Saturday, September 12, 2009

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.

3 comments:

Anonymous said...

I think MND and HDB will keep prices going up by limiting supply and making it easier to buy. With more and more PRs entering the market, it's not easy for prices to crash.

Anonymous said...

Dear Mr. Tan,
I fully agreed with the writer as I ended up from a upper middle income earner to be unemployed at 50 for 7 years now, I was prudent in buying properties so by the time I was unemployed with a post graduate degree, I have paid off all my hoisng loans.

I bought 3 properties (not owned 3 properties as at todate). First was bought in 1985 during Singapore recession where properties crashed closed to 40% so I picked up my first private condo at 40% discount from the peak. I bought the second property in 1990 during the fist gulf war when the property price has corrected after the run up since the 1985 recession. I sold the first property in 1993 when the property was running up again though not at the peak. I bought the third property in 1999, just after the Asian financial crisis after prices have corrected 40%.

I did not buy during this current crisis as the duration was short plus I am unemployed so I need to conserve cash in liquid form. I did look around for opportunities and the prices are crazy. Agents are selling outlying 99 years low end condo at over 1,000 to 1200 psf and tell people to get a loan of 1 million for 900 sq ft of pigeon size apartment. If you get a 1 million loan for 20 years, it will be 2 million in repayment. For a couple, it means over 4,000 each in monthly repayment or 2 to 3 k in cash each. This is not sustainable! There is no point to be a house slave for the rest of your life. It is better to apply for a HDB unit for 300 to 400k from HDB for young couple and in future, if they have savings and make a lot of money, by all mean upgrade then. This will be my advice to my children.

Anonymous said...

I am not working [2.5 yrs] and part of the PMET pool. Only left with a $1.6k private loan for a EM HDB and a 5 yrs old car debt of $18k.

With kids growing up, consistantly you are faced with upgrading of house/car requests. Reading TKL site and feedback from members help me to be realistic.

I guess the best thing I learned in this troubled time is how to say "NO". So if one day you wish to upgrade the 2 most expensive items, do your sum and over stretching is very painful if it did not workout especially when the govt will not look after middle age people.

They hope you go compete with foreigners like clean table and wash toilet at $400 a month while they draws $130,000 a month.
Imagine a $130,000 a month man telling the another equaly qualified man to compete with foreigners for $400 a month and vote for him at the same time.

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