brainer". Choosing and investing carefully and taking risks within your means are crucial to success in the property market. If you hear someone telling you to "just buy", you may want to walk away and get some fresh perspective first.
2.“Renovating your house will surely fetch a better price!”
Generally speaking, a good-looking house attracts a better price than a dilapidated one. However, renovation and interior design trends can be quite seasonal, and hence, there are certain designs that may actually make it more difficult for you to sell or possibly lower the price of your property.
Combining rooms is one example. It might look luxurious to remove walls in order to have larger areas, but whilst some buyers appreciate the space, others may be turned off by the prospect of reinstating walls to create rooms anew for their big families.
False ceilings are another potential pitfall that may make it harder rather than easier to sell your property high. People generally like larger spaces but these particular alterations actually decrease the amount of airspace in a house, which may lead to a lower price offer and added difficulty in selling a property.
And then, there are highly personalised renovations. Do you like a certain movie? A certain country? Have a particular hobby that you embodied in the design of your house? Your future buyers may not share that same enthusiasm and all they may be thinking is “How much money will I have to spend to hack this down?”
3.“All mortgages are the same lah, just choose your favourite bank.”
Whilst there’s nothing wrong in choosing your favourite bank, it may be worth it for you to do some of your own research. In fact, there are so many mortgage packages available on the market that your preferred bank probably also has several options for you to choose from. A careless choice may cost you, and mortgages involve large sums of money, so it behooves you to do your due diligence before committing!
Here are three things you minimally have to consider:
Fixed or Floating Rates?
There are two broad categories of interest rates: Fixed interest rates, and floating rates. Fixed rates hold steady for a period of time, usually between two to five years, before being open to revision. Floating rate packages have interest rates that fluctuate regularly according to the rise and fall of SIBOR and SOR rates. Fixed interest packages charge an agreed (and typically lower) interest rate initially, guaranteeing it for a period of years, before reverting to a floating rate. Your choice will depend on your risk appetite, prevailing macroeconomic conditions, and the maths of which may be financially more suitable for your situation.
The Lock-in Period
Banks typically stipulate a lock-in period–usually one to five years, depending on your package–during which you are contractually obligated to stay with them (the bank). If you refinance (i.e. switch banks), they may impose penalties on you.
Fees & Penalty
Ask about things such as pre-payment, reduction of tenure, refinancing and other such fees that you ought to know. If you vary your payment structure in any way, or if you decide to sell your house before the lock-in period is up, you’ll want to know what the arrangement is like then.
If you need guidance regarding your home loan, PropertyGuru Finance’s Home Finance Advisors are happy to help (it’s free!).
4.“Just buy only – worst case, just rent out the condo lor!”
If you hear this, be aware that it is another sweeping statement intended to lull you into a false sense of security so you will buy the property in question (and make the other party’s day). It is risky to assume that
you will be able to find a tenant,
the tenant will be easy to manage
the tenant will fork out a rent sufficient to cover your loan payments or even make you a profit on top of your instalments.
Rental is not an easy, straightforward task. Many landlords have found that it isn’t easy to find a tenant in the first place, much less a fully satisfactory and harmonious tenant.
Neither is rental fire-and-forget; as a landlord, the task of tenant management falls on you, and you need to constantly work at it to ensure the rental goes smoothly. The process of renting out your private property is also subject to official regulations which you and your tenants have to comply with. Avoid making such common mistakes when renting a home to make your life easier.
It’s not uncommon to hear landlords lament about constant repairs, late rental payments complaints by neighbours, illegal boarding, unauthorised renovations, etc. The fact is that landlords need to earn their rental income too, with careful and active management. "Just rent out your condo lor!" assumes that rent is easy money–the truth is that it is anything but.
Too Good To Be True
Having covered these myths and misconceptions, it is clear that they have one thing in common–if they are too general, sweeping and rosy, they’re probably too good to be true. It is important to read up further and be aware of both the caveats and the situations when such statements can be true.
Don’t believe such tempting hearsay without thinking it through yourself. Always plan your finances properly and never overstretch yourself. Be prepared for unforeseen circumstances and be ready for any potential pitfalls, as with every other market, there are always risks and fluctuations. Only with the right homework done will you be ready to commit to a property with the assurance that it will help you increase your wealth.
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