#23 Rising Mortgage Interest Rates | Nuggets On The Go E23 | Melvin Lim

The interest rates have been increasingly recently, and with its volatility comes concerns on how it is going to affect or influence the real estate market in Singapore. Singapore’s real estate market also works uniquely; property prices rise despite the movement of interest rates. Thus, how can homeowners and property investors react to this situation? Fret not as on this episode on Nuggets on The Go, Melvin will give you our take on this by analysing past market movements based on the data from the team’s research. Also, do look out as he shares more in what scenarios should homebuyers time (or not) the market in these times!

You can also see our video on this topic!

Our Author/Guests

Melvin Lim

Melvin Lim is the co-founder and CEO of PropertyLimBrothers (PLB Realty).

In Melvin’s eyes, every home has its own character and is unique. As a realtor, he enjoys telling stories about homes, highlighting what makes them special to potential buyers.

Transcript

1 [Melvin Lim]
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♪ Bruno Mars, Anderson .Paak, Silk Sonic – Leave the Door Open ♪

2 [Melvin Lim]
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– All right, welcome back to Nuggets On The Go.

3 [Melvin Lim]
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Today we’re talking about a very hot topic

4 [Melvin Lim]
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at this point of recording, which is interest rates.

5 [Melvin Lim]
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Interest rates has been the top of the concern

6 [Melvin Lim]
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of a lot of property owners,

7 [Melvin Lim]
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as well as property buyers for the entire 2022

8 [Melvin Lim]
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until right now, at the point of recording is May 2022.

9 [Melvin Lim]
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So interest rates,

10 [Melvin Lim]
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just have a look at all these articles.

11 [Melvin Lim]
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Even just today, there was an article

12 [Melvin Lim]
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that just popped up this morning

13 [Melvin Lim]
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talking about home buyers or home owners

14 [Melvin Lim]
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who have existing properties might be in a double whammy

15 [Melvin Lim]
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when interest rates continue to rise

16 [Melvin Lim]
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or are expected to rise for another four to five rounds,

17 [Melvin Lim]
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depending on how many rounds the federal reserve

18 [Melvin Lim]
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is going to raise the rate hikes for the rest of 2022.

19 [Melvin Lim]
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So of course at the point of filming,

20 [Melvin Lim]
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we have already been through one of the largest increases,

21 [Melvin Lim]
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which is 0.5 basis points.

22 [Melvin Lim]
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So that has technically tanked the stock market last week.

23 [Melvin Lim]
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Not only that, previously towards the tail end of 2021,

24 [Melvin Lim]
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cryptocurrency market has already sort of like,

25 [Melvin Lim]
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has a lot of volatility, tech stocks,

26 [Melvin Lim]
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all the FAANG stocks, a lot of volatility.

27 [Melvin Lim]
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And just as of last week,

28 [Melvin Lim]
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we responded to the rise in the rate hike

29 [Melvin Lim]
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through the stock market,

30 [Melvin Lim]
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and we want to discuss this topic in detail,

31 [Melvin Lim]
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on how interest rates hikes

32 [Melvin Lim]
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could potentially cause any form of concern

33 [Melvin Lim]
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in the Singapore real estate market.

34 [Melvin Lim]
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So let’s dive in.

35 [Melvin Lim]
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So let’s have a look at this chart first,

36 [Melvin Lim]
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we’re going to showcase a lot of different charts

37 [Melvin Lim]
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and explore the topic

38 [Melvin Lim]
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on what is the weightage of interest rates

39 [Melvin Lim]
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on the performance of property price indexes in Singapore

40 [Melvin Lim]
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on the mindset of homeowners and sellers

41 [Melvin Lim]
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in Singapore as well

42 [Melvin Lim]
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when it comes to making decisions to purchase property,

43 [Melvin Lim]
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or should we time the market?

44 [Melvin Lim]
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So we’re going to answer based on what had happened

45 [Melvin Lim]
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in the past,

46 [Melvin Lim]
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looking at facts, figures, and charts,

47 [Melvin Lim]
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and then what people are thinking on the ground.

48 [Melvin Lim]
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And then the third thing before we end off,

49 [Melvin Lim]
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is that what should we do?

50 [Melvin Lim]
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Should we time the market or should we not time the market,

51 [Melvin Lim]
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or should we enter the market?

52 [Melvin Lim]
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So let’s have a look at the first thing.

53 [Melvin Lim]
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The first thing is that

54 [Melvin Lim]
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if we take out this very fantastic research

55 [Melvin Lim]
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from Morgan Stanley, and this was released in the year 2018.

56 [Melvin Lim]
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So out of the five rounds of interest rate hikes

57 [Melvin Lim]
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in the past, in Singapore’s history,

58 [Melvin Lim]
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four rounds, we have seen an increase

59 [Melvin Lim]
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in our real estate price index.

60 [Melvin Lim]
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Only one round, which was in 1996, 1997,

61 [Melvin Lim]
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during the Asian Financial Crisis,

62 [Melvin Lim]
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and back then there wasn’t any cooling measures in the past.

63 [Melvin Lim]
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That was the only round that property price index dropped

64 [Melvin Lim]
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in tandem with the rise in interest rates.

65 [Melvin Lim]
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The rest of the rounds basically prices increased,

66 [Melvin Lim]
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and of course, if you look at that particular chart,

67 [Melvin Lim]
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there was this bar then

68 [Melvin Lim]
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talking about 2014 till date.

69 [Melvin Lim]
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So at the point of the research, it was released in 2018,

70 [Melvin Lim]
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so they’re talking about that part, 2014 to 2018.

71 [Melvin Lim]
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But if I were to bring out this new chart,

72 [Melvin Lim]
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which is a new chart done by our PLB Insights.

73 [Melvin Lim]
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It showcased the fact that in the season of 2016

74 [Melvin Lim]
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to about the tail end of 2019,

75 [Melvin Lim]
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we actually went through another round

76 [Melvin Lim]
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of federal rate hike increase.

77 [Melvin Lim]
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If you see that increase

78 [Melvin Lim]
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in conjunction with our property price index,

79 [Melvin Lim]
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it is the same thing that has happened as well,

80 [Melvin Lim]
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that our property price index

81 [Melvin Lim]
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actually went up when rates increased.

82 [Melvin Lim]
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So that in combination,

83 [Melvin Lim]
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we can summarise that out of six rounds

84 [Melvin Lim]
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of interest rate increment,

85 [Melvin Lim]
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five rounds we see an uptick

86 [Melvin Lim]
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in terms of property price index.

87 [Melvin Lim]
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What is going to happen this time round in the year of 2022?

88 [Melvin Lim]
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Rates are increasing,

89 [Melvin Lim]
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will property price rise or will property price fall?

90 [Melvin Lim]
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So this is something that everybody is trying to answer.

91 [Melvin Lim]
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And why are we trying to figure this out?

92 [Melvin Lim]
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It’s because this will cause a correlation

93 [Melvin Lim]
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on how we make decisions

94 [Melvin Lim]
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on whether should we wait for 2023,

95 [Melvin Lim]
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having a wait and see approach

96 [Melvin Lim]
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before we enter into the market.

97 [Melvin Lim]
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But we are going to dive in deeper

98 [Melvin Lim]
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because it will then help us

99 [Melvin Lim]
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to make sense of this current market,

100 [Melvin Lim]
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because waiting

101 [Melvin Lim]
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can be a very costly opportunity cost sometimes.

102 [Melvin Lim]
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Waiting can also be very beneficial

103 [Melvin Lim]
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because if you can buy something at a lower price,

104 [Melvin Lim]
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that will make a lot of sense at the end of the day.

105 [Melvin Lim]
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So, the second chart that we want to showcase right now,

106 [Melvin Lim]
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basically is to look at all the host of factors.

107 [Melvin Lim]
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If you have been following us,

108 [Melvin Lim]
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these factors are extremely important,

109 [Melvin Lim]
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because there’s in total of about 15 to 16

110 [Melvin Lim]
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different internal and external factors combined.

