Development in 2021 will be as volatile as the year before. Covid-19 is still not a matter of course, there is talk of major construction delays and prices are rising across the board (enough to perhaps justify new cooling measures).
Whether you are upgrading from your HDB apartment or vice versa, it is difficult to guess whether now is the right time to sell. The following must be observed today:
Resale apartment prices reached new heights in 2021
On June 1, resale prices across Singapore averaged $ 473 per person. Even during the last real estate spike in 2013, we didn’t see the average exceed $ 470.
In terms of volume, the average resale price in early June was $ 497,152, or about 4.6 percent higher than 2013.
3-room, 4-room and 5-room apartments all performed similarly:
The average price for a 3-bedroom apartment was $ 465, while a 4-bedroom apartment cost an average of $ 484. Five-bedroom apartments averaged $ 469.
Additionally, we saw a record-breaking number of flat-rate transactions of $ 1 million. There were already 87 such transactions in the first five months of 2021, most recently a 5-room apartment in Buona Vista Court for $ 1.2 million (May 2021).
It is therefore not surprising that homeowners are encouraged to “cash out” when the tide is high.
Sellers currently have an undeniable advantage. Covid-19 has created labor and supply shortages that have resulted in buyers turning to resale homes for fear of delays.
In addition, the Cash Over Valuation (COV) has crept in again since mid-2020. This is particularly attractive to sellers because after policy adjustments in 2013, zero or negative COV had become the norm (at that time, HDB did not publish COV rates to keep resale prices manageable).
So in the broadest sense, brokers are telling the truth when they claim 2021 will be a good year to sell and upgrade (or downgrade if you want more to retire). However, we recommend that you consider a few specifics before selling:
- The prices for private real estate have also risen
- If you’re downgrading, your replacement home can cost more than you think
- You are competing with a number of salespeople
- Low interest rates don’t last forever
1. The prices for private real estate have also risen
The ideal time to upgrade isn’t just when resale prices rise; the ideal time would be when home resale prices rise while private home prices fall.
But we know, of course, that that won’t happen in Singapore. Perhaps the best scenario would instead be just a stagnating private housing market. In any case, this will not be the case in 2021.
Despite the recent recovery in resale prices, private home prices have still exceeded them:
For example, if we compare June 1, 2016 to June 1 of this year, we can see that private (unsold) home prices have increased from $ 1,348 to $ 1,686 psf. This is an increase of around 25 percent compared to an 11.5 percent increase in resale flat prices over the same period.
Simply put, you can sell your condo for a lot more in 2021 … but your new condo will cost more too.
Therefore, upgraders should be careful that they can close the price gap. Remember that if you sell your home, you will have to refund the money used by the CPF; this with the accrued interest of 2.5 percent.
[[nid:526071]]
The minimum discount for a private property is five percent of the purchase price. Assuming a typical amount of $ 1.6 million today, you will need about $ 80,000 in cash after your CPF is refunded.
From here two arguments can be made:
A seller will tell you that this is an even more important reason to buy now, before the situation gets worse (the longer you wait, the higher home prices could go; and the bigger the price gap becomes). This may be true.
A second argument speaks in favor of caution. You might end up spending more than you expect on a condo; Even after you’ve sold your home.
This move is not easily reversible (keep in mind that you must hold the condo for at least three years to get out of the seller’s stamp duty). You also need to keep in mind that given the high home prices, you may be buying at peak times.
2. If you are downgrading, your replacement home may cost more than you think
As resale apartment prices have increased, your next apartment will cost more too; and you need to make sure that there is still enough difference to meet your retirement goals. For example, if you were to downgrade from a 4-bedroom to a 3-bedroom apartment in Sengkang now, the price difference between the two is only about $ 82,000.
(The average price of a four-bedroom apartment in Sengkang is $ 450,000, while a three-bedroom apartment costs an average of $ 368,000. You can check the current average prices per city on the HDB website).
Remember, this difference exists before considering costs like renovating your new home and paying off your outstanding home loan. So if the cost of your smaller apartment is ultimately not in line with your financial goals, ask yourself whether a downgrade is still worthwhile at the moment – do you really want to live in a smaller apartment and still miss your retirement goals?
Alternatively, you can send us a message with your budget and we will try to help you find a device at the right price.
3. You are competing with a number of salespeople
A record number of homes hit the MOP in 2020, and we will see a similar situation in 2021 (around 50,000 homes in total in both years). In the broader market, demand has matched supply, but the key phrase there is “broader”.
In certain neighborhoods, sellers need to be wary of dozens of offers on their block or nearby. Price increases are usually limited by the number of competing sellers in the vicinity.
[[nid:519524]]
Brokers we spoke to also mentioned that older resale units can lose their shine due to the number of “young” resale homes (ie, homes that are just five years old). A broker, speaking on condition of anonymity, warned:
“Buyers have become no less aware of lease expiration. You want to be able to move in quickly; But they also don’t want an apartment that is too old, too difficult to sell again later – because many are striving to modernize according to the MOP. So when there are so many newer resale homes out there, they tend to be shortlisted before the older ones. The only advantage is that the older apartments are larger. “
We have a list of 50 apartments that will go on sale in 2020 or 2021. If you have an older apartment near these areas it might be more difficult to get your desired price.
However, less common HDB units, such as maisonettes, may not be affected. Buyers of such units are more likely to be owner-occupiers than investors; and many of them intend to “act out” the rest of the lease.
4. Low interest rates don’t last forever
The current low level of interest rates (around 1.3 percent per year) makes a sale and revaluation an attractive option. When the interest rate is around half your CPF rate, it can feel like you are “borrowing for free.”
It should be noted, however, that the low interest rate is due to the stimulus measures taken by the US Federal Reserve; It is supposed to overcome the Covid-19 problems until their economy recovers. After that, the interest rate normalizes again.
To be fair, we’ve seen that interest rates can stay low for a long time – the same move was made during the 2008-09 global financial crisis; and home loan rates had still not risen above an average of two percent in 2019 before the pandemic.
Nonetheless, property is a long-term investment and homeowners need to focus on affordability later. There is also a risk that interest rates will skyrocket, albeit marginally, due to a strong rebound in the US.
Overall, 2021 is a good time to sell and upgrade / downgrade for most homeowners. but not all.
It’s best not to be motivated by just hunting for profits. The real estate market in Singapore is dynamic and difficult to time, and our government is interventionist – new guidelines can change the market literally overnight. Sellers should focus their timing more on their personal financial situation than on the broader market.
Any sales decision should involve a financial professional (someone you trust) who will use the property numbers provided by an experienced broker.
This article was first published in Stackedhomes.
