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How and Where to Invest In A Buyers Market

With inflation gripping the global housing market, interest rates have skyrocketed causing many to wonder if the property market would crash, but signs are indicating a buyers market. In Singapore, where home ownership is high (90%), 55% now plan to delay plans to buy a home whilst 24% are considering dropping their plans to buy a home at all. In America, there is a buyer-seller standoff because prices have become too unaffordable for the former. In Australia, where availability of rental vacancies are now at its lowest since before the pandemic, interest rates are being passed in full to home loan customers. Globally, higher living and borrowing costs are slowing demand and pushing down house prices. 

As house prices adjust and the market becomes more favourable for buyers, a common impulse for investors is to hold back from investing because of fear. Understandably, the media’s constant coverage of high interest rates has further amplified  fear. However, it is very possible to grow wealth in the current climate, just as in times of crisis. As we enter into the buyers market phase, here’s how and where to invest to grow wealth.

Proven Game Plan: How to Invest?

Astute investors know the best opportunities abound during these times, in anticipation of house prices going back up. But it is with the right strategies that investors are able to adapt to current market conditions, identify the best opportunities early and make educated decisions that maximise returns and minimise risks. Now, more than ever, investors need to understand investment fundamentals and have a proven property game plan to avoid making mistakes that can cost them a fortune. 

The most basic yet fundamental and influential factor affecting capital and rental growth is demand. Demand for property in key locations will keep growing and undersupply will put pressure on prices as tenants compete for a place to rent.

We highlight some of the key approaches from CSI PROP’s G.O.L.D.M.I.N.E. Strategies © to help you decide where to invest for the best returns.

The CSI PROP GOLDMINE Strategy for Exponential Growth is part of a proven game plan that guides property investors to build their property portfolio and grow wealth even in tough times.
CSI PROP’s GOLDMINE Strategies © for Exponential Growth is part of our Proven Property Game Plan that guides property investors to build their property portfolio and grow wealth even in tough times.
  1. Demand for Housing 

It is a simple but profound law of economics that scarcity drives price growth. Housing demand is the most influential driver of capital and rental growth. Because of oversupply, capital and rental growth has been depressed in the Malaysian housing market. Unless their property is located in a high demand area and purchased at a very good price, landlords need to be innovative in their approach in order to get tenants. The UK, however, has a long history of housing undersupply as housing targets remain consistently unmet due to strict planning legislation. This undersupply has snowballed over the years as the population increases—half the UK’s population increase since 2011 has been from positive net migration. With lockdown restrictions now lifted, immigrants and foreign students are coming back to the UK again and flooding the market with fresh demand for housing.

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From the late 1980s, the UK government’s retreat from building houses in addition to strict planning legislation, the supply of housing had failed to meet government targets. For example, the government estimated in 2007 that they would need to build 240,000 homes annually until 2016 to meet demand, but housing completions fell drastically after the credit crunch. The government then needed to build 300,000 homes annually by the mid-2020s but by 2019, new supply was only at 220,000 houses. The undersupply continues to snowball. Image credit & source: Economics Help & ONS 2022
From the late 1980s, the UK government’s retreat from building houses in addition to strict planning legislation, the supply of housing had failed to meet government targets. For example, the government estimated in 2007 that they would need to build 240,000 homes annually until 2016 to meet demand, but housing completions fell drastically after the credit crunch. The government then needed to build 300,000 homes annually by the mid-2020s but by 2019, new supply was only at 220,000 houses. The undersupply continues to snowball. Image credit & source: Economics Help & ONS 2022
  1. Growth of Capital

Capital growth is very much influenced by demand. Typically, property values increase over time, but factors such as large scale recessions or mortgage rates (indirect effect), can affect the rate of capital growth or price of the property, although prices in strong housing markets will only experience slower growth or small fluctuations in price. It is important in this case to look at long term growth alongside annual/ monthly/ quarterly growth to have a better and more complete idea of capital growth trends. 

Looking at longer term growth allows us to view recent and short-term events more objectively. For example, Singapore has dominated the headlines with its recession-defying property price growth in the last 2 years, but in annual terms, its performance has been between 1% - 3%. Source: HM Land & Registry, data.gov.sg, hdb.gov.sg, Federal Reserve Bank of St Louis. Note: Data up to Q4 2022 except Aus & Japan
Looking at longer term growth allows us to view recent and short-term events more objectively. For example, Singapore has dominated the headlines with its recession-defying property price growth in the last 2 years, but in annual terms, its performance has been between 1% – 3%. Source: HM Land & Registry, data.gov.sg, hdb.gov.sg, Federal Reserve Bank of St Louis. Note: Data up to Q4 2022 except Aus & Japan
  1. 0 (Zero) or breakeven cash flow  

Investing in the right area can ensure that returns are higher than expenses so that you never find yourself in a negative cash flow situation. In high growth areas like Manchester, where housing demand exceeds supply and house prices are relatively more affordable (unlike London), rental rates were high enough to cover expenses through crisis times like Brexit and the pandemic, and continued to go up even during times of uncertainty. 

Case study of a client’s investment into Mount Yard in Manchester. Source: CSI PROP data
Case study of a client’s investment into Mount Yard in Manchester. Source: CSI PROP data
  1. Low Vacancy Rates  

Investors looking for consistent rental income  in addition to capital growth  should pay attention to vacancy rates. A low/ tight vacancy rate (or high occupancy rate) signals high housing demand, which translates to higher rental price growth and lower void periods for landlords. Robust demand for rental housing from both locals and immigrants alike drive occupancy rates to 96% and above in cities like Manchester, Salford, London and Birmingham, and Melbourne and Sydney. Rental vacancies are tight in these cities, driving rental income for investors. 