111 [Melvin Lim]
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And all these factors will help us to make a decision

112 [Melvin Lim]
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on whether we should time the market.

113 [Melvin Lim]
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Now if you look at the top,

114 [Melvin Lim]
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interest rates fall on of course one of the key factors,

115 [Melvin Lim]
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together with quantitative easing.

116 [Melvin Lim]
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As of this year, we know for sure

117 [Melvin Lim]
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that interest rates are definitely going to increase.

118 [Melvin Lim]
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We also know for sure

119 [Melvin Lim]
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that quantitative easing is tightening.

120 [Melvin Lim]
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So when these two factors are gone,

121 [Melvin Lim]
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and these two factors are now one of the key things

122 [Melvin Lim]
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that might affect the property market,

123 [Melvin Lim]
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what is going to happen to the global property prices,

124 [Melvin Lim]
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and what is going to happen

125 [Melvin Lim]
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to the Singapore real estate prices.

126 [Melvin Lim]
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So let us bring out this new chart now.

127 [Melvin Lim]
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Let’s discuss globally,

128 [Melvin Lim]
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how do people view interest rates

129 [Melvin Lim]
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in terms of relationship to property prices?

130 [Melvin Lim]
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When we talk about interest rates rising,

131 [Melvin Lim]
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the next effect is that we will then discover

132 [Melvin Lim]
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and we’ll try to ascertain,

133 [Melvin Lim]
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will an interest rate rise

134 [Melvin Lim]
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cause our disposable income to drop?

135 [Melvin Lim]
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And in reality, that is for sure.

136 [Melvin Lim]
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Because when interest rates rise,

137 [Melvin Lim]
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just have a look at these two different examples.

138 [Melvin Lim]
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If you were to purchase a $2 mil property

139 [Melvin Lim]
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where interest rate is at, let’s say 1.5%,

140 [Melvin Lim]
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and if you were to purchase a $2 mil property

141 [Melvin Lim]
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where interest rate is at 2.5%,

142 [Melvin Lim]
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just by a 1% increment in your mortgage interest rate,

143 [Melvin Lim]
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the instalment amount in totality

144 [Melvin Lim]
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increases pretty substantially.

145 [Melvin Lim]
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And if you were to break down both instalment components

146 [Melvin Lim]
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into the P and I component, principal + interest,

147 [Melvin Lim]
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you will see a significant increase

148 [Melvin Lim]
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in the interest that you have to pay,

149 [Melvin Lim]
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which forms a huge portion of your total monthly instalment

150 [Melvin Lim]
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compared to when interest rate was much lower at 1.5%.

151 [Melvin Lim]
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So 1% increment causes

152 [Melvin Lim]
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not just the total instalment to rise,

153 [Melvin Lim]
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but it affects the amount of components

154 [Melvin Lim]
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that the P and I takes on overall

155 [Melvin Lim]
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in terms of the total instalment.

156 [Melvin Lim]
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So there are two effects that happen just by 1% increment;

157 [Melvin Lim]
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Firstly, overall money instalment increase.

158 [Melvin Lim]
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Secondly, it becomes not so worth it

159 [Melvin Lim]
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in a sense that because the amount of principal

160 [Melvin Lim]
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that you’re putting into your home reduces,

161 [Melvin Lim]
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and actually the interest

162 [Melvin Lim]
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that you’re paying to the bank increases.

163 [Melvin Lim]
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Compared to when interest rates were much lower,

164 [Melvin Lim]
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you’re actually saving more

165 [Melvin Lim]
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because you’re putting more into the principal amount

166 [Melvin Lim]
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and you’re actually paying much lesser interest to the bank

167 [Melvin Lim]
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on the month-to-month basis.

168 [Melvin Lim]
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So naturally, it is more advantages for the homeowner

169 [Melvin Lim]
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to buy when interest rates are low

170 [Melvin Lim]
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compared to when interest rates are high.

171 [Melvin Lim]
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And globally speaking,

172 [Melvin Lim]
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correct behaviour is that when interest rates increase,

173 [Melvin Lim]
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because of the fact that our monthly instalment

174 [Melvin Lim]
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and monthly commitment increases,

175 [Melvin Lim]
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your disposable income as a family or as a homebuyer drops.

176 [Melvin Lim]
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And when that happens,

177 [Melvin Lim]
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the amount of purchasing power gets affected,

178 [Melvin Lim]
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overall demand would then start to dip.

179 [Melvin Lim]
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And when that happens as well,

180 [Melvin Lim]
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homeowners become more realistic

181 [Melvin Lim]
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as home sellers when they want to exit the market,

182 [Melvin Lim]
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when they want to sell their properties,

183 [Melvin Lim]
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they will then price their properties more realistically.

184 [Melvin Lim]
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So when this entire chain happens,

185 [Melvin Lim]
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property prices becomes more tepid or they stabilise,

186 [Melvin Lim]
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or they start to fall,

187 [Melvin Lim]
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and depending on what kind of economy

188 [Melvin Lim]
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or what kind of country is this real estate market in.

189 [Melvin Lim]
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So that is the standard behaviour when interest rates rise.

190 [Melvin Lim]
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On the flip side, let’s bring out this chart.

191 [Melvin Lim]
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When interest rates fall, the reverse is going to happen.

192 [Melvin Lim]
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Firstly, when interest rates fall,

193 [Melvin Lim]
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it increases the purchasing power of home buyers,

194 [Melvin Lim]
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because home buyers now become more confident.

195 [Melvin Lim]
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They see that borrowing cost has dipped,

196 [Melvin Lim]
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monthly instalment is going to drop

197 [Melvin Lim]
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for the same amount of purchase price

198 [Melvin Lim]
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of a particular property.

199 [Melvin Lim]
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Everybody becomes more confident

200 [Melvin Lim]
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because I’m paying lesser for my interest,

201 [Melvin Lim]
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overall monthly instalment drops,

202 [Melvin Lim]
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some of my rental can cover the entire cost.

203 [Melvin Lim]
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I feel more confident as a home buyer.

204 [Melvin Lim]
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And because of that, demand surges in the entire economy,

205 [Melvin Lim]
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and that then brings about a rise in prices.

206 [Melvin Lim]
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Because when demand increases,

207 [Melvin Lim]
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homeowners then know

208 [Melvin Lim]
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that the demand is out there right now.

209 [Melvin Lim]
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They want to raise their price and challenge the selling price

210 [Melvin Lim]
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before they’re willing to let go of their property

211 [Melvin Lim]
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in the secondary market.

212 [Melvin Lim]
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So when that happens, interest rates falling

213 [Melvin Lim]
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corresponds with a rise in prices.

214 [Melvin Lim]
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So let’s have a look at the third scenario,

215 [Melvin Lim]
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which is the base case,

216 [Melvin Lim]
00:08:35,400 –> 00:08:37,400
and based on historical data,

217 [Melvin Lim]
00:08:37,400 –> 00:08:39,760
out of six rounds of interest rates rise,

218 [Melvin Lim]
00:08:39,760 –> 00:08:43,160
why is it that Singapore home prices still rise?

219 [Melvin Lim]
00:08:43,160 –> 00:08:46,480
And why is it that it behaves differently from the norm,

220 [Melvin Lim]
00:08:46,480 –> 00:08:48,680
based on the first two scenarios that we are saying.

221 [Melvin Lim]
00:08:48,680 –> 00:08:51,920
Will this round have the same effect as in the past?

222 [Melvin Lim]
00:08:51,920 –> 00:08:54,600
Because what we’re trying to answer is that this time round

223 [Melvin Lim]
00:08:54,600 –> 00:08:56,040
interest rate is going to rise,

224 [Melvin Lim]
00:08:56,040 –> 00:08:59,760
will our price go up, stay stagnant, or will it come down?

