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Recently, the Singapore government introduced several measures to buoy the Singapore property market, such as suspending Government Land Sales (GLS) from the confirmed list of state sites and lifting the ban on converting office space in the central area for other uses.

In general, these announcements are positive news for property developers and the property market; many property analysts have welcomed the measures and said that they will help the Singapore market recover. But what does it mean for the general public? Will the market start to recover? What factors does one need to consider if one wants to buy a property?

Property investing is not just about “Location, location, location”
“Location, location, location” has always been the age-old adage of property investing. Properties are known to offer protection against inflation. While most capital assets tend to lose value (in terms of purchasing power) over time, properties, in general, have been known to gain value. Furthermore, the probability of a price increase is greater for properties in good locations.

However, most home owners hope to profit from their properties when they sell it off, and using location as the sole consideration over simplifies the selection process. So, the real challenge does not just lie in buying a property to suit one’s needs, but in buying a property with the highest potential of making money in a pre-determined timeframe. To do this, a home buyer should have in mind three main considerations: Market timing, property location, and purchase price.

The effects of market timing on property capital appreciation
Market timing – when exactly you buy and sell a property, can affect the amount of profit you can make. For example, the property market has been on an upward trend for the past few years and property transactions between June 2006 and October 2008 in most districts (except for District 10, 25, 26 and 28) saw an average profit of more than $100 per sq ft. However, properties transactions between June 2007 and October 2008 saw an average profit of more than $100 per sq ft only in Districts 7, 13, 14 and 20.

The effects of location on property capital appreciation
Districts 9, 10, 11 and 15 have traditionally been known as the prime districts and property prices in these areas are relatively higher than those in other districts. Most buyers believe that buying a property in these areas translates to a higher chance of making a profit. However, if one is unable to afford the premiums placed on the price of properties in these areas, it does not necessarily mean that money cannot be made from properties in other districts. In fact, the average price increase in some non-prime districts can be more than the average price increase in the prime districts, as prices in prime districts are already inflated. When looking for a property, one should consider the opportunity cost of a large mortgage loan against the amount of profit that the property can deliver.

The effects of price on capital appreciation
A property buyer can identify a good time to enter the property market and a good location to invest in, but ultimately, he must be paying a fair price for the property. According to Warren Buffett, one of the greatest investors alive, a good way to ensure that one does not overpay for an investment is to buy the investment below its intrinsic value, i.e. to buy an investment within its “margin of safety”. This concept is primarily about buying the investment cheap so that there is a buffer to cushion any price decrease. Thus, to get the best deal, one should try to buy properties that are under valued. There are some proxy indicators that can give the buyer or seller some idea of what ‘fair value’ is, for example, the rental price a property can command, and the unit price of similar properties in the same development or area. However, as all properties are unique, these indicators will only give the buyer or seller a rough sense of what the perceived value is.

As Warren Buffett puts it, “Risk is not knowing what you are doing”. In these turbulent times, the market is extremely volatile. It is difficult to tell how long the market will continue to dip or when it will bottom out. Nonetheless, by considering the factors mentioned above and by adopting a prudent approach towards property purchases, home buyers would stand a better chance of investing correctly and buying a property that would appreciate in price when the market recovers.

Getty Goh is the author of Buy, Bye Property: Mistakes you want to avoid in property investing. He also organises workshops for aspiring property investors. For more information, please visit www.BuyByeProperty.com

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