When a working person buys a very expensive property, he is enslaved for life. He has to work hard and long hours to earn sufficient income to meet the monthly payment over a period of 30 years - which is almost the entire working life. The worker cannot afford to be unemployed, as the monthly payment still has to be made, or the debt will mount, leading to high interest charges. Many people are highly stressed by this heavy burden and uncertainty.
There is a view that most people have bought their property earlier at lower prices, and the recent increase in price has enhanced the value of their assets. This is mostly an illusion. As they own only one property, they are not able to sell the property (to unlock its value) as they still need a place to stay. They also have to find someone to buy the property at the high price, and the next buyer will then be enslaved for life.
The people who benefit from the property bubble are the foreigners who are able to sell their property at the higher price, pocket the profits and return to their countries to buy a property at a modest price. The local Singaporeans have to carry the lifetime burden of the expensive property.
I hope that Singaporeans know the difference between a fair value and an inflated value from a property. They should not chase property prices at its inflated value, hoping to make a profit from its further inflation. The property bubble will burst and cause great financial hardship on them.
I also hope that our government leaders will take measures to bring property prices down to a reasonable multiple of the average earnings. As existing properties are over-priced, they have now to create a new market for a different type of "affordable" properties, which are not subject to the normal market forces. Let the consumers decide which market they wish to "invest" in.
Tan Kin Lian
In Singapore's context it is 'modern slavery' under the pretext of being property owners.
ReplyDeleteWholelife insurance too..you are stuck once you get in and it becomes more difficult when you drag deeper. This is intended idea of wholelife to trap you for whole life. Yes you can quit and in fact the insurers hope you quit becuase their liability is over when you quit and yet they get to keep the orphan money.So don't fall for it. There are many things the agents and the insurer conspire to conceal.
ReplyDeleteEG, this is one of the many that are NOT disclosed or told to you.
When a claim is made the insurer keeps your cash value, ie they don't pay you the cash value.Think about it.You can ask your so called sincere and trusted insurance agent.
"As existing properties are over-priced, they have now to create a new market for a different type of "affordable" properties, which are not subject to the normal market forces. Let the consumers decide which market they wish to "invest" in."
ReplyDeleteI agree this is a workable step the responsible govt should seriously look into and implement to rein in HDB property prices which had reached unhealthy levels.
Yes, most of the time, we have the perception that the monthly installment is only certain percentage of your monthly income, so it should be OK to make the purchase. But by having this kind of perception, we are actually analyzing the past but not the future. I think this is one very important aspect for a lot of failures, i.e, the assumption of past performance "guarantee" future performance, which is not true in this dynamic world. Well, it is almost impossible to predict the future accurately, hence do think twice before making any big commitments. Personally, I do not like to use any kind of installments for any purchase, but it is really tough to buy a house without any loans. However, my conservative advice is not to commit any big purchase unless we can make at least 50% of the purchase price.
ReplyDeleteAnd the biggest HDB joke of all is that you are not even an "owner" but just a "lessee".
ReplyDeleteYou see, when you buy a private property whether 99-yr or freehold, you sign a document called Sales & Purchase Agreement.
But when you buy a HDB, you sign a document called Agreement For Lease.
HDB resale prices increased by 46% from 2006 to 2009. This is similar to US property market from 2004 to 2006. If we're not careful, we will all re-live the 1997/98 Asian Financial Crisis. Then people who bought HDB flats in 2009 will have to wait until 2022 to break even just on the selling price.
yes, they should start the sell and buy back same price segment so the prices can be so much lower may be at cost of construction. I think it will be very popular.
ReplyDeleteDear Mr Tan,
ReplyDeleteMay I know that if indeed the Govt create such a market for low cost housing, at what price you envisage the owner to sell it at when they wish to upgrade to a bigger flat? The same low price? If that's the case, why would someone want to put money into an asset that is not expected grow?
Also, I am not sure that only foreigners can reap the benefits of housing price increase because the equity built up can be realised via downsizing (after children moves out) or Govt-run reverse mortgage scheme.
- TMG
Very well written Mr Tan...I like to reproduce your article in my blog.
ReplyDeleteI agree totally and question "why should the majority of Singaporeans be "enslaved for life" too?
Systems exist to serve the people, not to enslave them, as I had wrote in this blog before.
Note :
In Leviathan, Hobbes set out his doctrine of the foundation of states and legitimate governments - based on social contract theories...
Beginning from a mechanistic understanding of human beings and the passions, Hobbes postulates what life would be like without government, a condition which he calls the state of nature. In that state, each person would have a right, or license, to everything in the world. This inevitably leads to conflict, a "war of all against all" (bellum omnium contra omnes), and thus lives that are "solitary, poor, nasty, brutish, and short".