225 [Melvin Lim]
00:08:59,760 –> 00:09:02,000
Secondly is that, we also want to answer this question,

226 [Melvin Lim]
00:09:02,000 –> 00:09:03,040
because maybe you might be asking,

227 [Melvin Lim]
00:09:03,040 –> 00:09:04,960
“Hey Melvin, why are we in Singapore,

228 [Melvin Lim]
00:09:04,960 –> 00:09:08,760
in such a way that when interest rates drop, prices rise?

229 [Melvin Lim]
00:09:08,760 –> 00:09:11,200
Why is it also that when interest rates rise,

230 [Melvin Lim]
00:09:11,200 –> 00:09:12,400
prices still rise?

231 [Melvin Lim]
00:09:12,400 –> 00:09:14,680
And then what should I do as a Singaporean,

232 [Melvin Lim]
00:09:14,680 –> 00:09:17,240
or what should I do as an investor in Singapore?

233 [Melvin Lim]
00:09:17,240 –> 00:09:18,040
Should I buy?

234 [Melvin Lim]
00:09:18,040 –> 00:09:19,680
Does it mean that we buy all the time?

235 [Melvin Lim]
00:09:19,680 –> 00:09:21,960
Does it mean that it is wrong to time the market?

236 [Melvin Lim]
00:09:21,960 –> 00:09:23,480
Does it mean that whether it is in the year,

237 [Melvin Lim]
00:09:23,480 –> 00:09:27,720
2020, 2021, 2022, 2023, 2024, I should always buy?

238 [Melvin Lim]
00:09:27,720 –> 00:09:31,240
And we’re going answer all these fantastic questions.

239 [Melvin Lim]
00:09:31,240 –> 00:09:33,600
And these are very legitimate concerns

240 [Melvin Lim]
00:09:33,600 –> 00:09:35,160
because we want to understand,

241 [Melvin Lim]
00:09:35,160 –> 00:09:37,920
when should we enter the market, when should we not?

242 [Melvin Lim]
00:09:37,920 –> 00:09:40,520
So let me just clear this out of the picture first.

243 [Melvin Lim]
00:09:40,520 –> 00:09:42,680
Firstly, when we bring back this chart

244 [Melvin Lim]
00:09:42,680 –> 00:09:44,440
with about 15 to 16 factors,

245 [Melvin Lim]
00:09:44,440 –> 00:09:45,800
we can see that interest rates

246 [Melvin Lim]
00:09:45,800 –> 00:09:48,200
and quantitative easing correlates

247 [Melvin Lim]
00:09:48,200 –> 00:09:51,000
to the amount of liquidity that flows into money supply,

248 [Melvin Lim]
00:09:51,000 –> 00:09:53,840
the expansion of money supply in the entire world,

249 [Melvin Lim]
00:09:53,840 –> 00:09:58,040
in Singapore, in US, and how is that important?

250 [Melvin Lim]
00:09:58,040 –> 00:10:00,480
And that definitely has to do with inflation.

251 [Melvin Lim]
00:10:00,480 –> 00:10:02,920
Because when our money supply increases too fast

252 [Melvin Lim]
00:10:02,920 –> 00:10:05,200
over the past years, because the Feds,

253 [Melvin Lim]
00:10:05,200 –> 00:10:07,200
because the central banks are trying to save the market

254 [Melvin Lim]
00:10:07,200 –> 00:10:08,760
by buying out government bonds,

255 [Melvin Lim]
00:10:08,760 –> 00:10:10,480
increasing the amount of money supply,

256 [Melvin Lim]
00:10:10,480 –> 00:10:13,560
that has caused and created a huge amount of liquidity

257 [Melvin Lim]
00:10:13,560 –> 00:10:14,400
in the market.

258 [Melvin Lim]
00:10:14,400 –> 00:10:16,000
And when that expansion happens,

259 [Melvin Lim]
00:10:16,000 –> 00:10:17,520
we can see that in the stock market,

260 [Melvin Lim]
00:10:17,520 –> 00:10:20,800
we can see the flight to safety when people profit take,

261 [Melvin Lim]
00:10:20,800 –> 00:10:23,280
and they want to park their funds in assets

262 [Melvin Lim]
00:10:23,280 –> 00:10:26,560
with a better store of value, a more stable store of value.

263 [Melvin Lim]
00:10:26,560 –> 00:10:28,160
And when inflation rises,

264 [Melvin Lim]
00:10:28,160 –> 00:10:31,200
asset inflation also happens at a rapid rate.

265 [Melvin Lim]
00:10:31,200 –> 00:10:33,840
So back to the topic, CPI inflation happens

266 [Melvin Lim]
00:10:33,840 –> 00:10:37,480
right now in Singapore in March 2022, it is at about 5.4%,

267 [Melvin Lim]
00:10:37,480 –> 00:10:39,800
asset inflation behaves extremely differently.

268 [Melvin Lim]
00:10:39,800 –> 00:10:41,520
So we have come out with this brand new chart

269 [Melvin Lim]
00:10:41,520 –> 00:10:44,480
to ascertain CPI inflation

270 [Melvin Lim]
00:10:44,480 –> 00:10:48,480
in relation to asset inflation on landed properties.

271 [Melvin Lim]
00:10:48,480 –> 00:10:50,720
So although we are looking at CPI inflation

272 [Melvin Lim]
00:10:50,720 –> 00:10:53,080
of about 5% in the past month,

273 [Melvin Lim]
00:10:53,080 –> 00:10:55,320
the actual fact is that in the past two years,

274 [Melvin Lim]
00:10:55,320 –> 00:10:59,120
asset inflation on particular regions of landed properties

275 [Melvin Lim]
00:10:59,120 –> 00:11:01,280
and this particular type of landed property

276 [Melvin Lim]
00:11:01,280 –> 00:11:02,400
just for example and showcase,

277 [Melvin Lim]
00:11:02,400 –> 00:11:06,120
inter-terraces, it has already appreciated by 20% to 33%.

278 [Melvin Lim]
00:11:06,120 –> 00:11:09,480
So on the ground, assets behave drastically differently,

279 [Melvin Lim]
00:11:09,480 –> 00:11:11,000
and compared to CPI inflation,

280 [Melvin Lim]
00:11:11,000 –> 00:11:14,120
it is not a good gauge of property price inflation growth.

281 [Melvin Lim]
00:11:14,120 –> 00:11:16,320
So when we take that into consideration,

282 [Melvin Lim]
00:11:16,320 –> 00:11:19,240
and looking back at this entire list of factors,

283 [Melvin Lim]
00:11:19,240 –> 00:11:22,400
interest rates is just one of the 16 factors

284 [Melvin Lim]
00:11:22,400 –> 00:11:23,720
that we need to consider,

285 [Melvin Lim]
00:11:23,720 –> 00:11:26,120
on what grounds real estate in Singapore.

286 [Melvin Lim]
00:11:26,120 –> 00:11:28,160
Because the very reason why Singapore

287 [Melvin Lim]
00:11:28,160 –> 00:11:30,240
might possibly behave differently

288 [Melvin Lim]
00:11:30,240 –> 00:11:31,920
can be so many different factors.

289 [Melvin Lim]
00:11:31,920 –> 00:11:34,000
Number one, let me bring out this black colour chart

290 [Melvin Lim]
00:11:34,000 –> 00:11:35,480
with like a stacking model.

291 [Melvin Lim]
00:11:35,480 –> 00:11:38,800
So this stacking model shows the foundation of Singapore,

292 [Melvin Lim]
00:11:38,800 –> 00:11:41,400
because the base layer of most properties

293 [Melvin Lim]
00:11:41,400 –> 00:11:42,560
that Singaporeans own,

294 [Melvin Lim]
00:11:42,560 –> 00:11:45,720
having 75% of Singaporeans owning HDB apartments,

295 [Melvin Lim]
00:11:45,720 –> 00:11:48,720
forms an entire suite of foundation

296 [Melvin Lim]
00:11:48,720 –> 00:11:50,240
in terms of our real estate market.

297 [Melvin Lim]
00:11:50,240 –> 00:11:53,720
Reason being, 90% of Singaporeans own their own properties.

