View from a prudent home buyer

Dear Mr Tan,
Thank you for giving advise to the public and in a selfless manner. I fully agreed with you.

In fact, I had been visiting show flats since Lehman Brother collapse and also talking to banks to survey the ground. My conclusion is, it's scary and if you are not careful, you will get into trouble when things go wrong. Let me explain further, my wife and me are in our 40s, consider to be middle income, all the banks encouraged us to take a loan of around $2M and up to 70 years old.

I really laughed out when those bank advisers work out the numbers for me. Then some showed me a "black" face when I asked them how am I going to earn my present income when I get to 55 or 60 years old even if I like to, to support a high loan repayment every month?

They have no answer for me, some say property price will continue to go up. Ha, what goes up must come down, Newton's Law. Most of these banks are very young people, in their 20s, I wonder if they really know or out to earn high commissions.

My conclusion after this one year of "shopping" is one needs to be prudent, don't expect the banks to do that.

I have not buy any property yet because I see a bubble is forming across Asia. Many people do not understand how much interest they are paying by stretching their loans to maximum years. My experience previously is for the first 5 years or so, 75% of the monthly payment goes into servicing the interest and the balance goes into paying the actual loan.

So a 25 years loan or longer will mean one is paying more than 50% compared to buying with cash. And there's no certainty that one will continue to have a job in this era and property is an illquid investment especially when market crash, there will be few or no buyers when you most need to sell.

I wrote such a long message because I'm very worried for many s'poreans, looking at the recent euphoria and property prices. How many had given a thorough and serious thought about planning for their retirement? I remembered that someone once said that most s'porean are asset rich but cash poor.

I had seen several distress cases happening to my friends and colleagues, when they faced negative equity. The bank either had them to top up the difference or takeover the property which they lost $300K to $500K in 1998. I don't know how many people really think it's possible that the property they bought now can drop more than 30%.

I hope you will be able to educate the Singapore public, the banks will not do that.