To escape this state of war, men in the state of nature accede to a social contract and establish a civil society. According to Hobbes, society is a population beneath a sovereign authority, to whom all individuals in that society cede their natural rights for the sake of protection...
In this context the majority of us cede our natural rights on land ownership, in this social contract...not forgetting the Govt accumulates its land bank through compulsory acquisitions at cheap prices...we naturally shoud expect protection in the form of a "roof" at affordable price.
I support your call in the the final paragraph...there is a way to create a new market for affordable HDB flats...especially that HDB flats are leases as many had said...and we as a whole had ceded away our rights to land ownership...if not for the existence of a Govt...and we have a "right and licence" to do so in in this social contract.
Q "I also hope that our government leaders will take measures to bring property prices down to a reasonable multiple of the average earnings. As existing properties are over-priced, they have now to create a new market for a different type of "affordable" properties, which are not subject to the normal market forces. Let the consumers decide which market they wish to "invest" in. UQ
Reply to TMG
ReplyDeleteI have given some suggestion about the pricing of the "affordable housing" previously. The price is determined at a certain proportion of the average wage. The national average is then adjusted for size, location, floor and other factors.
The price will increase in future according to the increase in national wage bu twill depreciate according to the reduction in the remaining lease period.
If there is more demand, the housing will be allocated by ballot. But, the government should be ready to build more housing to meet the demand.
More housing should also be made available for rental.
Thanks, Mr. Tan for the explanation. I'll probably give such housing a miss because I want to see my net worth grow through my residential home so that I can use them at old age when I downsize.
ReplyDelete4.55pm, I think the key is the new segment would provide a choice. if it is based on construction cost, I would buy one cause based on the current 99 years lease, one is renting anyway. So I prefer to rent till I have earned enough to upgrade to private property.
ReplyDeleteThe underlying issue is that the rewards of senior civil servants need to be moved away from being dependent on (raising) GDP. Otherwise, it is only natural that they will pursue policies that favour raising GDP (such as importing foreign labour/ price & asset inflation) which all else being equal, mean higher GDP.
ReplyDeleteFor example, 10 people needs to have 10 dinners at $5 each. GDP impact is $50. Import 2 more people and your GDP grows to $60, even if these 12 people are loafers who do nothing but sleep the whole day.
Mr Tan,
ReplyDeleteThe whole problem is the govt does not see it as an important priority to protect its own citizens. It is also a very myopic behavior as as you rightly point out when foreigners with the money cash out and return to their homeland they actually take away our wealth with them and ironically leave another person, most likely a Singaporean to carry the burden. The govt allows this in the name of some pseudo-market price finding its own level. We have a very naive govt indeed if we give it the benefit of the doubt. Bottomline, Singaporeans' welfare and interest is at the BOTTOM OF GOVT'S PRIORITIES, OUR INTEREST IS SIMPLY OF THE LEAST INTEREST TO A GOVT WHO CONSTANTLY BOAST OF ITS ABILITY AND CARE FOR ITS CITIZENS!
Is there any way to find out how many properties our MPs and policy makers had before this great inflation in property prices and how many properties they are left with now?
ReplyDeleteIn Singapore, you will voluntarily enslave yourself if you;
ReplyDeletea) stretch yourself to buy the biggest property you can "afford"
b) Insists on sending your children to the "elite" schools. And doing well in your school exams.
Freedom starts with your mind.
Think global. Why fight over this tiny speck of land?
You think the incumbent elites will just roll-over and kow-tow to you and your children from the HDB heartlands ... just because your children managed to score distinctions in his/her "A" levels?
The entire world out there is waiting for you.
Leave if you want to, leave if you must. Never stay just because you can.
Great analysis presented in plain and simple terms Mr Tan.
ReplyDeleteDon't blame the foreigner to get the benefit from the property bubble, they invest their money with RISK.
ReplyDeleteWhy don't you guys blame WHO make all the prices go up and get the benefit of it with talking only, the percentage of fee for rent and commission for selling for them is crazy compared to other country.
Always live within your means! never outstretch your savings and enslave yourself by committing to expensive flats.
ReplyDeleteYou may end up living in a "MONEY TRAP WORLD" and be trapped in you so called Pigeon Hole.
Paying over inflated price may mean NO RETIREMENT joy! ....Work till you drop dead with mounting debts for your next of kin to shoulder. What a WILL with DEBTS???
Go read your HDB TITLE DEEDs and remember you are "LESSEE" only and owner - the HDB. Lots of rules and restrictions that make people want to buy Private properties!
ReplyDeleteMany a time "Lessees" are mistaken as HDB owners.....think about it brother!
My former neighbour's HDB greeted with O$P$ signage! It gives me a chill too.