298 [Melvin Lim]
00:11:53,720 –> 00:11:56,720
And most of Singaporeans own their first properties

299 [Melvin Lim]
00:11:56,720 –> 00:11:58,760
as a primary residence property.

300 [Melvin Lim]
00:11:58,760 –> 00:12:00,880
Meaning that a lot of people own properties to stay,

301 [Melvin Lim]
00:12:00,880 –> 00:12:02,400
for family building,

302 [Melvin Lim]
00:12:02,400 –> 00:12:04,560
buying properties near to their kids’ schools.

303 [Melvin Lim]
00:12:04,560 –> 00:12:06,120
And there’s a lot of reasons

304 [Melvin Lim]
00:12:06,120 –> 00:12:08,000
that people hold onto their property

305 [Melvin Lim]
00:12:08,000 –> 00:12:09,560
without speculative reason.

306 [Melvin Lim]
00:12:09,560 –> 00:12:11,720
So meaning that if I were to buy this property here,

307 [Melvin Lim]
00:12:11,720 –> 00:12:13,520
maybe it is because it’s near my parents’ home,

308 [Melvin Lim]
00:12:13,520 –> 00:12:14,800
or it is near to my kids’ school.

309 [Melvin Lim]
00:12:14,800 –> 00:12:18,440
The likelihood of me trying to quickly disposing the property

310 [Melvin Lim]
00:12:18,440 –> 00:12:22,280
that I’m living in through an economic downturn is very low

311 [Melvin Lim]
00:12:22,280 –> 00:12:25,280
because I have a very strong propensity

312 [Melvin Lim]
00:12:25,280 –> 00:12:26,360
to hold onto my property.

313 [Melvin Lim]
00:12:26,360 –> 00:12:28,960
Because my motivation is not for speculation reason,

314 [Melvin Lim]
00:12:28,960 –> 00:12:31,040
it is really for my family’s needs.

315 [Melvin Lim]
00:12:31,040 –> 00:12:33,360
Thus, with the bed rock of 90% home ownership,

316 [Melvin Lim]
00:12:33,360 –> 00:12:35,920
that creates an enormous moat

317 [Melvin Lim]
00:12:35,920 –> 00:12:36,880
in the Singapore real estate market.

318 [Melvin Lim]
00:12:36,880 –> 00:12:39,360
And then as families with dual income

319 [Melvin Lim]
00:12:39,360 –> 00:12:40,800
do well professionally,

320 [Melvin Lim]
00:12:40,800 –> 00:12:43,000
they then upgrade to the OCR condos,

321 [Melvin Lim]
00:12:43,000 –> 00:12:45,000
or they upgrade to RCR, and CCR condos,

322 [Melvin Lim]
00:12:45,000 –> 00:12:47,840
and then they might also upgrade to a landed property market,

323 [Melvin Lim]
00:12:47,840 –> 00:12:49,920
which is about 5% segment in Singapore.

324 [Melvin Lim]
00:12:49,920 –> 00:12:52,040
So that creates the entire foundation.

325 [Melvin Lim]
00:12:52,040 –> 00:12:53,560
The second chart that we bring out right now.

326 [Melvin Lim]
00:12:53,560 –> 00:12:54,400
Cooling measures.

327 [Melvin Lim]
00:12:54,400 –> 00:12:56,600
Of course, right now if you look at all these bar charts

328 [Melvin Lim]
00:12:56,600 –> 00:12:58,080
that our PLB Nucleus Team,

329 [Melvin Lim]
00:12:58,080 –> 00:12:59,800
which is our PLB Tech Team has created,

330 [Melvin Lim]
00:12:59,800 –> 00:13:01,160
there are close to about 20 different types

331 [Melvin Lim]
00:13:01,160 –> 00:13:03,080
of cooling measures already into the price graph.

332 [Melvin Lim]
00:13:03,080 –> 00:13:06,680
And we’re still seeing Q1 2022 having an uptake,

333 [Melvin Lim]
00:13:06,680 –> 00:13:08,320
not just in the luxury market,

334 [Melvin Lim]
00:13:08,320 –> 00:13:10,840
but also in all regions of the market.

335 [Melvin Lim]
00:13:10,840 –> 00:13:13,840
With that, that creates also another solid foundation

336 [Melvin Lim]
00:13:13,840 –> 00:13:17,280
because Seller’s Stamp Duty is one major deterrent

337 [Melvin Lim]
00:13:17,280 –> 00:13:19,480
that people will quickly offload their properties.

338 [Melvin Lim]
00:13:19,480 –> 00:13:22,440
Everybody is buying into their real estate,

339 [Melvin Lim]
00:13:22,440 –> 00:13:23,960
if let’s say it’s their first property,

340 [Melvin Lim]
00:13:23,960 –> 00:13:27,360
with a desire to live in it or a desire to own it

341 [Melvin Lim]
00:13:27,360 –> 00:13:28,560
for at least three years.

342 [Melvin Lim]
00:13:28,560 –> 00:13:31,080
So that Seller’s Stamp Duty technically increases

343 [Melvin Lim]
00:13:31,080 –> 00:13:33,160
the holding period of homeowners.

344 [Melvin Lim]
00:13:33,160 –> 00:13:34,520
In fact, there’s also this chart

345 [Melvin Lim]
00:13:34,520 –> 00:13:36,520
that ever since Seller’s Stamp Duty was introduced,

346 [Melvin Lim]
00:13:36,520 –> 00:13:38,760
the holding period of every single property

347 [Melvin Lim]
00:13:38,760 –> 00:13:40,160
that people buy in Singapore

348 [Melvin Lim]
00:13:40,160 –> 00:13:42,840
has increased to an average of seven to nine years.

349 [Melvin Lim]
00:13:42,840 –> 00:13:45,000
Secondly, on top of the Seller’s Stamp Duty,

350 [Melvin Lim]
00:13:45,000 –> 00:13:46,960
everybody now purchases property

351 [Melvin Lim]
00:13:46,960 –> 00:13:49,560
with at least a 25% down payment.

352 [Melvin Lim]
00:13:49,560 –> 00:13:52,760
And on top of that, you still have to pay a 4% Buyer’s Stamp Duty,

353 [Melvin Lim]
00:13:52,760 –> 00:13:55,640
and that’s 29% down into the property.

354 [Melvin Lim]
00:13:55,640 –> 00:13:57,840
So people are entering real estate

355 [Melvin Lim]
00:13:57,840 –> 00:14:01,200
with a capability to come with at least 29%

356 [Melvin Lim]
00:14:01,200 –> 00:14:04,200
as the first trench of down payment that is needed,

357 [Melvin Lim]
00:14:04,200 –> 00:14:05,320
which is 25% (down payment) + 4% (BSD).

358 [Melvin Lim]
00:14:05,320 –> 00:14:07,920
The third effect is that everybody is buying in

359 [Melvin Lim]
00:14:07,920 –> 00:14:10,400
with financial prudence because the TDSR

360 [Melvin Lim]
00:14:10,400 –> 00:14:13,680
scrutinises everybody’s income, credit, debt,

361 [Melvin Lim]
00:14:13,680 –> 00:14:16,480
to ensure that you have a base case

362 [Melvin Lim]
00:14:16,480 –> 00:14:19,320
of at least the ability to service the loan

363 [Melvin Lim]
00:14:19,320 –> 00:14:22,120
up to a 3.5% threshold interest rate.

364 [Melvin Lim]
00:14:22,120 –> 00:14:24,800
And that’s the bed rock of TDSR calculation from MAS.

365 [Melvin Lim]
00:14:24,800 –> 00:14:28,440
That then increases a homeowner’s confidence level

366 [Melvin Lim]
00:14:28,440 –> 00:14:30,800
in holding their property for at least the mid-term,

367 [Melvin Lim]
00:14:30,800 –> 00:14:32,560
or I would say for at least three years.

