Ways to avoid buyers’ remorse

The desire for owning private residential properties have been so overwhelming in recent years especially in 2011 where the set of government property cooling measures implemented in January 2011 did not completely rein homebuyers’ optimism. This partly prompted the Singapore government to introduce the Additional Buyers’ Stamp Duty (ABSD) on 7 December 2011, the second set of cooling measures in 2011.

Although homebuying interest was overall positive in 2011, there were also concerns whether that desire and homebuyers who committed were being rational, including some who may have stretched affordability thresholds and committed to a purchase for fears of possible further price increase. There may be even some who ‘regretted’ the decision, in the aftermath of the purchase. This could be particularly so as 2012 may be a challenging year and together with the latest cooling measures implemented, private property prices can potentially correct downwards.

Split Second Decision Leads to Buyers’ Remorse
Even if buyers’ today are generally more educated and savvy, there were indeed buyers who could not escape the fate of ‘impulse buying’. Some of the buyers may have made the decision due to concerted efforts by sellers to enchant the buyer, such as exquisite show flats and chancing upon beautifully designed properties when viewing, further encouraging ‘split second buying decisions’. Some homebuyers may also have committed on impulse, partly as ironically, the long search and information built on to the thirst of property ownership. As one continues the house hunt, the resistance level may also fall. This is also when one succumbs in order get the innate property purchase desire out of the system.

How to minimize buyers’ remorse?
For a buyer who committed to a private residential purchase on impulse, remorse can follow. The regret will be even significant if the purchase eats into his affordability level, or if he felt that he had paid a high price for a property which may not necessarily deliver the envisaged value. These include some who felt in the aftermath of buying that they might have paid too much for new designs and products. Alternatively, there are buyers who regretted if he purchased a property at a tradeoff from his original property requirements, in order to fit his budget. These include smaller or odd shaped properties, or older properties which have physically deteriorated. The reason he succumbed in short, is either due to allure or abruptness in his decision to simply end the home search.

Perhaps, what is very essential for a buyer to avoid such an ending is to be very sure about what he is looking for in a property in the very initial stage. He will have to question his objectives of buying the property, for sale or investment, as well as his property ownership horizon.

It will be also crucial to be truthful about his own affordability including considering contingencies for his personal financing in the course of his mortgage. With a conscientious effort to understand and note his ‘yes’ and ‘no’ to a property purchase, he can potentially avoid losing his direction in the course of his home search. Ideally, the home seeker should have a good understanding of the immediate locality of the home he is viewing. This is especially essential for those who decide to venture to another corner of Singapore where he is not familiar with. He has to understand its accessibility and the micro market opportunities from upcoming plans.

Buyers who saw fanciful show flats need not be skeptical about whether the real product will be similar but more importantly, to ask himself how necessary these features are to him, particularly if this is indeed the reason for his budget to be grossly exceeded.

Even having done the psychological checklist, it may still be difficult for the home seeker to resisttemptations. But this is the very least he can do. Without the preparation and personal psychological reminder, the risk to give in may be higher.

Are regrets for real?
On top of tackling ways to help buyers to avoid succumbing to temptations, it may be more important instead to address the emotions of homebuyers who are already in ‘remorse’. Very often, the remorse develops as a result of a material change in economic conditions, for example currently where the worldwide uncertainties are challenging the fate of Singapore’s economy and residential properties. The pessimist is likely to be in misery if he can foresee or feel that his property value will be adjusted downwards considerably, e.g. 10% in a year, should prices overall correct. But it will also be essential to recognize that property ownership is by now almost a medium to longer term affair, especially where substantial sellers’ stamp duty will be required if the property is resold in the next four years. Hence the property owner who saw an instant dip in his property value should remain hopeful that his property price can recover in 4 years’ time or probably, increase in excess of his purchase price.

For those who are regretting the impulsive decision, it may not be end of the game. As we know, there are in fact some buyers have over analyzed their home purchase such that they missed the opportunity. There would be some cases where a split second decision can turn into a lifelong blessing if the buyer can hold and weather through the obstacles, eventually enjoying the fruits of his decision.

Since property ownership is likely to be a medium to longer term affair for many, there may be spinoffs for the property from district rejuvenation plans. Even if no major plans are announced, there are possibilities for remote areas to have some physical enhancements down the road as the remoteness is the very premise for growth and revitalization. If this happened, the buyer may reverse his situation as one who discovered unpolished gems.

Maintaining optimism
It is easier said than practiced to avoid buyers’ remorse. The very means to avoidance is to prepare oneself in the event of psychic draws to a property purchase and nothing beats than understanding one’s limits, requirements and the property he is purchasing. Of course, the better side of the story now is that since prices can potentially ease in 2012, there should be fewernew cases of buyers’ remorse.

For buyers who may somehow have regretted the purchase, it will be pertinent to endeavor in the purchase and avoid selling when the property prices dip, such as in 2012, unless one is financially strapped with no alternatives for revival. After all, property cycles are inevitable in the course of a longer term property ownership horizon, and the survival of the fittest may potentially be rewarded. The key to mitigate the remorse is to remain steadfast in his property purchase, in so long as financing avenues and capacity are still possible.

In cases where one experience financing problems, it is essential to question if this is short term and if he can come up with ways to overcome this. This includes leasing or partial leasing out the apartment which is owner occupied, including at slightly competitive rentals for the short term to ease in financing difficulties although it must be stressed that especially in this challenging economic context, how well the property will be received will depend on the primary property attributes and fundamentals.

Ong Kah Seng, Director, R’ST Research