Will my property purchased during a crisis be profitable in future? Here’s a research backed analysis for you.
If you have been looking for your next property and are concerned about making your purchase now – because a pandemic is sweeping the globe, locking down cities and upsetting global economies – you are probably not alone.
However, should you really be hesitant?
Property buying during a crisis
OrangeTee & Tie Research matched caveats downloaded from the Urban Redevelopment Authority (URA) and analysed over 15,000 new homes that were purchased and subsequently resold from 2007 to 1Q2020. The data includes both subsale and resale transactions.
Here’s a breakdown of the various property transactions based on their market segments.
In the luxury segment (CCR), there were 2,737 matched transactions. Of these, 67.5% of the properties were profitable when they were sold, with an average gross profit of $330,931.
The city fringe areas (RCR) had 4,536 matched transactions. 84.5% of them were profitable when they were sold, and made an average gross profit of $240,719.
The mass market segment had 8,439 matched transactions. Of these, 91.5% were profitable when sold, and made an average gross profit of $192,401.
“Historical data seems to indicate that most mass market purchases were profitable in the long term,” according to Christine Sun, Head of research and consultancy at OrangeTee & Tie.
Impact of purchase timing on profitability
Are there other factors to consider, such as when you purchase your property? The next chart will provide you with some answers.
The chart above shows the average gross profit made from the matched transactions in the mass market segment, and the time period from which they were first purchased.
Buyers who had purchased a mass market home in Q1 2009– which was right in the middle of the global financial crisis – would have made an average gross profit of $300,000 when they sold their properties later on. This is the highest amount of profit made over the past 17 years. If they purchased their properties in Q1 2008 – at the earlier half of the global financial crisis – they still made a handsome gross profit of about $200,000.
In fact, even buyers who purchased at the initial stage of the financial crisis recorded higher gross profits than others who purchased at any other time from 2007 to Q1 2020.
A similar pattern was observed for the mid-tier rest of central region (RCR) property transactions, seen below.
For RCR property transactions, the highest gross profits for buyers who purchased during the GFC ranged between $300,000 and $400,000. That was significantly higher than any other property that was purchased at other times.
Likelihood of making losses on property purchased during crisis
The charts above tabulate the number of transactions that made losses based on their purchase date. It indicates that the chances of making a loss on a property purchased during a crisis are much lower than for properties purchased at any other time.
“One of the reasons could be that they bought the properties at a slightly lower price, compared to similar properties purchased at other periods of time,” explained Sun.
The bulk of property transactions that made losses were for properties that were purchased when prices were at a peak, between 2011 and 2013.
Impact of holding period on profitability
Did it matter how long buyers held their property for? How did it affect their profitability when they sold before the end of 3 years and incurred seller’s stamp duties (SSD)?
In the chart above, buyers who purchased their mass market properties during a crisis recorded higher gross profits regardless of whether they sold it before the end of 3 years and incurred SSD, or after 3 years.
The mass market properties that generated the highest gross profits were purchased before and during the GFC.
Interestingly, Sun noted that the timing of property purchase can also impact the necessary holding period for the property to achieve maximum profits.
In general, mass market properties are typically sold after 5 years, however, the chart above shows that the highest profits are often achieved after a holding period of at least 8 years.
Here’s what happens when the same chart is generated for properties purchased during the GFC from 3Q2007 to 4Q2009.
For properties purchased during the GFC, they achieved optimum profits in a much shorter time frame of just 3 years or more.
Bracing for a prolonged recession?
In past crises, Sun noted that Singapore’s GDP growth often recovered after just 3 quarters of negative growth. While there is no guarantee that the Singapore economy will perform in the same manner in this crisis, she is optimistic that the effects of the pandemic may be mitigated by the $50 billion stimulus announced earlier.
That said, Sun concedes that it is anyone’s guess as to how this crisis will pan out. “Every crisis is different, and nobody can be sure of what will happen after this pandemic. However, we can take reference from what has happened in the past to give us a rough gauge of what to expect of the property market.”
She also adds a word of caution to all potential property buyers. “We believe it is important for you to assess your own finances and to see if this is really a good time for you. For those who have some spare cash and you have been looking for a good opportunity to come in, then perhaps this data will be a good reference for you.”
You can watch this video to see the data analysis in greater detail.