368 [Melvin Lim]
00:14:32,560 –> 00:14:36,040
And thus, if let’s say from 2022 to 2025,

369 [Melvin Lim]
00:14:36,040 –> 00:14:37,480
if there were to be any form

370 [Melvin Lim]
00:14:37,480 –> 00:14:39,640
of economic downturn or recession,

371 [Melvin Lim]
00:14:39,640 –> 00:14:41,600
every single owner, because of the fact

372 [Melvin Lim]
00:14:41,600 –> 00:14:44,560
that they have these three things as foundation,

373 [Melvin Lim]
00:14:44,560 –> 00:14:45,640
Seller’s Stamp Duty,

374 [Melvin Lim]
00:14:45,640 –> 00:14:49,760
25% + 4% down payment, TDSR calculation,

375 [Melvin Lim]
00:14:49,760 –> 00:14:51,000
this creates a confidence

376 [Melvin Lim]
00:14:51,000 –> 00:14:53,760
that they might not need to fire sell their property.

377 [Melvin Lim]
00:14:53,760 –> 00:14:55,680
Because anyway, this is buying for own stay,

378 [Melvin Lim]
00:14:55,680 –> 00:14:57,760
it’s buying really for my kids’ education,

379 [Melvin Lim]
00:14:57,760 –> 00:15:00,160
it’s really buying for my family to enjoy the property.

380 [Melvin Lim]
00:15:00,160 –> 00:15:03,200
And the icing of the cake is that everybody

381 [Melvin Lim]
00:15:03,200 –> 00:15:05,360
has this thing called the disposition effect,

382 [Melvin Lim]
00:15:05,360 –> 00:15:08,760
which means that if for example, somebody would to purchase

383 [Melvin Lim]
00:15:08,760 –> 00:15:11,400
example a new launch property back in 2020.

384 [Melvin Lim]
00:15:11,400 –> 00:15:14,200
And let’s say having all this thing in conjunction

385 [Melvin Lim]
00:15:14,200 –> 00:15:15,720
with the disposition effect,

386 [Melvin Lim]
00:15:15,720 –> 00:15:17,840
is that if their property is not performing.

387 [Melvin Lim]
00:15:17,840 –> 00:15:19,640
For example, let’s say they bought into this new launch

388 [Melvin Lim]
00:15:19,640 –> 00:15:22,920
at $1,600 PSF, and it is not performing.

389 [Melvin Lim]
00:15:22,920 –> 00:15:25,880
Meaning that even after TOP, the price is not rising,

390 [Melvin Lim]
00:15:25,880 –> 00:15:28,600
because of maybe any form of recessional risk

391 [Melvin Lim]
00:15:28,600 –> 00:15:29,920
or maybe economic downturn.

392 [Melvin Lim]
00:15:29,920 –> 00:15:31,760
What is technically going to happen

393  [Melvin Lim]
00:15:31,760 –> 00:15:33,160
through the mind of the home buyer

394 [Melvin Lim]
00:15:33,160 –> 00:15:35,120
that has bought this property in the year 2020,

395 [Melvin Lim]
00:15:35,120 –> 00:15:37,080
and in 2023, they collect their keys.

396 [Melvin Lim]
00:15:37,080 –> 00:15:38,800
They bought at $1,600 PSF,

397 [Melvin Lim]
00:15:38,800 –> 00:15:41,560
2023, let’s say when the property TOP-ed

398 [Melvin Lim]
00:15:41,560 –> 00:15:43,240
and they want to exit the market,

399 [Melvin Lim]
00:15:43,240 –> 00:15:46,360
and it is still ongoing at $1,600 PSF,

400 [Melvin Lim]
00:15:46,360 –> 00:15:48,200
because nobody is able to exit,

401 [Melvin Lim]
00:15:48,200 –> 00:15:50,480
at let’s say $1,800 PSF,

402 [Melvin Lim]
00:15:50,480 –> 00:15:52,160
because the market is not doing well.

403 [Melvin Lim]
00:15:52,160 –> 00:15:54,120
What is going happen is that the first thing

404 [Melvin Lim]
00:15:54,120 –> 00:15:55,920
that will go through the homeowner’s mind,

405 [Melvin Lim]
00:15:55,920 –> 00:15:57,200
through the disposition effect

406 [Melvin Lim]
00:15:57,200 –> 00:15:58,440
is that they will not sell.

407 [Melvin Lim]
00:15:58,440 –> 00:16:00,000
They will move in, or they will rent out,

408 [Melvin Lim]
00:16:00,000 –> 00:16:01,960
or they will wait for the market to recover.

409 [Melvin Lim]
00:16:01,960 –> 00:16:04,960
The reason is because they are already in the game,

410 [Melvin Lim]
00:16:04,960 –> 00:16:06,160
they have skin in the game.

411 [Melvin Lim]
00:16:06,160 –> 00:16:08,920
There’s no point in selling back at the same price,

412 [Melvin Lim]
00:16:08,920 –> 00:16:10,920
because that will mean that they will be making a loss

413 [Melvin Lim]
00:16:10,920 –> 00:16:12,040
through the holding cost,

414 [Melvin Lim]
00:16:12,040 –> 00:16:14,120
through the bank interest rate they’ve been paying,

415 [Melvin Lim]
00:16:14,120 –> 00:16:15,520
through the Buyer’s Stamp Duty that they’re paying.

416 [Melvin Lim]
00:16:15,520 –> 00:16:17,960
There’s no point in them realising the loss.

417 [Melvin Lim]
00:16:17,960 –> 00:16:20,280
It’s similar to somebody that has bought a stock,

418 [Melvin Lim]
00:16:20,280 –> 00:16:22,200
or that has bought this particular counter

419 [Melvin Lim]
00:16:22,200 –> 00:16:23,040
in the stock market.

420 [Melvin Lim]
00:16:23,040 –> 00:16:25,760
And now because of the market downturn,

421 [Melvin Lim]
00:16:25,760 –> 00:16:27,520
they are seeing red on their balance sheet.

422 [Melvin Lim]
00:16:27,520 –> 00:16:30,280
And what is going to happen is that they will not exit

423 [Melvin Lim]
00:16:30,280 –> 00:16:32,160
because they don’t want to realise their loss.

424 [Melvin Lim]
00:16:32,160 –> 00:16:34,240
It is also called the loss aversion theory.

425 [Melvin Lim]
00:16:34,240 –> 00:16:38,120
So they will only exit to profit keep if the market rises,

426 [Melvin Lim]
00:16:38,120 –> 00:16:40,360
and they want to cash in on their profit.

427 [Melvin Lim]
00:16:40,360 –> 00:16:42,640
So there is a similar effect as well

428 [Melvin Lim]
00:16:42,640 –> 00:16:43,480
in the real estate market.

429 [Melvin Lim]
00:16:43,480 –> 00:16:44,800
And because of disposition effect,

430 [Melvin Lim]
00:16:44,800 –> 00:16:46,880
what we’re going to see is that if owners

431 [Melvin Lim]
00:16:46,880 –> 00:16:49,000
don’t make that paper gain that they’re looking for,

432 [Melvin Lim]
00:16:49,000 –> 00:16:50,360
they might just hold on to their property.

433 [Melvin Lim]
00:16:50,360 –> 00:16:52,640
And that also reduces the speculative effect

434 [Melvin Lim]
00:16:52,640 –> 00:16:53,680
in the Singapore’s real estate market.

