Updated: Sep 5, 2020
Hello again and I hope you have been coping well the past week at home!
For those of you on the front lines or in the essential services sector, thank you for keeping our economy functioning so that we can still get our food and groceries to comfort ourselves!
In the past weeks, a few of my blog readers have reached out to me with this question after reading Time Tested Strategies To Profit From Real Estate In A Crisis.
It was a pleasure meeting some of you on Zoom calls to discuss your plans and options for upgrading and investments, and i hope our sessions provided you with clarity on strategy, maximum financing options and ABSD tax savings methods.
If you are one of those who's waiting out for a good buy in today's market, congratulations. You're one of those with dry powder and will be able to make full use of this once in a decade opportunity to get a better than market deal.
With so much going on in the news today, I hope to provide you some clarity about how to go about next as it can get overwhelming to follow all the corona virus related news in the media.
When Is The Right Time To Enter The Property Market?
Let me preface with some macro trends for context.
As of 21st April 2020, several major stimulus have taken place globally to combat COVID-19.
1. US is pumping trillions to stimulate their economy
2. China has billions poured into spurring consumer spending
3. UK has unveiled a 'war-time' $400B Euro bailout programme for its economy
4. Almost all major countries have lowered their interest rates to all time lows to facilitate and spur lending
5. Japan and Europe has further committed hundreds of billions to purchase bonds and help firms stay solvent
Investopedia Reference: Government Stimulus Efforts to Fight the COVID-19 Crisis
Perhaps, in no time in history, has the world been so united as one in pursuing a common cause.
At the heart of the matter are consumer sentiments and money velocity - that people are not confident in the near term and not spending as much as before, which on the flip side, also means people aren't earning as much.
When the music stops, confidence drops and that must not be allowed to happen as businesses that fold and jobs lost as a result might never be recovered in the future.
In Singapore, our government has pumped in an unprecedented amount of money to keep big firms and SMEs alive, workers retained and consumer spending going.
We can infer from government actions that all guns are blazing to keep as many as possible afloat through this crisis.
Will the governments of the world then succeed in averting another "Great Depression"?
It has to and it will as people accept that this has to be done, even if at the expense of incurring huge national debts for the future generation.
Furthermore, the policy tools (Read: Printing of fiat currency) available today weren't available during the Great Depression years.
The question of when; not if
For confidence to return and a recovery to take place, 3 fundamental factors must occur:
1. The virus must peak and witness a steady decline
2. The vaccine needs to be found
3. The cure needs to be developed
With this said, meantime will a correction take place?
My research (and gut) tells me yes.
Some might call it a case of confirmation bias but trust me, I am in the real estate market, and the last I would want to do, is to call the market bearish.
Already, we are seeing sectors badly hit, and despite the government's best efforts to defer home loans, absolve contractual obligations and provide low cost liquidity, gaps will exist and people and businesses will fall through them.
The current double whammy of an oil market shock, due to lower demand, causes yet another set of problems with jobs, spending and incomes being hit. A classic catch-22 situation.
However, does that mean that we shouldn't place our money back into good assets?
Of course not.
It is precisely in times of crisis that opportunity arises.
And I don't mean the above in a cliché manner; although it is a cliché phrase by now.
The recovery in sentiments, spending and subsequently asset prices is a matter of when not if.
News is always reported on hindsight and people react to them as herds do to the call of a shepherd.
If and when the major media outlets start declaring a steady decline of new cases, or the development of vaccines and cures, the recovery phase would have been set in motion.
By that time, would good deals still exist?
Perhaps, but you can bet that the crowds will return fast and furiously in part due to pent-up demand, as it did in China and sellers would be much less negotiable than they are today. (China’s housing market springs back to life)
Cut to the chase.
When Is It The Right Time To Enter The Property Market Then?
The answer lies in a concept known as:
Margin of Safety - Finding properties with prices that are below its intrinsic values.
Similar to stocks, there is no way for anyone to time the bottom and I urge you to refrain from trying to.
For many whom have tried to time the market in the past, they have missed cycle after cycle and the pain of missing out, exacerbated by their increased age and lower loan quantum and tenure.
At times, I attribute this to the human tendency of favoring passivity; which is easier by waiting (and hoping) for the right conditions, instead of actively creating the right conditions.
What we should focus on instead is actively finding good deals.
Especially in conditions today where more pockets of people have to liquidate their investments to stay afloat and certain developers are pricing their projects with good risk premiums factored in.
Margin of Safety is determined by your personal risk tolerance and views of how the market pans out
Some are willing to enter with a margin of safety of 5% below the valuation while for others, anything below 10% isn't sufficient risk premium.
The way I like to assess it personally is via the rental yield method based on current rents.
As investing carries higher risks today, i expect a minimum of 4% gross rental yields for a residential property in the core central region, 4.5% for those in the rest of central region and 5% for those in the outside central region.
Yes, it is arguable that rents may drop further if the crisis prolongs, but the risk is something I can stomach and am willing to weather through.
So, instead of waiting for the right time, I am actively searching and speaking to agents to locate deals that fit my conditions.
And what if the market falls further or rents correct?
It is okay as I have already priced in fluctuations in the rent, ensure that I have sufficient holding power (so as not to realise any losses in case of further corrections), and am confident of holding out for an eventual recovery which, fingers-crossed, happens within 15-18 months time.
The irony of finding the right time to enter, really isn't about timing. Rather, it is about actively creating the conditions to find the right investment property.
Instead of attempting the impossible aka timing the market, focus on finding properties with intrinsic value at a discount and anytime can be the right time to invest.
Hope that you found this article useful for changing your perspective and helps you take better control of your investment journey.
If it did, comment below and share it with someone who will benefit from these insights!
Otherwise, this is a related article which I recommend reading up on.
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Stuart Chng, Senior Associate Executive Director of OrangeTee & Tie, is a renowned leader and personality in the real estate industry.
He adores music and can play a few instruments decently without upsetting his neighbours. When not doing so, he enjoys pillow fighting with his son and coming up with silly puns which barely amuses his wife.
Professionally, he is a licensed real estate agent, investor, team leader, speaker and columnist for several property newsletters and blogs and is often quoted in media interviews on 938FM, Channel 8, PropertyReport, PropertyGuru and other publications. Throughout his career, he has helped many clients grow their wealth through selecting great property investments and managing their portfolios actively. Read his clients' reviews here.