Is it always worth buying property when the price drops?

Since the government proposed a relaxation of the Double Stamp Duty, an increasing number of property upgraders have made new home purchases from among a batch of new projects available on the market. While primary market transactions are on the rise, the secondary market has also hit a new high, according to the Centa-City Leading Index. Buyers may feel like they’re at a crossroads right now. They hope to see home prices drop and low interest rates remain where they are, but in order to reduce the cost of home purchase, some have figured out the right time to buy property is after property prices drop and before interest rates rise.

It makes perfect sense to buy property when the price drops, but one has to take his or her own affordability into consideration. Firstly, local property prices have rebounded and risen considerably since the financial tsunami in 2008. In an overheated property market, a slight decrease in price doesn’t really mean that it’s worth buying.

Secondly, property prices will likely fall, as interest rates continue to rise. In the initial stages of an interest rate hike, home prices may not fall immediately due to the fact that rising rates symbolise an improving economy. Instead, prices may go up until some buyers cannot afford the mortgage loan anymore. When more people sell their apartments to repay the loans, less demand will be seen in the market, which is followed by falling prices.

Thirdly, your budget should not just be enough to cover the down payment of a property. As we all know, the entire interest repayment period can last for over 20 years. Additional mortgage repayment incurred from rising interest rates can put you in a difficult financial situation. Although the grant of mortgage loans from banks requires you to pass the affordability test, prospective buyers should review their affordability in buying property, especially when the economic environment takes a turn for the worse. A typical example is the SARS outbreak in 2003. Securing a job was already difficult, let alone paying huge interest on mortgage loans.

Date: 2014-07-15