How LOW can home prices go ?

Posted on December 31, 2008 by Mindy Yong.
Categories: Questions And Answer.

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.

Singapore Property – Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com