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Fact or Fiction: 5 things to know about property buying

There is a tendency for us to simplify the complex. We want to be able to receive appropriate information or a desired outcome with the minimum hassle. This same instinct explains why we gravitate towards getting our information from social media or why we prefer to read shorter, more succinct snippets as compared to long, novel-like text.

Many buyers and sellers draw reference from shortcuts when making their property decisions. However, this raises the question of whether taking such advice is indeed advisable. Common knowledge may not be applicable for all cases of buying and selling and smart property seekers must be able to be judge for themselves which works for them best.

We’ll be taking a look at a handful of some buying tips that property seekers have heard and read about and separate which of them are fact, and which are fiction – with the assistance of property agents*.

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Buying rule of thumb #1:
Buying and holding property is the best option in today’s slow market because the long-term capital gains will outweigh the current costs or rental yields.

Fact or Fiction

Jay Choong (JC): For a property owner to reap long term capital gains, he/she must assess how the property will perform for a minimum of at least 5 years and above. Moreover, calculation of capital gain is done based on the entry and exit price of the property, regardless of the time of purchase. Many other factors also come into play which influence rental yields and capital gains, for example market stability, interest rates and government policies. These will have more of an effect on both the buying and holding power of property seekers, and weighs more heavily on the final profit gain.

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Buying rule of thumb #2:
A good way of determining investment potential is to ascertain supply and demand of property in the area you’re looking to buy into.

Fact or Fiction

Kevin Seah (KS): Going back to the basic principles of economics, price is determined by demand and supply. A high demand and low supply drives up the price of a properties within a certain area, conversely, low demand and high supply lowers it.

Aside from current supply and demand, property seekers should also examine the future plans for an area (based on the URA development plan) as well as demographic trends — anticipation of the type of residents who might be attached to the area (eg. young couples, expats) – to determine the investment potential. Other factors are proximity to a current or future Mass Rapid Transit (MRT) station or interchange, tenure, age, condition and surrounding facilities.

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Buying rule of thumb #3:
When buying resale property, always start bid below 10 percent of valuation price.

Fact or Fiction

KS: A buyer’s initial offer on the asking price can be above or below valuation price. Typically, it is good to make an initial offer of 10 -15 percent below the asking price or valuation price, whichever is lower, and still be perceived as a serious buyer.

To be in a better negotiating position, it is important for buyers to know the demand and value of the property they are looking at by examining the recent transacted prices of units in the development or comparable properties nearby (can be obtained from Urban Redevelopment Authority website and other online sources) as well as from the bank’s indicative valuation price (can be obtained from loan bankers). Be aware of the supply in the area, the asking prices and last offers for units for sale in the development or comparable properties nearby as well. With the aforementioned knowledge and based on the individual’s objectives, buyers can set a threshold price – the maximum amount you are willing to fork out for the property.

JC: The availability of choices for resale properties verses a new launch is vastly different, hence negotiating with sellers for the former is much more based on personal intuition and market sentiments, as opposed to being fixed (as determined by developers) for the latter. To be better prepared, buyers should examine the market trend in the past 3 months so as to get a sense of what is the average resale price of similar properties in the area. Also, the recent transacted prices and volumes serves as a good guide when shopping for a good property.

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Buying rule of thumb #4:
Buying property in a good location is worth paying a higher price.

Fact or Fiction

KS: Location is typically the most important factor determining the rental yield and capital appreciation potential of a property. For example, properties located near an MRT station typically cost 10 -15 percent more. If there is no nearby MRT station, properties near bus networks will cost marginally more than those located further away.

Location based on regions will also play an important role in determining the overall price. New properties in the CCR typically are between $2000-$4500 psf, in the RCR, $1200-$1800 psf and the OCR $1000-$1400psf. On the other hand, older properties should usually cost 20-30 percent less depending on tenure, age and condition of the property.

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Buying rule of thumb #5:
When budgeting for property buying, looking at the price of similar properties around the area/district I want to buy into will provide an accurate picture of how much I should be paying for.

Fact or fiction: Depends

JC: Indicative prices can only serve as a guide because when buying a property, buyers should definitely need to consider the following factors:

  • Distance to public transport (MRT, Expressway)
  • Amenities within walking distance (Shopping Mall, Schools, Hospital, Industrial District)
  • Is the property for own stay or for rental

 

In the current market, information is easily available through the internet. Therefore, there should not be any hidden cost in property searching or purchases. This is especially so during the buying process of a property, because everything is properly spell out in the contract from stamp duties, down-payment, commission payment and amount. These are the reasons also why it is important to consult and engage a professional real estate agent in handling these process for you to have a peace of mind.

 

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Written by PropertyGuru.com.sg

*Contributions by Kevin Seah, Senior Marketing Director of Huttons Asia Pte Ltd and Jay Choong, Senior Marketing Director of ERA Realty Network Pte Ltd.


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