435 [Melvin Lim]
00:16:53,680 –> 00:16:57,040
And because of that entire mindset and entire thing,

436 [Melvin Lim]
00:16:57,040 –> 00:16:59,400
we think that what is going to potentially happen

437 [Melvin Lim]
00:16:59,400 –> 00:17:01,400
in the next 12 to 18 months

438 [Melvin Lim]
00:17:01,400 –> 00:17:04,000
is that even if interest rates were to rise,

439 [Melvin Lim]
00:17:04,000 –> 00:17:06,160
a lot of people are already in the market,

440 [Melvin Lim]
00:17:06,160 –> 00:17:08,840
and they will not easily throw off their properties

441 [Melvin Lim]
00:17:08,840 –> 00:17:11,160
unless they own multiple properties,

442 [Melvin Lim]
00:17:11,160 –> 00:17:13,200
and unless their multiple properties

443 [Melvin Lim]
00:17:13,200 –> 00:17:15,880
also have that secondary factor is that,

444 [Melvin Lim]
00:17:15,880 –> 00:17:17,400
for example if they have a second property

445 [Melvin Lim]
00:17:17,400 –> 00:17:19,720
that is let’s say a 1- or 2-bedder,

446 [Melvin Lim]
00:17:19,720 –> 00:17:21,520
in the CCR region or RCR region.

447 [Melvin Lim]
00:17:21,520 –> 00:17:24,320
Unless they’re unable to find a tenant

448 [Melvin Lim]
00:17:24,320 –> 00:17:26,080
or to rent it out effectively

449 [Melvin Lim]
00:17:26,080 –> 00:17:28,120
to at least cover most of the mortgage,

450 [Melvin Lim]
00:17:28,120 –> 00:17:29,680
then that will cause an issue.

451 [Melvin Lim]
00:17:29,680 –> 00:17:31,600
Or maybe they have two to three properties,

452 [Melvin Lim]
00:17:31,600 –> 00:17:34,280
they’re unable to find tenants to actually occupy it

453 [Melvin Lim]
00:17:34,280 –> 00:17:36,440
and there’s a lot of high vacancy risks,

454 [Melvin Lim]
00:17:36,440 –> 00:17:38,440
then probably they might feel stressed

455 [Melvin Lim]
00:17:38,440 –> 00:17:39,640
from the money mortgage payment.

456 [Melvin Lim]
00:17:39,640 –> 00:17:41,640
But let us look back again

457 [Melvin Lim]
00:17:41,640 –> 00:17:43,680
on how did these homeowners

458 [Melvin Lim]
00:17:43,680 –> 00:17:46,760
initially own two to three residential properties.

459 [Melvin Lim]
00:17:46,760 –> 00:17:49,400
Now, if you were to purchase any multiple properties

460 [Melvin Lim]
00:17:49,400 –> 00:17:51,520
in the recent years,

461 [Melvin Lim]
00:17:51,520 –> 00:17:52,760
what is technically going to happen

462 [Melvin Lim]
00:17:52,760 –> 00:17:54,680
is that if you are buying a second property

463 [Melvin Lim]
00:17:54,680 –> 00:17:56,200
through a decoupling module,

464 [Melvin Lim]
00:17:56,200 –> 00:17:58,640
and you have, let’s say the hubby owning

465 [Melvin Lim]
00:17:58,640 –> 00:18:01,600
the primary property, Mrs owning the second property,

466 [Melvin Lim]
00:18:01,600 –> 00:18:04,640
similarly you also have to pay 20%, 25% down payment.

467 [Melvin Lim]
00:18:04,640 –> 00:18:06,240
What is going to happen is that you go through

468 [Melvin Lim]
00:18:06,240 –> 00:18:08,800
the TDSR process, you go through the SSD process.

469 [Melvin Lim]
00:18:08,800 –> 00:18:10,360
And if you are renting it out,

470 [Melvin Lim]
00:18:10,360 –> 00:18:13,280
if you can effectively cover most of the mortgage,

471 [Melvin Lim]
00:18:13,280 –> 00:18:15,160
or you can cover the entire mortgage,

472 [Melvin Lim]
00:18:15,160 –> 00:18:16,200
then technically speaking,

473 [Melvin Lim]
00:18:16,200 –> 00:18:18,080
I think you are pretty well buffered.

474 [Melvin Lim]
00:18:18,080 –> 00:18:20,960
And on top of the fact is that if two separate owners

475 [Melvin Lim]
00:18:20,960 –> 00:18:23,480
after decoupling, and owning one property each,

476 [Melvin Lim]
00:18:23,480 –> 00:18:25,800
and they are both salaried professionals,

477 [Melvin Lim]
00:18:25,800 –> 00:18:27,160
having CPF contribution

478 [Melvin Lim]
00:18:27,160 –> 00:18:28,840
into their ordinary account every month,

479 [Melvin Lim]
00:18:28,840 –> 00:18:31,480
what is going to happen in that investment property

480 [Melvin Lim]
00:18:31,480 –> 00:18:34,680
is that for example, if this mortgage is $4K a month,

481 [Melvin Lim]
00:18:34,680 –> 00:18:36,960
and they have $1,260 coming into the OA,

482 [Melvin Lim]
00:18:36,960 –> 00:18:38,840
that $1,260 will definitely be going

483 [Melvin Lim]
00:18:38,840 –> 00:18:40,760
into paying off the mortgage.

484 [Melvin Lim]
00:18:40,760 –> 00:18:44,160
And you have then, that $2,800

485 [Melvin Lim]
00:18:44,160 –> 00:18:45,240
that you have to take care of.

486 [Melvin Lim]
00:18:45,240 –> 00:18:48,200
If your rental, if it’s a $4K monthly instalment,

487 [Melvin Lim]
00:18:48,200 –> 00:18:51,040
your rental is let’s say, for example, $3,500.

488 [Melvin Lim]
00:18:51,040 –> 00:18:52,800
That $3,500, after netting off

489 [Melvin Lim]
00:18:52,800 –> 00:18:54,440
that $2,800 you have to cover

490 [Melvin Lim]
00:18:54,440 –> 00:18:57,480
will still give you a $700 cash access,

491 [Melvin Lim]
00:18:57,480 –> 00:19:00,040
and you can use that $700 to pay off the MCST fee of $300,

492 [Melvin Lim]
00:19:00,040 –> 00:19:02,560
you can still keep a $400.

493 [Melvin Lim]
00:19:02,560 –> 00:19:04,760
And thus, that is the mindset of owners

494 [Melvin Lim]
00:19:04,760 –> 00:19:07,360
that are owning two properties, husband and wife,

495 [Melvin Lim]
00:19:07,360 –> 00:19:09,560
kind of modular basis.

496 [Melvin Lim]
00:19:09,560 –> 00:19:11,600
Let’s look at maybe another profile.

497 [Melvin Lim]
00:19:11,600 –> 00:19:12,600
Let’s say for example,

498 [Melvin Lim]
00:19:12,600 –> 00:19:15,520
singular investor, already has their own property.

499 [Melvin Lim]
00:19:15,520 –> 00:19:17,120
Let’s say he or she bites the bullet

500 [Melvin Lim]
00:19:17,120 –> 00:19:20,920
to buy a second property during maybe 2020 or 2021.

501 [Melvin Lim]
00:19:20,920 –> 00:19:22,920
In order to buy a second property,

502 [Melvin Lim]
00:19:22,920 –> 00:19:25,960
firstly you have to bite the bullet to pay ABSD,

503 [Melvin Lim]
00:19:25,960 –> 00:19:27,720
which back then was 12%.

504 [Melvin Lim]
00:19:27,720 –> 00:19:29,560
And you bite the bullet, you pay 12%,

505 [Melvin Lim]
00:19:29,560 –> 00:19:31,760
on top of the Buyer’s Stamp Duty of 3%-4%,

506 [Melvin Lim]
00:19:31,760 –> 00:19:33,520
you already sunk in 15%

507 [Melvin Lim]
00:19:33,520 –> 00:19:35,520
to pay the Additional Buyer’s Stamp Duty,

508 [Melvin Lim]
00:19:35,520 –> 00:19:36,480
and Buyer’s Stamp Duty.

509 [Melvin Lim]
00:19:36,480 –> 00:19:39,720
On top of that, you can only loan 45% from the bank,

510 [Melvin Lim]
00:19:39,720 –> 00:19:42,600
which means you have to come up with 55% down payment.

