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Annex D - Skill Enhancement Training
How to react to tough questions using the latest market information/knowledge
Part One: “Why should I buy now? I want to wait for the price to drop a little more”
Customer |
Tell me Sam, since you just said that prices are falling, why should I buy now? |
Agent |
First thing first, sir. Before I answer this question, may I know whether you like the house? |
Customer |
Yes I do but I think the price a little historic. I seriously don’t mind waiting for a while to get it at lower price. After all, there are going to be so many other choices available. |
Agent |
This may not be a very wise move especially when you like the house. I cannot guarantee you that you will find another unit which you like so much.
Moreover, your logic about property prices might not be very accurate. Historically, we can see that for a sound economy such as Singapore’s, the capital appreciation of real estate follows a certain healthy pattern, that is, the ‘new low’ will not be lower than the ‘previous low’ and the ‘new high’ will always be higher than the ‘previous high’.
This is especially so for a city state with limited living space and a vibrant economy. |
Customers |
But I thought there will be much more supply coming on stream from next year onwards? Don’t you think more supply will bring down the prices? |
Agent |
In theory I will have to say yes. But sir, do you seriously think that all houses are the same? For that matter, do you like each and every property that you have seen so far? I bet the answer is no. Therefore, in theory, higher supply causes the price to go lower when the demand remains constant; but in reality the higher supply of new homes may not occur in more desirable locations, such as here.
[It will be ideal if the agent knows the exact quantity of new supplies to be available in the next few years.] |
Part Two: “How LOW can home prices go?”
Customer |
Tell me Sam, how low do you think the property prices will drop to? |
Agent |
This is always a tough question to answer. But a quick answer will be as low as a high rental yield of five percent with a sitting tenant. |
Customer |
What do you mean by this? |
Agent |
Assuming you are the owner of a 2-bedroom Jurong East condo unit which is being rented out at a monthly rent of $3,000 or over $3.80 psf. Let say I offer you $500,000 to buy over your unit with the tenancy, would you sell to me? |
Customers |
No, why should I sell at such a low price? Besides, most of my neighbours are asking for prices between $560,000 and $650,000? |
Agent |
Precisely, and I dare say an average unit would not sell below $570,000 if the current rents maintain at $3,000 (give and take 5% fluctuation in the next 2 to 3 years) and with an outgo of 20%. An investor who are familiar with the project will snap up the unit if the owner is willing to go below a sale price that represent more than 5% net rental yield because that will be like stealing.
On the other hand, to buy the said property at $650,000 would present the buyer with an initial yield of 4.4%. The risk will be higher in the event that rents start to ease due to higher supply. |
Customer |
What if I am buying for self-occupation? Should I be bothered by the rental income of my neighbours’? |
Agent |
The same logic and reason apply to an owner-occupier when he purchases the condo because at the end of the day when he wants to sell it, he must be able to monetise it. A property with high and sustainable rental value will attract more keen interests than others. |
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