Every day, 99.co takes a piece of property jargon and demystifies it. Today, we’re looking at the concept of a buyers’ market, or sellers’ market:
What is a buyers’ market?
A buyer’s market refers to a situation where the supply of available properties exceeds the demand for housing.
An example of this was late 2018, when private home sales fell 16.7 per cent, while new launches rose 46 per cent. At the same time however, Singapore was experiencing one of its lowest population growth results in decades, and the number of foreign workers dropped (this reduces demand for rental housing).
A buyers’ market is an ideal time to buy a property, or to sign a lease as a tenant. You will likely be able to secure the house at a lower price, as landords and sellers are competing for a smaller pool of prospects.
At the same time, landlords may see longer vacancies or lower rental income. Sellers will have fewer interested buyers, and may be forced to drop their price.
What is a sellers’ market?
In essence, it is the reverse of a buyers’ market. This is when the demand for properties exceeds the available supply. This is an ideal condition for sellers; buyers are forced to outbid one another to secure a property purchase, thus driving up potential gains.
A sellers’ market is also referred to as a renters’ market, for two reasons. First, the lack of supply means tenants – like buyers – are forced to make higher offers for accommodation. Second, some buyers will choose to delay their property purchase until a buyers’ market comes around again. This can cause them to seek temporary accommodation (i.e. rent) until the market changes.
However, note that specific locations can act contrary to the overall market
Just because a country is currently in a buyers’ or sellers ‘market, that doesn’t mean all properties will follow the trend. For example, consider an area such as Holland Village. Even if most of Singapore is in a buyers’ market, it’s possible for this area to remain a sellers’ market.
This is because it’s a mature area desired by many, but the available housing options aren’t increasing (the area is already so developed, it’s hard to squeeze more units in). As such, prices here can remain high, even if Singapore is technically in a buyers’ market.
In fact, one of the main reasons for buying luxury or centrally located properties is to inure your asset in buyers’ markets. It doesn’t matter how many more condos they build, if none of the supply can replace your condo location in Orchard Road.
As such, don’t assume that a buyers’ market means all properties will start going for cheap, or vice versa for a sellers’ market.
How do you tell if it’s a buyers’ or sellers’ market?
If you hear terms such as “supply overhang”, or “oversupply”, odds are you’re seeing a buyers’ market.
Poor economic data also sometimes (but not always) suggests an incoming buyers’ market. This is because, as an economy turns bad, more people tend to leave than arrive. For example, when large companies turn cautious, they may stop bringing in highly paid expatriates, or cut housing allowances. This raises the availability of units for rent.
Likewise, many people back off from property purchases during downturns, or sell their houses and downgrade because they lost their jobs, no longer earn enough fro their business, etc. This can cause a spike in supply.
The inverse is true for a sellers’ market, as it often indicates more people crowding in to an area; or it can mean that wage growth is high, and buyers have started to compete for properties they can now afford. Or it can also mean prospects in Singapore are good, so more people want to live here (hence raising rental demand, and the value of property as an asset).
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For genuine home buyers, don’t put too much stock into market timing
Purchase the home that you love, when your personal finances allow. The main determinant should be affordability and comfort, rather than concerns about whether you’re in a buyers’ or renters’ market.
Trying to time the property market is very difficult, as you are required to make two right decisions, not just one. Not only do you have to correctly identify a buyers’ market when purchasing, you also need to identify a sellers’ market when upgrading, reselling, etc. If you get the timing for one correct, chances are you will get the second one wrong.
Also, each property is in a unique situation (e.g. some houses can sell well even in a buyers’ market due to unique features, like HDB maisonettes). This makes it even harder to guess whether the buyers’ market / sellers’ market will impact your property transaction.
by Ryan OngSource: 99.co (04 Jun 2019)