511 [Melvin Lim]
00:19:42,600 –> 00:19:45,000
And because of the fact that you come up with 55% down payment,

512 [Melvin Lim]
00:19:45,000 –> 00:19:47,080
your monthly instalment is going to be so little,

513 [Melvin Lim]
00:19:47,080 –> 00:19:49,760
because you’re only leveraging 45% on the bank.

514 [Melvin Lim]
00:19:49,760 –> 00:19:52,560
And because of that, that enhances the safety net,

515 [Melvin Lim]
00:19:52,560 –> 00:19:54,440
and there’s no reason for this investor

516 [Melvin Lim]
00:19:54,440 –> 00:19:56,880
holding that second property to fire sell their property

517 [Melvin Lim]
00:19:56,880 –> 00:19:59,240
because they only have such a little mortgage to pay.

518 [Melvin Lim]
00:19:59,240 –> 00:20:01,320
And let’s have a look at the key difference.

519 [Melvin Lim]
00:20:01,320 –> 00:20:03,960
If it is a $1.2 mil property,

520 [Melvin Lim]
00:20:03,960 –> 00:20:05,840
75% loan will mean that your monthly instalment

521 [Melvin Lim]
00:20:05,840 –> 00:20:06,640
is this amount.

522 [Melvin Lim]
00:20:06,640 –> 00:20:08,120
$1.2 mil property,

523 [Melvin Lim]
00:20:08,120 –> 00:20:10,000
45% loan will mean that your monthly instalment

524 [Melvin Lim]
00:20:10,000 –> 00:20:10,840
is only this amount.

525 [Melvin Lim]
00:20:10,840 –> 00:20:13,800
And if you already had the ability to pay 55% down,

526 [Melvin Lim]
00:20:13,800 –> 00:20:15,880
12% Additional Buyer’s Stamp Duty, 3% BSD

527 [Melvin Lim]
00:20:15,880 –> 00:20:19,360
you already had 55% + 12% + 3%.

528 [Melvin Lim]
00:20:19,360 –> 00:20:22,360
And that formulates a total of 70%.

529 [Melvin Lim]
00:20:22,360 –> 00:20:24,200
If you’re somebody that has 70%

530 [Melvin Lim]
00:20:24,200 –> 00:20:26,520
to pay a $1.2 mil purchase

531 [Melvin Lim]
00:20:26,520 –> 00:20:27,800
as a second property investment,

532 [Melvin Lim]
00:20:27,800 –> 00:20:29,880
I don’t think the instalment is going be an issue for you.

533 [Melvin Lim]
00:20:29,880 –> 00:20:31,760
So with that scenario,

534 [Melvin Lim]
00:20:31,760 –> 00:20:33,200
I don’t think this singular investor

535 [Melvin Lim]
00:20:33,200 –> 00:20:34,640
is going to fire sale the property

536 [Melvin Lim]
00:20:34,640 –> 00:20:36,440
in the event if interest rates were to increase,

537 [Melvin Lim]
00:20:36,440 –> 00:20:38,920
because that would not have a significant impact

538 [Melvin Lim]
00:20:38,920 –> 00:20:40,000
on the monthly instalment.

539 [Melvin Lim]
00:20:40,000 –> 00:20:41,160
And if I were to take

540 [Melvin Lim]
00:20:41,160 –> 00:20:43,640
this singular investor’s second property to highlight here.

541 [Melvin Lim]
00:20:43,640 –> 00:20:47,760
Having that 45% out of the $1.2 mil loan,

542 [Melvin Lim]
00:20:47,760 –> 00:20:49,920
based on let’s say 1.5% interest rate,

543 [Melvin Lim]
00:20:49,920 –> 00:20:52,360
vis-a-vis 2.5% interest rate,

544 [Melvin Lim]
00:20:52,360 –> 00:20:55,280
the instalment increment is only so insignificant.

545 [Melvin Lim]
00:20:55,280 –> 00:20:57,680
And that is just a marginal increase,

546 [Melvin Lim]
00:20:57,680 –> 00:20:59,160
which definitely this investor

547 [Melvin Lim]
00:20:59,160 –> 00:21:01,160
with a 70% down payment ability

548 [Melvin Lim]
00:21:01,160 –> 00:21:02,840
can definitely easily take care of

549 [Melvin Lim]
00:21:02,840 –> 00:21:05,360
by just renting out this property, very easily.

550 [Melvin Lim]
00:21:05,360 –> 00:21:08,720
With that, let’s come back to that scenario again.

551 [Melvin Lim]
00:21:08,720 –> 00:21:12,120
So this time round, when interest rates increase further,

552 [Melvin Lim]
00:21:12,120 –> 00:21:14,880
what is going to happen to our real estate prices?

553 [Melvin Lim]
00:21:14,880 –> 00:21:17,280
I think that we have to really consider

554 [Melvin Lim]
00:21:17,280 –> 00:21:19,200
the third aspect that we kicked off

555 [Melvin Lim]
00:21:19,200 –> 00:21:20,040
at the start of this video,

556 [Melvin Lim]
00:21:20,040 –> 00:21:22,200
is that if you are timing the market,

557 [Melvin Lim]
00:21:22,200 –> 00:21:24,480
let me bring out these nine scenarios for you.

558 [Melvin Lim]
00:21:24,480 –> 00:21:26,680
So back here at PLB, we just did this,

559 [Melvin Lim]
00:21:26,680 –> 00:21:28,360
through one of our sessions with our guys,

560 [Melvin Lim]
00:21:28,360 –> 00:21:31,400
because we run this module called 777 Series,

561 [Melvin Lim]
00:21:31,400 –> 00:21:33,080
where we talk about investment concepts,

562 [Melvin Lim]
00:21:33,080 –> 00:21:35,360
property investment concepts deeply with our guys.

563 [Melvin Lim]
00:21:35,360 –> 00:21:37,040
And we study that week after week

564 [Melvin Lim]
00:21:37,040 –> 00:21:38,480
in order to grow ourselves together.

565 [Melvin Lim]
00:21:38,480 –> 00:21:40,720
So we came up these nine different scenarios.

566 [Melvin Lim]
00:21:40,720 –> 00:21:42,360
For example, somebody that’s planning

567 [Melvin Lim]
00:21:42,360 –> 00:21:44,280
to buy a $1 mil property,

568 [Melvin Lim]
00:21:44,280 –> 00:21:47,560
what is going to be the opportunity cost and outcome,

569 [Melvin Lim]
00:21:47,560 –> 00:21:49,800
if we wait or we enter the market?

570 [Melvin Lim]
00:21:49,800 –> 00:21:51,200
So we came up with this permutation,

571 [Melvin Lim]
00:21:51,200 –> 00:21:55,640
$1 mil property, based on a 1.5% interest rate,

572 [Melvin Lim]
00:21:55,640 –> 00:22:00,280
and we projected outcome of 2.5% interest rate towards 2023.

573 [Melvin Lim]
00:22:00,280 –> 00:22:02,280
So based on $1 mil property,

574 [Melvin Lim]
00:22:02,280 –> 00:22:04,400
if price were to stay the same,

575 [Melvin Lim]
00:22:04,400 –> 00:22:06,320
and the reason for doing this projection

576 [Melvin Lim]
00:22:06,320 –> 00:22:07,200
is that we want to see,

577 [Melvin Lim]
00:22:07,200 –> 00:22:10,320
should we buy now or should we wait until 2023

578 [Melvin Lim]
00:22:10,320 –> 00:22:11,520
when interest rates increase,

579 [Melvin Lim]
00:22:11,520 –> 00:22:15,240
to try and gamble and see if the price will come down.

580 [Melvin Lim]
00:22:15,240 –> 00:22:18,240
And if we do this projection, out of the nine scenarios,

581 [Melvin Lim]
00:22:18,240 –> 00:22:19,600
price remains the same,

582 [Melvin Lim]
00:22:19,600 –> 00:22:21,880
price dropped by 5%,

583 [Melvin Lim]
00:22:21,880 –> 00:22:23,200
price dropped by 10%,

584 [Melvin Lim]
00:22:23,200 –> 00:22:24,960
price dropped by 15%,

585 [Melvin Lim]
00:22:24,960 –> 00:22:27,160
price dropped by 20%,

586 [Melvin Lim]
00:22:27,160 –> 00:22:30,440
and following which price increased by 5%, 10%, 15%, 20%.