Although housing markets are currently facing higher occupancies and tighter vacancies due to increased demand and slowdown of construction from the pandemic years, cities like Berlin, Manchester and London have had tight vacancy rates even before the pandemic because of the strong population and job growth, and low housing supply. Note: Data for Berlin, Singapore, US, Aus updated up to 2022. Hong Kong & UK updated to 2021 and Kuala Lumpur updated to 2020. Source: Department for Levelling Up, Housing and Communities and Ministry of Housing, Communities & Local Government (UK), Urban Redevelopment Authority (Sg), Engles & Voelkers (Berlin), Rating & Valuation Department (HK), US Census Bureau & Federal Reserve Bank of St Louis (US), SQM Research (Aus), Department of Statistics Malaysia & malaysianow.com (KL)
Although housing markets are currently facing higher occupancies and tighter vacancies due to increased demand and slowdown of construction from the pandemic years, cities like Berlin, Manchester and London have had tight vacancy rates even before the pandemic because of the strong population and job growth, and low housing supply. Note: Data for Berlin, Singapore, US, Aus updated up to 2022. Hong Kong & UK updated to 2021 and Kuala Lumpur updated to 2020. Source: Department for Levelling Up, Housing and Communities and Ministry of Housing, Communities & Local Government (UK), Urban Redevelopment Authority (Sg), Engles & Voelkers (Berlin), Rating & Valuation Department (HK), US Census Bureau & Federal Reserve Bank of St Louis (US), SQM Research (Aus), Department of Statistics Malaysia & malaysianow.com (KL)
  1. No Barriers to Entry  

Barriers to entry refers to regulatory measures that make investing difficult or not profitable. For example, many foreigners were unable to invest in the booming New Zealand property market some years back because the government had a closed door policy towards foreign property investors. Singapore, which has seen strong property growth, has had multiple cooling measures, the latest of which include increased Buyers Stamp Duty and Additional Buyers Stamp Duty, and the tightening of the Total Debt Servicing Ratio, which means foreigners pay up to 30% upfront on taxes. Compare this to the UK, where stamp duties for foreign investors is about 6% for a property worth £300,000.

Singapore, which has seen strong property growth, is the perfect illustration for barriers to entry. The city-nation has endured multiple cooling measures, the latest of which include increased Buyers Stamp Duty and Additional Buyers Stamp Duty, and the tightening of the Total Debt Servicing Ratio, which means foreigners pay up to 30% upfront on taxes. Source: URA, Business Times Sg
Singapore, which has seen strong property growth all these years, is a good illustration on the barriers to entry for investment. The city-nation has endured multiple cooling measures, the latest of which include increased Buyers Stamp Duty and Additional Buyers Stamp Duty, and the tightening of the Total Debt Servicing Ratio, which means foreigners pay up to 30% upfront on taxes. Source: URA, Business Times Sg


Where is the Best Place to Invest?

As of Feb 2023, houses in Stockholm sold for 20% less than their peak. Sydney prices have fallen almost 14% YOY, San Francisco prices are down by 15%, Auckland by almost 22% and Toronto by 16%. Germany registered its biggest six-month price falls for 2 decades while a 5%-7% decline is expected in France this year. 

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Thus, the UK’s house price falls of 4.2% since the peak in Aug 2022 look pretty mild in comparison!
Still, depending who you speak to, house prices are either going to “crash”, “correct” or have a “soft landing”. With the possibility of a recession ahead, we expect house prices to go through a reset—especially after the extraordinary house price growth (induced by super-low interest rates) of the past couple of years! 

The UK is a nation of renters. The cult of home ownership only really took off in the 20th century, but the deterioration of housing affordability has caused home ownership rates to fall. Inflation of food and energy prices has compounded the issue as expenses are aimed at necessities. Source & image credit: Economics Help & ONS
The UK is a nation of renters. The cult of home ownership only really took off in the 20th century, but the deterioration of housing affordability has caused home ownership rates to fall. Inflation of food and energy prices has compounded the issue as expenses are aimed at necessities. Source & image credit: Economics Help & ONS

Bearing in mind how the housing market has frequently defied expectations, the strength of the UK’s housing market compared to all the other housing markets, is clearly underpinned by undersupply. Not enough houses have been built to accommodate a booming population, causing demand to constantly outstrip supply. No surprises then that RICS (Royal Institute of Chartered Surveyors UK) Feb 2023 survey forecasts rents continuing to rise due to this significant imbalance. 

Of course, tax incentives and financing margins play a big role in ensuring better returns. Tax incentives are a great boost for your returns. In the UK, the SDLT nil-rate threshold was increased from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland, offering huge savings upfront. Conversely, Australia imposes high stamp duties on foreign buyers, and these vary from state to state.

In Singapore financing margins are typically lowered to 40%-50% for the purchase of your second property and depending on tenure and age, whilst in the UK, lenders lend up to 70%. Whilst banks in Australia have passed on the interest rate increase to home loan customers, there is comfort in the knowledge that UK lenders are reducing mortgage rates since their peak in Oct 2022 as they compete for business, despite yet another interest rate hike by the Bank of England. 

In conclusion, now is when you will find the best opportunities for investment. If there’s anything Brexit or the pandemic has taught us, it is that a recession or a crisis is the best time to get great bargains. Just be sure to have a Proven Property Game Plan. 

Join our upcoming webinar to learn more about global property trends and how to invest in property through both good and challenging times by clicking on the link here: https://bit.ly/3SEliTU


By Vivienne Pal 


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