Other than speculators and gamblers, there is another term that is used for buyers who purchased homes during this time. Commonly known as fear of missing out or FOMO in short, it is a form of social anxiety caused when others are in on the action while you are not. With the advent of social media, there is an explosion in the opportunities where this anxiety can be presented. For example, you may have friends or relatives posting about having dined in an excellent restaurant. Or taking that Instagram worthy vacation photo. As a result of their actions, you have an itchy feeling in your heart to eat at the same place or book a trip to the exact destination.
What Is FOMO?
FOMO is not something new. Even intellectuals like Sir Isaac Newton can fall victim to the effects of this phenomenon. The reason is simple; FOMO stems from a part of Abraham Maslow’s hierarchy of needs. Back in 1943, Maslow suggested that humans have five basic needs categories. The reason why the needs are organized in a hierarchical format is that Maslow felt that you need to “satisfy” your lower needs before progressing to a higher one. I am quite sure you had seen this diagram somewhere before on the internet or studied them in school.
FOMO Is A Form Of An Esteem Need
As such, I will not go into the individual needs of each category. Instead, I will just point out that FOMO belongs to what Maslow defines as esteem needs. Esteem is a need where we need to feel good about ourselves, to be respected and powerful. Take the example of the recent hoarding of toilet paper in this pandemic. Toilet paper is technically not a basic need because there is more than one way to clean your butt. However, it is the possession of what is not made available to others that will make people feel more powerful and warm and fuzzy about themselves.
The same thing can be said about private property in Singapore. Now, to purchase private property in Singapore is not easy. Condo prices are costly in our tiny island, and only a select population of 20% stay in private homes. So being able to afford a private property is a small feat and will command a certain amount of respect from your peers. Once the available supply in the market starts to dwindle rapidly, that is when everyone starts to jump in. Why? Because there is psychological anxiety that ownership of a private home will now be impossible.
When Does FOMO Happen in Real Estate?
Unlike bubble tea, egg tarts, or even your McDonald’s stuffed Hello Kitties, there is a significant entry price to real estate in Singapore. You cannot just incite demand via a social media viral post. Or get an influencer to focus on the issue. The demand must come from the consumers who can fund that purchase over a significant time frame of 20 to 30 years. Hence, for real estate to reach FOMO status, there must be a phase where consumers are not getting into the market. I like to call this phase the “Fear of Getting In’. Or FOGI in short. These consumers are waiting on the sidelines, and over time, their numbers accumulate. At a certain inflexion point, this sideline demand will exceed the current supply available. When all these buyers start to react, that is how we get FOMO in real estate.
Is There FOMO Now in The Real Estate Market?
So, the question is this. Is there currently FOMO in the market right now? The economy is in terrible shape, and unemployment is rising. How come the property market is still as resilient as before? Is it because people buying because they want to satisfy their hierarchy of needs? Or is there a real reason for this demand? How I answer this question is similar to my research into why buyers are purchasing the Treasure at Tampines. Always look at the numbers. And instead of looking at data from a specific district, I will compile the information across the entire island.
Demand Is Inconsistent. There Are Always Buyers Waiting At The Sidelines.
As you can see from the Square Foot Research graph, demand is not consistent on a month to month basis. Take June 2015; for example, total volume was only at 1455 units. Transactions climbed up to 2700 units the next month in July 2015 before going back down to 1499 units in August 2015. This information tells us that there is a pool of buyers who are always ready in the market. How they react largely depends on two things. Are they able to find something that matches their requirements which is a form of natural demand? Or are they jumping in because of the social anxiety caused by the fear of missing out?
FOGI Comes Before FOMO. FOMO Comes Before Cooling Measure.
How I define the difference between these two types of demand is by referring to historical events. Firstly, we have the government’s cooling measure that tells you that we are almost reaching FOMO. Secondly, before that happens, there is always a growing demand or FOGI.
From July 2010 to July 2013(this is as far as the data allows me to check), there was extraordinarily strong demand for private housing. Out of these 36 months, there are ten months where sales exceeded 3000 units. There were even three months that exceeded 4000 transactions. You can define this as your classic case of FOMO. This is also the time where property agents do not need to do anything much, and all they need to do is to “take order”. As a result of this FOMO, the government stepped in and introduced the TDSR, which was one of the most effective measures to date.
The cooling measure was so effective that it resulted in volume dropping below the 1000-unit mark. The 1000-unit can be defined as the baseline demand in the market. These are the people who need to transact no matter what the circumstances are. Then, of course, you have the rest of the buyers who will shy away from the market. That is also the beginning of FOGI.
What comes next is no surprise, and we have FOMO all over again. Of course, this is also contributed by all the activity in the en-bloc market by those looking for replacement homes. I believe the magic number, in this case, is 2500. With several months exceeding this number, the government stepped in again and introduced the latest measure.
Which Stage Are We in Right Now? FOMO, FOGI, Equilibrium?
After looking at past trends, you should be able to interpret the graph by yourself and arrive at a conclusion. Are we living in a time of FOMO or FOGI? You decide. Some people will tell you that timing is the most critical entry point when it comes to real estate. What they are referring to is the elasticity of demand for specific product types. In times of FOGI, it is possible to grab hold of a property with an excellent entry price and then sell them during times of FOMO for a profit. However, this rule is still a general guide. In my earlier article, I have shown you that it is possible to profit from times of both FOGI and FOMO. At the same time, purchasing the “incorrect” property type during times of FOGI may not necessarily be profitable. To understand how the pricing mechanism works in real estate, just book a video call appointment with us and we will share this information with you. Meanwhile, stay safe, do your research, and always look at the numbers!
Article contributed by Jerry Wong
Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment and Jerry will share with you the following.
- How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
- Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
- Understanding your requirements and craft a solution for your real estate needs. Be it in the form of asset progression, tax planning, financial calculations, rentals, sales, etc.
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