587 [Melvin Lim]
00:22:30,440 –> 00:22:33,520
These nice scenarios, what is the probability?

588 [Melvin Lim]
00:22:33,520 –> 00:22:35,240
Now, based on these nice scenarios,

589 [Melvin Lim]
00:22:35,240 –> 00:22:37,560
we’re going to write down all the breakeven prices

590 [Melvin Lim]
00:22:37,560 –> 00:22:39,200
on the right hand side for you to have a look,

591 [Melvin Lim]
00:22:39,200 –> 00:22:42,760
meaning that compared to buying now at $1 mil,

592 [Melvin Lim]
00:22:42,760 –> 00:22:44,120
at 1.5% interest rate,

593 [Melvin Lim]
00:22:44,120 –> 00:22:46,320
vis-a-vis the nine scenarios later,

594 [Melvin Lim]
00:22:46,320 –> 00:22:48,600
what will be our risk and opportunity cost?

595 [Melvin Lim]
00:22:48,600 –> 00:22:50,560
So if you were to have a look at this,

596 [Melvin Lim]
00:22:50,560 –> 00:22:52,200
the only winning case

597 [Melvin Lim]
00:22:52,200 –> 00:22:55,520
is only if the price drops significantly

598 [Melvin Lim]
00:22:55,520 –> 00:23:00,160
by at least 15% to 20%, for me to see a savings.

599 [Melvin Lim]
00:23:00,160 –> 00:23:02,160
And when we calculate the breakeven price,

600 [Melvin Lim]
00:23:02,160 –> 00:23:04,920
we calculate based on the entry price of $1 mil,

601 [Melvin Lim]
00:23:04,920 –> 00:23:06,560
plus Buyer’s Stamp Duty,

602 [Melvin Lim]
00:23:06,560 –> 00:23:08,840
based on the purchase price of the nine different scenarios,

603 [Melvin Lim]
00:23:08,840 –> 00:23:11,360
based on the interest rate cost,

604 [Melvin Lim]
00:23:11,360 –> 00:23:14,040
holding for the next 25 years.

605 [Melvin Lim]
00:23:14,040 –> 00:23:16,720
And what this gives us is that we want to see

606 [Melvin Lim]
00:23:16,720 –> 00:23:20,280
what is the breakeven cost of the different scenarios,

607 [Melvin Lim]
00:23:20,280 –> 00:23:21,720
based on the entry price

608 [Melvin Lim]
00:23:21,720 –> 00:23:24,960
and the entry interest rate that we’re entering to in 2023.

609 [Melvin Lim]
00:23:24,960 –> 00:23:28,040
And the only way for us to win is that we have to gamble

610 [Melvin Lim]
00:23:28,040 –> 00:23:30,560
and bet on the fact that price is going to collapse

611 [Melvin Lim]
00:23:30,560 –> 00:23:32,040
by at least 15% to 20%.

612 [Melvin Lim]
00:23:32,040 –> 00:23:34,560
Because other than that, all other scenarios

613 [Melvin Lim]
00:23:34,560 –> 00:23:37,200
basically are unfavourable to wait.

614 [Melvin Lim]
00:23:37,200 –> 00:23:38,880
Meaning that if we were to just take a gamble

615 [Melvin Lim]
00:23:38,880 –> 00:23:40,360
for the next one year and we wait,

616 [Melvin Lim]
00:23:40,360 –> 00:23:44,960
anything that would be happening in this 66% to 70% range,

617 [Melvin Lim]
00:23:44,960 –> 00:23:46,880
it will be more unfavourable,

618 [Melvin Lim]
00:23:46,880 –> 00:23:49,320
compared to me entering the market right now.

619 [Melvin Lim]
00:23:49,320 –> 00:23:52,680
So based on that, why do we want to take a gamble?

620 [Melvin Lim]
00:23:52,680 –> 00:23:54,120
And that is something for us to think about.

621 [Melvin Lim]
00:23:54,120 –> 00:23:57,000
Because if we are to just bang on this probability

622 [Melvin Lim]
00:23:57,000 –> 00:24:00,400
of about 30%, what will be the risk that would be involved

623 [Melvin Lim]
00:24:00,400 –> 00:24:02,680
and what would be the opportunity cost to you as well?

624 [Melvin Lim]
00:24:02,680 –> 00:24:03,840
One more thing to take note of

625 [Melvin Lim]
00:24:03,840 –> 00:24:05,880
is that then what about this one year?

626 [Melvin Lim]
00:24:05,880 –> 00:24:06,920
Where are you at?

627 [Melvin Lim]
00:24:06,920 –> 00:24:09,400
Are you maybe bunking in with your parents,

628 [Melvin Lim]
00:24:09,400 –> 00:24:10,840
or are you renting a place

629  [Melvin Lim]
00:24:10,840 –> 00:24:12,680
and paying rental for your landlord?

630  [Melvin Lim]
00:24:12,680 –> 00:24:15,800
O r are you, let’s say delaying entering the market

631 [Melvin Lim]
00:24:15,800 –> 00:24:17,120
by holding onto your property?

632 [Melvin Lim]
00:24:17,120 –> 00:24:18,640
And of course, if you have followed us,

633 [Melvin Lim]
00:24:18,640 –> 00:24:20,040
we also mentioned a lot of times

634 [Melvin Lim]
00:24:20,040 –> 00:24:21,600
that if you are moving to a bigger property,

635 [Melvin Lim]
00:24:21,600 –> 00:24:24,040
it’s better to move to a bigger property first

636 [Melvin Lim]
00:24:24,040 –> 00:24:26,080
compared to staying put at your own property

637 [Melvin Lim]
00:24:26,080 –> 00:24:27,360
while monitoring the market.

638 [Melvin Lim]
00:24:27,360 –> 00:24:29,400
Because bigger properties move much faster

639 [Melvin Lim]
00:24:29,400 –> 00:24:30,680
than smaller properties.

640 [Melvin Lim]
00:24:30,680 –> 00:24:32,800
So based on that, the three things just to recap.

641 [Melvin Lim]
00:24:32,800 –> 00:24:34,880
We look at facts, figures, and charts.

642 [Melvin Lim]
00:24:34,880 –> 00:24:36,680
Second thing, we talk about the mindset,

643 [Melvin Lim]
00:24:36,680 –> 00:24:37,920
disposition effect,

644 [Melvin Lim]
00:24:37,920 –> 00:24:40,880
loss aversion effect of homeowners, home buyers,

645 [Melvin Lim]
00:24:40,880 –> 00:24:43,960
thirdly, based on these nine different permutations,

646 [Melvin Lim]
00:24:43,960 –> 00:24:45,560
and of course your own preference

647 [Melvin Lim]
00:24:45,560 –> 00:24:46,840
in terms of time preference,

648 [Melvin Lim]
00:24:46,840 –> 00:24:48,680
in terms of family preferences,

649 [Melvin Lim]
00:24:48,680 –> 00:24:50,000
in terms of investment preference,

650 [Melvin Lim]
00:24:50,000 –> 00:24:51,800
should you wait or should you not wait?

651 [Melvin Lim]
00:24:51,800 –> 00:24:54,360
So we hope that this episode on interest rates helps you,

652 [Melvin Lim]
00:24:54,360 –> 00:24:55,280
adds value to you.

653 [Melvin Lim]
00:24:55,280 –> 00:24:56,560
And once again, my name is Melvin Lim.

654 [Melvin Lim]
00:24:56,560 –> 00:24:58,160
Thank you for staying on Nuggets On The Go,

655 [Melvin Lim]
00:24:58,160 –> 00:25:00,160
we hope to see you soon on the next episode, take care.