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]

00:06:32,760 –> 00:06:34,240

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]

00:07:14,320 –> 00:07:15,400

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]

00:08:03,000 –> 00:08:05,000

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]

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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.

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00:08:48,680 –> 00:08:51,920

Will this round have the same effect as in the past?

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00:08:51,920 –> 00:08:54,600

Because what we’re trying to answer is that this time round

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00:08:54,600 –> 00:08:56,040

interest rate is going to rise,

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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,

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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?

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00:09:12,400 –> 00:09:14,680

And then what should I do as a Singaporean,

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00:09:14,680 –> 00:09:17,240

or what should I do as an investor in Singapore?

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00:09:17,240 –> 00:09:18,040

Should I buy?

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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,

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00:09:35,160 –> 00:09:37,920

when should we enter the market, when should we not?

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00:09:37,920 –> 00:09:40,520

So let me just clear this out of the picture first.

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Firstly, when we bring back this chart

244 [Melvin Lim]

00:09:42,680 –> 00:09:44,440

with about 15 to 16 factors,

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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,

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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,

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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,

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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,

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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

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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.

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00:10:39,800 –> 00:10:41,520

So we have come out with this brand new chart

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00:10:41,520 –> 00:10:44,480

to ascertain CPI inflation

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00:10:44,480 –> 00:10:48,480

in relation to asset inflation on landed properties.

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00:10:48,480 –> 00:10:50,720

So although we are looking at CPI inflation

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00:10:50,720 –> 00:10:53,080

of about 5% in the past month,

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00:10:53,080 –> 00:10:55,320

the actual fact is that in the past two years,

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00:10:55,320 –> 00:10:59,120

asset inflation on particular regions of landed properties

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00:10:59,120 –> 00:11:01,280

and this particular type of landed property

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00:11:01,280 –> 00:11:02,400

just for example and showcase,

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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,

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00:11:09,480 –> 00:11:11,000

and compared to CPI inflation,

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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,

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00:11:16,320 –> 00:11:19,240

and looking back at this entire list of factors,

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00:11:19,240 –> 00:11:22,400

interest rates is just one of the 16 factors

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00:11:22,400 –> 00:11:23,720

that we need to consider,

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00:11:23,720 –> 00:11:26,120

on what grounds real estate in Singapore.

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00:11:26,120 –> 00:11:28,160

Because the very reason why Singapore

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00:11:28,160 –> 00:11:30,240

might possibly behave differently

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00:11:30,240 –> 00:11:31,920

can be so many different factors.

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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,

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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.

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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

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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

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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.